WD-40 Sees A Spike In Sales

By Ryan C. Fuhrmann | April 12, 2010 AAA

Small-cap consumer goods firm WD-40 Company (Nasdaq:WDFC) reported strong sales and earnings results during its fiscal second quarter. Growth trends should continue to improve as global consumer demand recovers. Additionally, the company is highly profitable, has more cash than debt on the balance sheet, and generates excess capital that it uses to repurchase shares and support a current 3% dividend yield.
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Second-Quarter Highlights
WDFC sales jumped 30.3% to $80.6 million on a very healthy 39.4% increase in the multi-purpose maintenance product division that includes the namesake lubricant. The segment accounted for 81.4% of total sales while the homecare and cleaning products segment, which includes eight brands such as Lava soap and Carpet Fresh, reported a modest 1.1% rise in sales to account for the remaining quarterly total.

Sales to the Americas accounted for 54.9% of sales for the quarter, Europe accounted for 35.9% and the fast-growing Asia Pacific region made up 9.6% of sales. Management cited strong sales so far this year in all three geographic segments and said the sales boost has consisted of organic growth based on increased demand, as opposed to price increases or foreign-exchange benefits.

Gross margins improved to 52.4% of sales as oil and other commodity prices have remained stable. Other cost increases lagged the percentage rise in sales and allowed a more than doubling of net income to $10.7 million, or an impressive 13.3% of sales. Diluted earnings per share shot ahead to 64 cents, up from 25 cents in last year's quarter.

Management boosted its forward guidance as a result of the robust sales and profit trends. It now expects full-year sales between $308 million and $321 million while earnings should come in between $1.92 and $2.01 per diluted share. This would represent top line growth of at least 5.5% and an earnings improvement of at least 21.5%. (Learn about the controversies surrounding companies commenting on their forward-looking expectations in Can Earnings Guidance Accurately Predict The Future?)

Bottom Line
WD-40's earnings came in well ahead of analyst expectations, and the stock rose after the results were announced because of the outperformance and increase in forward guidance. The shares now trade at a forward price-to-earnings ratio of approximately 18. This isn't an overly lofty multiple, but it is ahead of large-cap consumer goods rivals such as Clorox (NYSE:CLX) and Unilever (NYSE: UN) (NYSE: UL) that trade at 14.9 times and 13.6 times, respectively. Prestige Brands (NYSE:PBH) is a small-cap rival but has much higher debt levels than WD-40, though it is trading at a modest forward P/E of 11.6 that somewhat accounts for this higher risk profile.

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