Filed Under:
Tickers in this Article: WDFC, UN, UL, PG, CLX
Small capitalization consumer goods firm WD-40 Corp. (Nasdaq:WDFC) reported third-quarter earnings on Wednesday that came in well above analyst projections. Despite the good news, at current share price levels larger rivals are more appealing investment options. IN PICTURES: How To Make Your First $1 Million

Third-Quarter Recap
WD-40's Sales jumped 20% to $82.6 million. Flagship multi-purpose maintenance products shot ahead 29.2% to account for 82% of total sales and included strong results from the namesake, 3-IN-ONE, and BLUE WORKS brands. Other product sales in its homecare and cleaning products fell 10%.

Geographically, sales to the Americas accounted for 56.3% of total sales while European sales brought in 32.7% of the total pie and Asia Pacific 11%. Management boasted of "solid, steady growth in almost all of our geographic markets throughout the year" and highlighted that sales outside of the U.S., which have been targeted as a primary growth driver, now account for 53% of sales.

Lower product costs sent gross margins up slightly to 51.2% of sales. This was slightly offset by a 6.8% increase in advertising and sales promotion expenses, and a 26.8% jump in SG&A costs. Overall, operating income improved 17% to $13 million, or a very healthy 16% of sales. Lower interest expense helped the bottom line grow 32% to $9.1 million, or 54 cents per diluted share.

WD-40 expects full-year sales to grow between 7.2% and 9.2% to a range of $313 million to $319 million. Earnings should come in between $34.4 million and $36 million, or $2.05 to $2.14 per diluted share. (Learn about the controversies surrounding companies commenting on their forward-looking expectations in Can Earnings Guidance Accurately Predict The Future?)

Bottom Line
The company's earnings exceeded analyst expectations. The stock has jumped approximately 6% since the earnings announcement and now trades at a forward P/E multiple of 17.5. The high multiple reflects WD-40's healthy profit margins and international growth prospects, but doesn't price in much downside should growth prospects fail to pan out as planned.

The volatile top-line trends of the past couple of years are a case in point, and though global growth is improving, a lower valuation would better take this downside risk into consideration. Larger-cap rivals such as Clorox (NYSE:CLX), Procter & Gamble (NYSE:PG) and Unilever (NYSE:UN) (NYSE:UL) trade at slightly lower forward multiples and are also more appealing for their geographic and product diversity.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center