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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.

Outlook
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.

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