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WD-40 Company Reports Third Quarter 2015 Financial Results

07/08/15

~ Foreign currency exchange headwinds obscure solid underlying business performance and results
~ ~ Management updates previously issued fiscal year 2015 guidance

SAN DIEGO, July 8, 2015 /PRNewswire/ -- WD-40 Company (NASDAQ:WDFC), a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world, today reported financial results for its third fiscal quarter ended May 31, 2015.

Financial Highlights and Summary

  • Total net sales for the third quarter were $92.5 million, a decrease of 3 percent compared to the prior year fiscal quarter. Year-to-date total net sales were $286.2 million, a slight increase compared to the prior year fiscal period.   
  • Translation of the Company's foreign subsidiary results to U.S. dollars had an unfavorable impact on sales for the current quarter and year to date.  On a constant currency basis total net sales would have been $96.5 million for the third quarter and $292.9 million year to date.
  • Net income for the third quarter was $11.0 million, an increase of 5 percent compared to the prior year fiscal quarter. Year-to-date net income was $33.1 million, an increase of 3 percent from the prior year fiscal period.
  • Diluted earnings per share were $0.75 in the third quarter, compared to $0.69 per share for the prior year fiscal quarter. Year-to-date diluted earnings per share were $2.24 compared to $2.10 in the prior year fiscal period.
  • Gross margin was 53.3 percent in the third quarter compared to 51.4 percent in the prior year fiscal quarter.  Year-to-date gross margin was 52.5 percent compared to 51.6 percent in the prior year fiscal period.
  • Selling, general and administrative expenses were down 1 percent in the third quarter to $26.6 million when compared to the prior year fiscal quarter.  Year-to-date selling, general and administrative expenses were up 1 percent to $81.4 million compared to the prior year fiscal period. 
  • Advertising and sales promotion expenses were down 15 percent in the third quarter to $5.5 million compared to prior year fiscal quarter.  Year-to-date advertising and sales promotion expenses were down 6 percent to $16.9 million compared to the prior year fiscal period. 

"Foreign currency exchange headwinds and political and economic instability in Eastern Europe continue to adversely impact and distort the true strength of our business," said Garry Ridge, WD-40 Company's president and chief executive officer. "Our net sales results in the third quarter were negatively impacted by foreign currency issues, particularly in our EMEA segment, as well as significantly reduced sales in our distributor markets in Ukraine and Russia. We experienced strong sales growth in the Americas segment during the third quarter due to increased distribution and promotional activities.  Our Asia-Pacific segment is on track for a great year despite an isolated product quality issue linked to a defective aerosol can component contained in our WD-40 Multi-Use Product sold within our Asian distributor markets.  This product quality issue caused sales levels to be lower during the third quarter."

"Although foreign currency exchange rate fluctuations across Europe as well as the political and economic instability in Eastern Europe negatively impacted our reported sales in EMEA, nearly all of our EMEA direct markets are seeing organic sales growth in their local currencies.  While we expect we will continue to see fluctuations in the performance of certain markets quarter to quarter, our long-term growth plans remain unchanged," continued Ridge.  

 

Net Sales by Product Group (in thousands):



Three Months Ended May 31,


Nine Months Ended May 31,


2015


2014


%
Change


2015


2014

%
Change

Multi-purpose maintenance products

$

81,512


$

84,817



(4)%


$

253,005


$

252,607


-

Homecare and cleaning products


10,973



10,833



1%



33,164



32,768


1%

Total

$

92,485


$

95,650



(3)%


$

286,169


$

285,375


-


















 

  • Net sales of multi-purpose maintenance products, which are considered the primary growth focus for the Company, decreased 4 percent in the third fiscal quarter but remained relatively constant year to date when compared to the prior fiscal year periods.  The decline in the third quarter was driven primarily by the unfavorable impact of foreign currency exchange rates in EMEA and an isolated product quality issue that was linked to a specific product sold within our Asian distributor markets.
  • Net sales of homecare and cleaning products increased 1 percent for both the current quarter and year to date when compared to the prior fiscal year periods. The homecare and cleaning products, particularly those in the U.S., are considered harvest brands providing healthy profit returns to the Company and are becoming a smaller part of the business as net sales of multi-purpose maintenance products grow per the execution of the Company's strategic initiatives. 

 

Net Sales by Segment (in thousands):



Three Months Ended May 31,


Nine Months Ended May 31,


2015


2014


%
Change


2015


2014

%
Change

Americas

$

49,744


$

45,096



10%


$

139,219


$

134,366


4%

EMEA


30,335



36,678



(17)%



103,605



111,305


(7)%

Asia-Pacific


12,406



13,876



(11)%



43,345



39,704


9%

Total

$

92,485


$

95,650



(3)%


$

286,169


$

285,375


-


















 

  • Net sales by segment as a percent of total net sales for the third quarter were as follows: for the Americas, 54 percent; for EMEA, 33 percent; and for Asia-Pacific, 13 percent.
  • The increase in sales in the Americas in the third quarter was primarily driven by strong growth of both WD-40 Multi-Use Product and WD-40 Specialist sales throughout the segment including double digit growth of both categories in the United States. 
  • The decrease in sales in EMEA in the third quarter was primarily driven by unfavorable impacts of foreign currency exchange rates, primarily in the Company's euro-based direct markets, as well as decreased sales in the Company's distributor markets in Eastern Europe due to political and economic instability in Ukraine and Russia.  On a constant currency basis EMEA sales for the third quarter would have decreased by $3.3 million or 9% compared to the prior year fiscal year period.
  • The decrease in sales in Asia-Pacific in the third quarter was primarily due to a 28 percent decrease in sales of multi-purpose maintenance products in the Company's Asian distributor markets. This decrease was due to an isolated product quality issue linked to a defective aerosol can component that was contained in WD-40 Multi-Use Product sold to marketing distributors in various countries in Asia during the third quarter. The Company recorded allowances to reverse these sales in the amount of approximately $0.9 million.  Although these markets were negatively impacted by this product quality issue in the third quarter, the issue was isolated and has been addressed. 

Dividend and Share Repurchase
As previously announced, WD-40 Company's board of directors declared on Tuesday, June 23, 2015 a quarterly dividend of $0.38 per share payable July 31, 2015 to stockholders of record at the close of business on July 17, 2015.

On October 14, 2014 the board of directors approved a share repurchase plan. The plan became effective at the beginning of the third quarter of fiscal year 2015. Under the plan, the Company is authorized to acquire up to $75.0 million of its outstanding shares through August 31, 2016. The timing and the amount of any repurchases of common stock will be determined by management based on its evaluation of market conditions and other factors. During the period from March 1, 2015 through May 31, 2015, the Company repurchased $11.3 million in shares under this plan.

Updated Fiscal Year 2015 Guidance

  • The Company's updated guidance for fiscal year 2015 is as follows:
  • Net sales growth is projected to be flat to 2 percent with net sales expected to be between $383 million and $390 million.
  • Gross margin for the full fiscal year is expected to be better than 52 percent. 
  • Projected advertising and promotion expenses to be 6.0 percent to 7.0 percent of net sales. 
  • Net income is projected to be between $44.5 million and $45.4 million.
  • Expect diluted earnings per share to be between $3.03 and $3.09 based on an estimated 14.7 million weighted average shares outstanding.

This guidance does not include any future acquisitions or divestitures and is based on recent foreign currency exchange rates. 

"We've adjusted our full year guidance and it reflects the continued impact of foreign currency exchange movements as well as the macroeconomic and political challenges in Eastern Europe," said Jay Rembolt, WD-40 Company's vice president and chief financial officer.  "Although some level of foreign currency exchange volatility had been built into our previous guidance, it is difficult to project for how long and to what depth our fiscal year results will be impacted."

Webcast Information
As previously announced, WD-40 Company management will host a live webcast at approximately 5:00 p.m. ET / 2:00 p.m. PT today to discuss these results. Other forward-looking and material information may also be discussed during this call.  Please visit http://investor.wd40company.com for more information and to view supporting materials. 

About WD-40 Company
WD-40 Company is a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world. The Company markets its multi-purpose maintenance products and its homecare and cleaning products under the following well-known brands: WD-40®, 3-IN-ONE®, GT85®, X-14®, 2000 Flushes®, Carpet Fresh®, no vac®, Spot Shot®, 1001®, Lava® and Solvol®.  

Headquartered in San Diego, WD-40 Company recorded net sales of $383 million in fiscal year 2014 and its products are currently available in more than 176 countries and territories worldwide. WD-40 Company is traded on the NASDAQ Global Select market under the ticker symbol "WDFC." For additional information about WD-40 Company please visit http://www.wd40company.com.

Forward-Looking Statements
Except for the historical information contained herein, this press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect the Company's current expectations with respect to currently available operating, financial and economic information.  These forward-looking statements are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated in or implied by the forward-looking statements.

Our forward-looking statements include, but are not limited to, discussions about future financial and operating results, including:  growth expectations for multi-purpose maintenance products; expected levels of promotional and advertising spending; plans for and success of product innovation, the impact of new product introductions on the growth of sales; anticipated results from product line extension sales; and forecasted foreign currency exchange rates and commodity prices.  Our forward-looking statements are generally identified with words such as "believe," "expect," "intend," "plan," "could," "may," "aim," "anticipate," "estimate" and similar expressions. 

The Company's expectations, beliefs and forecasts are expressed in good faith and are believed by the Company to have a reasonable basis, but there can be no assurance that the Company's expectations, beliefs or forecasts will be achieved or accomplished.  

Actual events or results may differ materially from those projected in forward-looking statements due to various factors, including, but not limited to, those identified in Part I?Item 1A, "Risk Factors," in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2014, and in the Company's Quarterly Report on Form 10-Q for the period ended May 31, 2015 which the Company expects to file with the SEC on July 9, 2015.

All forward-looking statements included in this press release should be considered in the context of these risks. All forward-looking statements speak only as of July 8, 2015, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Investors and prospective investors are cautioned not to place undue reliance on our forward-looking statements.

 

Table Notes and General Definitions

(1)

The Company markets multi-purpose maintenance products under the WD-40®, GT85® and 3-IN-ONE® brand names. Currently included in the WD-40 brand are the WD-40 Multi-Use Product and the WD-40 Specialist® and WD-40 BIKETM product lines.

(2)

The Company markets the following homecare and cleaning brands:  X-14® mildew stain remover and automatic toilet bowl cleaners, 2000 Flushes® automatic toilet bowl cleaners, Carpet Fresh® and no vac® rug and room deodorizers, Spot Shot® aerosol and liquid carpet stain removers, 1001® household cleaners and rug and room deodorizers and Lava® and Solvol® heavy-duty hand cleaners.

(3)

The Americas segment consists of the U.S., Canada and Latin America.

(4)

The EMEA segment consists of countries in Europe, the Middle East, Africa and India.

(5)

The Asia-Pacific segment consists of Australia, China and other countries in the Asia region.

(6)

Constant currency represents the translation of the current quarter and year-to-date results from the functional currencies of the Company's subsidiaries to U.S. dollars using the exchange rate in effect for the corresponding periods of the prior fiscal year. 

 

WD-40 COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except share and per share amounts)








May 31,


August 31,


2015


2014

Assets






Current assets:






Cash and cash equivalents

$

46,917


$

57,803

Short-term investments


48,261



45,050

Trade and other accounts receivable, less allowance for doubtful






accounts of $424 and $406 at May 31, 2015






and August 31, 2014, respectively


62,213



63,618

Inventories


33,203



34,989

Current deferred tax assets, net


5,709



5,855

Other current assets


4,066



8,339

Total current assets


200,369



215,654

Property and equipment, net


11,214



9,702

Goodwill


96,440



95,499

Other intangible assets, net


23,749



23,671

Other assets


3,262



3,154

Total assets

$

335,034


$

347,680

-






Liabilities and Shareholders' Equity






Current liabilities:






Accounts payable

$

18,502


$

18,031

Accrued liabilities


15,937



18,382

Revolving credit facility, current portion


-



98,000

Accrued payroll and related expenses


11,186



15,969

Income taxes payable


28



1,529

Total current liabilities


45,653



151,911

Revolving credit facility


108,000



-

Long-term deferred tax liabilities, net


23,142



24,253

Other long-term liabilities


2,250



2,101

Total liabilities


179,045



178,265







Commitments and Contingencies












Shareholders' equity:






Common stock ? authorized 36,000,000 shares, $0.001 par value;






19,527,923 and 19,464,310 shares issued at May 31, 2015 and






August 31, 2014, respectively; and 14,481,172 and 14,754,362 shares






outstanding at May 31, 2015 and August 31, 2014, respectively


20



19

Additional paid-in capital


140,147



136,212

Retained earnings


254,503



237,596

Accumulated other comprehensive income (loss)


(7,280)



1,103

Common stock held in treasury, at cost ? 5,046,751 and 4,709,948






shares at May 31, 2015 and August 31, 2014, respectively


(231,401)



(205,515)

Total shareholders' equity


155,989



169,415

Total liabilities and shareholders' equity

$

335,034


$

347,680













 

 

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)




Three Months Ended May 31,


Nine Months Ended May 31,



2015



2014



2015



2014













Net sales

$

92,485


$

95,650


$

286,169


$

285,375

Cost of products sold


43,213



46,511



135,963



138,005

Gross profit


49,272



49,139



150,206



147,370













Operating expenses:












Selling, general and administrative


26,640



26,887



81,424



80,237

Advertising and sales promotion


5,506



6,465



16,906



18,081

Amortization of definite-lived intangible assets


754



684



2,280



1,930

Total operating expenses


32,900



34,036



100,610



100,248













Income from operations


16,372



15,103



49,596



47,122













Other income (expense):












Interest income


113



136



425



425

Interest expense


(343)



(268)



(912)



(709)

Other expense


(444)



(11)



(1,785)



(454)

Income before income taxes


15,698



14,960



47,324



46,384

Provision for income taxes


4,733



4,554



14,240



14,179

Net income

$

10,965


$

10,406


$

33,084


$

32,205













Earnings per common share:












Basic

$

0.75


$

0.69


$

2.25


$

2.11

Diluted

$

0.75


$

0.69


$

2.24


$

2.10













Shares used in per share calculations:












Basic


14,546



14,977



14,616



15,152

Diluted


14,615



15,051



14,685



15,229

Dividends declared per common share

$

0.38


$

0.34


$

1.10


$

0.99













 

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)



Nine Months Ended May 31,


2015


2014

Operating activities:






Net income

$

33,084


$

32,205

Adjustments to reconcile net income to net cash provided by






operating activities:






Depreciation and amortization


4,824



4,337

Net gains on sales and disposals of property and equipment


(82)



(41)

Deferred income taxes


(1,229)



(330)

Excess tax benefits from settlements of stock-based equity awards


(906)



(824)

Stock-based compensation


2,205



1,942

Unrealized foreign currency exchange losses (gains), net


2,393



(159)

Provision for bad debts


214



174

Changes in assets and liabilities:






Trade and other accounts receivable


(3,787)



(3,681)

Inventories


1,078



(4,716)

Other assets


3,817



(1,616)

Accounts payable and accrued liabilities


(1,596)



21

Accrued payroll and related expenses


(5,003)



(6,924)

Income taxes payable


130



1,718

Other long-term liabilities


184



17

Net cash provided by operating activities


35,326



22,123







Investing activities:






Purchases of property and equipment


(4,068)



(3,023)

Proceeds from sales of property and equipment


420



250

Purchase of intangible assets


-



(1,789)

Acquisition of business


(3,705)



-

Purchases of short-term investments


(8,167)



(5,756)

Maturities of short-term investments


1,636



914

Net cash used in investing activities


(13,884)



(9,404)







Financing activities:






Treasury stock purchases


(25,886)



(30,482)

Dividends paid


(16,177)



(15,096)

Proceeds from issuance of common stock


1,483



1,265

Excess tax benefits from settlements of stock-based equity awards


906



824

Proceeds from revolving credit facility


10,000



20,000

  Net cash used in financing activities


(29,674)



(23,489)

Effect of exchange rate changes on cash and cash equivalents


(2,654)



2,231

Net decrease in cash and cash equivalents


(10,886)



(8,539)

Cash and cash equivalents at beginning of period


57,803



53,434

Cash and cash equivalents at end of period

$

46,917


$

44,895







 

 

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/wd-40-company-reports-third-quarter-2015-financial-results-300110520.html

SOURCE WD-40 Company

Media and Investor Contact, Wendy Kelley, investorrelations@wd40.com, 619-275-9304

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