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WD-40 Company Reports Fourth Quarter and Fiscal Year 2019 Financial Results

10/17/19
~ Fourth quarter consolidated net sales grew 4 percent in reported currency and 6 percent on a constant currency basis period-over-period

SAN DIEGO, Oct. 17, 2019 /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 fourth quarter and fiscal year ended August 31, 2019.

WD-40 Company (PRNewsFoto/WD-40 Company) (PRNewsfoto/WD-40 Company)

Financial Highlights and Summary

  • Total net sales for the fourth quarter were $106.7 million, an increase of 4 percent compared to the prior year fiscal quarter. For the full fiscal year, total net sales were $423.4 million, also an increase of 4 percent compared to the prior fiscal year.
  • Translation of the Company's foreign subsidiary results to U.S. dollars had an unfavorable impact on sales for the current quarter and full fiscal year. On a constant currency basis, total net sales would have been $109.2 million for the fourth quarter and $433.8 million for the full fiscal year.
  • Net income for the fourth quarter was $8.6 million, a decrease of 60 percent compared to the prior year fiscal quarter. For the full fiscal year, net income was $55.9 million, a decrease of 14 percent from the prior fiscal year.
  • Diluted earnings per share were $0.63 in the fourth quarter, compared to $1.54 per share for the prior year fiscal quarter. For the full fiscal year, diluted earnings per share were $4.02 compared to $4.64 in the prior fiscal year.
  • Gross margin was 54.6 percent in the fourth quarter compared to 55.2 percent in the prior year fiscal quarter. For the full fiscal year, gross margin was 54.9 percent compared to 55.1 percent in the prior fiscal year.
  • Selling, general and administrative expenses were down 3 percent in the fourth quarter to $28.7 million when compared to the prior year fiscal quarter. Selling, general and administrative expenses for the full fiscal year were up 2 percent to $123.9 million compared to the prior fiscal year.
  • Advertising and sales promotion expenses were down 9 percent in the fourth quarter to $5.9 million when compared to the prior year fiscal quarter. Advertising and sales promotion expenses for the full fiscal year were up 4 percent to $23.3 million compared to the prior fiscal year.

"In the fourth quarter, net income and diluted earnings per share were negatively impacted by an $8.7 million reserve for an uncertain tax position that we recorded, and previously disclosed, during the fourth quarter," said Jay Rembolt, WD-40 Company's chief financial officer. "Because of this adjustment, our net income is significantly lower on a year-over-year basis in both the quarter and the full fiscal year. The good news is that this a one-time charge and the high tax rate we recorded is not expected to carry into fiscal year 2020. We expect the provision for income tax to be between 20 and 22 percent in fiscal year 2020," concluded Rembolt.

WD-40 Company's chief executive officer, Garry Ridge added, "We are pleased that we achieved sales results in fiscal year 2019 which reflect another solid year for the Company. Our maintenance products delivered solid sales increases in the full fiscal year including 4 percent growth of WD-40 Multi-Use Product and 13 percent growth of WD-40 Specialist. I'd like to thank the tribe for their contributions during fiscal year 2019. The tribe has never been more aligned and focused. We are clear about our purpose and we know what we need to do to achieve our long-term goals."

Net Sales by Segment (in thousands):


Three Months Ended August 31,


Fiscal Year Ended August 31,


2019


2018


%
Change


2019


2018


%
Change

Americas

$

49,318


$

48,749



1%


$

193,972


$

192,878



1%

EMEA


36,356



36,647



(1)%



160,615



150,878



6%

Asia-Pacific


21,070



17,244



22%



68,763



64,762



6%

 Total

$

106,744


$

102,640



4%


$

423,350


$

408,518



4%



















 

  • Net sales by segment as a percent of total net sales for the fourth quarter were as follows: for the Americas, 46 percent; for EMEA, 34 percent; and for Asia-Pacific, 20 percent.
  • Net sales in the Americas were up 1 percent in the fourth quarter due entirely to higher sales of maintenance products in the United States and Canada, which increased 2 percent and 19 percent, respectively. This increase was partially offset by lower sales of maintenance products Latin America. The higher sales of maintenance products in the United States were primarily due to an increase in sales of WD-40 Specialist. The higher sales of maintenance products in Canada were primarily due to strong sales of WD-40 Multi-Use Product.
  • Net sales in EMEA decreased 1 percent in the fourth quarter primarily due to changes in foreign currency exchange rates, which had an unfavorable impact on sales for the EMEA segment from period to period. On a constant currency basis EMEA sales for the fourth quarter would have increased by $1.6 million, or 4 percent, compared to the prior fiscal year period primarily due to higher sales of WD-40 Multi-Use Product within EMEA's distributor markets. EMEA also experienced strong sales of homecare and cleaning products which increased 16 percent compared to the prior year fiscal period.
  • Net sales in Asia-Pacific increased 22 percent in the fourth quarter primarily due to a 28 percent increase in sales in the Asia distributor markets and a 22 percent increase in sales in China. The sales growth in the Asia distributor markets was primarily attributable to increased sales driven by successful promotional programs as well as the timing of customer orders in certain countries. The growth in China was due to the timing of promotional activities as well as continued growth within the e-commerce channel. Changes in foreign currency exchange rates had an unfavorable impact on sales for the Asia-Pacific segment from period to period. On a constant currency basis Asia-Pacific sales for the fourth quarter would have increased by $4.3 million, or 25 percent, compared to the prior fiscal year period.

Net Sales by Product Group (in thousands):


Three Months Ended August 31,


Fiscal Year Ended August 31,


2019


2018


%
Change


2019


2018


%
Change

Maintenance products

$

97,273


$

93,203



4%


$

386,644


$

372,391



4%

Homecare and cleaning products


9,471



9,437



-



36,706



36,127



2%

 Total

$

106,744


$

102,640



4%


$

423,350


$

408,518



4%



















 

  • Net sales of maintenance products, which are considered the primary growth focus for the Company, increased 4 percent in the fourth quarter when compared to the prior fiscal year period. This sales growth was primarily attributable to increased sales of WD-40 Multi-Use Product within the Asia-Pacific segment and increased sales of WD-40 Specialist within the Americas segment.
  • Net sales of homecare and cleaning products remained relatively constant in the fourth quarter when compared to the prior fiscal year period. 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.

Dividend and Share Repurchase
As previously announced, WD-40 Company's board of directors declared on Tuesday, October 8, 2019 a quarterly dividend of $0.61 per share payable October 31, 2019 to stockholders of record at the close of business on October 18, 2019.

On June 19, 2018, the Company's Board of Directors approved a share buy-back plan. Under the plan, which became effective on September 1, 2018, the Company is authorized to acquire up to $75.0 million of its outstanding shares through August 31, 2020. The timing and amount of repurchases are based on terms and conditions as may be acceptable to the Company's Chief Executive Officer and Chief Financial Officer and in compliance with all laws and regulations applicable thereto. During the period from September 1, 2018 through August 31, 2019, the Company repurchased 175,955 shares at a total cost of $29.6 million under this $75.0 million plan.

Fiscal Year 2020 Guidance
The Company issued the following guidance for fiscal year 2020:

  • Net sales growth is projected to be between 3 and 7 percent with net sales expected to be between $436 million and $453 million.
  • Gross margin percentage for the full year is expected to be between 54 and 55 percent.
  • Advertising and promotion investments are projected to be between 5.5 and 6.0 percent of net sales.
  • The provision for income tax is expected to be between 20 and 22 percent.
  • Net income is projected to be between $65.0 million and $66.2 million.
  • Diluted earnings per share is expected to be between $4.74 and $4.83 based on an estimated 13.7 million weighted average shares outstanding.

This guidance is expressed in good faith and is believed by the Company to have a reasonable basis; however, it is not possible to predict with a reasonable degree of certainty the actual impact of fluctuating foreign currency exchange rates, and these currency fluctuations may have a significant impact on the Company's fiscal year 2020 guidance. This guidance does not include any future acquisitions or divestitures and assumes that crude oil prices will remain close to current levels for the remainder of fiscal year 2020.

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 maintenance products and 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 $423.4 million in fiscal year 2019 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 maintenance products; expected levels of promotional and advertising spending; anticipated input costs for manufacturing and the costs associated with distribution of our products; 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; expected tax rates and the impact of tax legislation and regulatory action; 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," "target," "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 IItem 1A, "Risk Factors," in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2019, which the company expects to file with the SEC on October 22, 2019.

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 October 17, 2019, 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 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 BIKE® 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

CONSOLIDATED BALANCE SHEETS

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








August 31,


August 31,


2019


2018

Assets






Current assets:






Cash and cash equivalents

$

27,233


$

48,866

Short-term investments


-



219

Trade accounts receivable, less allowance for doubtful






accounts of $300 and $340 at August 31, 2019






and 2018, respectively


72,864



69,025

Inventories


40,682



36,536

Other current assets


7,216



13,337

Total current assets


147,995



167,983

Property and equipment, net


45,076



36,357

Goodwill


95,347



95,621

Other intangible assets, net


10,652



13,513

Deferred tax assets, net


403



511

Other assets


3,189



3,074

Total assets

$

302,662


$

317,059







Liabilities and Shareholders' Equity






Current liabilities:






Accounts payable

$

18,727


$

19,115

Accrued liabilities


18,513



26,240

Accrued payroll and related expenses


15,301



14,823

Short-term borrowings


21,205



23,600

Income taxes payable


844



2,125

Total current liabilities


74,590



85,903

Long-term borrowings


60,221



62,800

Deferred tax liabilities, net


11,688



11,050

Other long-term liabilities


10,688



1,817

Total liabilities


157,187



161,570







Commitments and Contingencies












Shareholders' equity:






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






19,773,977 and 19,729,774 shares issued at August 31, 2019 and 2018,






respectively; and 13,718,661 and 13,850,413 shares outstanding at






August 31, 2019 and 2018, respectively


20



20

Additional paid-in capital


155,132



153,469

Retained earnings


374,060



351,266

Accumulated other comprehensive income (loss)


(32,482)



(27,636)

Common stock held in treasury, at cost ― 6,055,316 and 5,879,361






shares at August 31, 2019 and 2018, respectively


(351,255)



(321,630)

Total shareholders' equity


145,475



155,489

Total liabilities and shareholders' equity

$

302,662


$

317,059







 

WD-40 COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)



Three Months Ended August 31,


Fiscal Year Ended August 31,



2019



2018



2019



2018













Net sales

$

106,744


$

102,640


$

423,350


$

408,518

Cost of products sold


48,476



45,990



191,010



183,255

Gross profit


58,268



56,650



232,340



225,263













Operating expenses:












Selling, general and administrative


28,668



29,658



123,946



121,394

Advertising and sales promotion


5,886



6,486



23,306



22,314

Amortization of definite-lived intangible assets


650



735



2,706



2,951

Total operating expenses


35,204



36,879



149,958



146,659













Income from operations


23,064



19,771



82,382



78,604













Other income (expense):












Interest income


32



83



155



454

Interest expense


(579)



(1,171)



(2,541)



(4,219)

Other income (expense), net


(54)



426



774



339

Income before income taxes


22,463



19,109



80,770



75,178

Provision for income taxes


13,879



(2,528)



24,862



9,963

Net income

$

8,584


$

21,637


$

55,908


$

65,215













Earnings per common share:












Basic

$

0.63


$

1.55


$

4.03


$

4.65

Diluted

$

0.63


$

1.54


$

4.02


$

4.64













Shares used in per share calculations:












Basic


13,731



13,869



13,799



13,929

Diluted


13,763



13,904



13,830



13,962













 

WD-40 COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)








Fiscal Year Ended August 31,


2019


2018

Operating activities:






Net income

$

55,908


$

65,215

Adjustments to reconcile net income to net cash provided by






operating activities:






Depreciation and amortization


7,593



7,800

Net gains on sales and disposals of property and equipment


(99)



(164)

Deferred income taxes


(4)



(7,186)

Stock-based compensation


4,446



4,195

Unrealized foreign currency exchange losses (gains), net


651



(302)

Provision for bad debts


67



121

Changes in assets and liabilities:






Trade accounts receivable


(7,318)



(5,635)

Inventories


(4,800)



(1,299)

Other assets


5,802



(5,353)

Accounts payable and accrued liabilities


(7,948)



6,107

Accrued payroll and related expenses


879



590

Other long-term liabilities and income taxes payable


7,674



733

Net cash provided by operating activities


62,851



64,822







Investing activities:






Purchases of property and equipment


(13,282)



(12,356)

Proceeds from sales of property and equipment


383



458

Purchases of intangible assets


-



(175)

Purchases of short-term investments


-



(83,704)

Maturities of short-term investments


219



166,984

Net cash provided by (used in) investing activities


(12,680)



71,207







Financing activities:






Treasury stock purchases


(29,625)



(22,616)

Dividends paid


(32,889)



(29,585)

Proceeds from issuance of common stock


-



215

Proceeds from issuance of long-term senior notes


-



20,000

Repayments of long-term senior notes


(800)



(400)

Net (repayments) proceeds from revolving credit facility


(2,912)



(87,200)

Shares withheld to cover taxes upon conversion of equity awards


(2,783)



(1,823)

Net cash used in financing activities


(69,009)



(121,409)

Effect of exchange rate changes on cash and cash equivalents


(2,795)



(2,836)

Net increase (decrease) in cash and cash equivalents


(21,633)



11,784

Cash and cash equivalents at beginning of period


48,866



37,082

Cash and cash equivalents at end of period

$

27,233


$

48,866







 

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