Industrial maintenance, lubricant, and homecare product
manufacturing company WD-40 (WDFC 177.28, -6.50) trades lower on Thursday after
weakness in the Asia-Pacific region set Q1 results to fall mostly in-line,
causing fiscal year 2019 guidance to be left untouched.
Jumping right into the results, the company’s Q1 earnings per share were $0.95 on revenues that rose 3.8% to $101.3 mln. Gross margin percentage was 55.1%, down about 40 basis points versus last year.
Management noted that translation of foreign subsidiary results from their functional currencies into U.S. dollars had an unfavorable impact on the quarter’s sales. On a constant currency basis, total net sales for Q1 would have been $102.4 mln, an increase of 5% compared to the prior year fiscal quarter.
By region, net sales as a percent of total net sales for the first quarter were as follows: for the Americas, 47%; for EMEA, 38%; and for Asia-Pacific, 15%.
- Net sales in the Americas increased 4% primarily due to higher sales of maintenance products in the U.S., which increased 9% year/year. Higher sales of the WD-40 EZ-REACH Flexible Straw product; a 9% increase in sales of WD-40 Specialist; the timing of promotional programs; as well as expanded distribution in the online, industrial, and farm trade channels contributed to that sales increase. The growth in sales observed in the U.S. was slightly offset by lower sales of maintenance products in Canada and Latin America, which was principally the result of the timing of customer orders.
- Net sales in EMEA increased 11% in the first quarter primarily due to strong sales of WD-40 Multi-Use Product in both the European direct and distributor markets. The increase in sales in direct markets was due to a higher level of promotional activities, increased distribution, and the timing of customer orders. The increase in sales in distributor markets was due to the timing of customer orders and improved economic conditions in Eastern Europe. Changes in foreign currency exchange rates had an unfavorable impact on the segment’s sales from period to period. On a constant currency basis, EMEA sales for the first quarter would have increased by $4.3 mln, or 12%, compared to the prior year fiscal quarter.
- In Asia-Pacific, net sales decreased 10% in the first quarter due to a 13% decrease in sales in both the Asia-Pacific distributor markets and in Australia primarily caused by the timing of customer orders. 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 first quarter would have decreased by $1.2 mln, or 7%, year/year.
Additionally, WDFC reaffirmed select guidance for fiscal
year 2019. Net sales growth is still projected to be between 4-7% with net
sales expected to be between $425-437 mln. Diluted EPS is expected to be
between $4.51-4.58 based on an estimated 13.8 mln weighted average shares
outstanding. Gross margin percentage for the full year is expected to be near
55%. Advertising and promotion investments are projected to be between 5.5-6.0%
of net sales. The provision for income tax is expected to be between 21-22%, and
net income is projected to be between $62.2-63.2 mln.
After briefly touching, and crossing below, the 50-day simple moving average (174.35), shares of WDFC bounced back modestly. The stock still posts losses on the day, extending its YTD decline to about 3.1%.