W4
WD 40 CO (WDFC)·Q1 2025 Earnings Summary
Executive Summary
- Q1 FY25 delivered solid top-line and margin execution: net sales $153.5m (+9% y/y), gross margin 54.8% (+100bps y/y, +70bps q/q), and diluted EPS $1.39 (+9% y/y) .
- Maintenance products drove performance (95% of sales); WD‑40 Multi‑Use Product up 10% y/y to $118.5m and Specialist up 14% y/y to $19.2m; volume accounted for ~90% of growth per management .
- EIMEA strength (+18% y/y) and Americas (+8% y/y) offset Asia-Pacific timing headwinds (-4% y/y); margin progress broad-based with EIMEA 57.8% (+290bps y/y), Asia Pac 57.6% (+130bps y/y), Americas 50.4% (-30bps y/y) .
- FY25 guidance maintained: net sales $600–$630m, GM 54–55%, A&P ~6%, operating income $95–$100m, tax ~24%, EPS $5.20–$5.45; if divestiture of homecare brands does not occur, add ~$23m sales, ~$6m OI, ~$0.33 EPS tailwind .
- Subsequent event: expected $11.9m favorable non‑cash tax adjustment in Q2 FY25 to be excluded in non‑GAAP EPS; divestiture process continues with assets classified as held for sale; dividend raised to $0.94 and ~$16m returned to shareholders in Q1 via dividends and buybacks .
What Went Well and What Went Wrong
What Went Well
- Strong core execution: maintenance products up 10% y/y; third consecutive quarter of double‑digit growth, with volume driving ~90% of growth; CEO: “all I see is opportunity” and focus on “few things, many places, bigger impact” .
- Broad margin recovery: gross margin 54.8% (+100bps y/y, +70bps q/q), with favorable mix and lower specialty chemical costs (+200bps combined), partially offset by higher warehousing/freight (-100bps); EIMEA and APAC margins expanded significantly .
- EIMEA and Americas momentum: EIMEA +18% y/y led by Multi‑Use Product (+21%) across India/France/Benelux/Iberia; Americas +8% y/y with U.S. promos and Brazil market transition adding ~$3.1m; Specialist up double digits in both regions .
What Went Wrong
- Asia distributor timing pullback: Asia‑Pacific -4% y/y as large Q4 distributor orders (e.g., Indonesia, S. Korea, Philippines) did not repeat in Q1; management expects pickup in 2H .
- Higher operating cost run‑rate: SG&A +14% y/y; cost of doing business 37% of sales vs 36% prior-year driven by employee costs, professional services, higher freight, increased A&P (5.5% of sales) .
- Americas profitability noise: Americas operating income faced headwinds from timing of A&P, higher growth rewards accrual, and ~$0.8m customer bankruptcy charge; analyst flagged y/y OI decline; CFO detailed drivers .
Financial Results
Headline Metrics vs Prior Periods
Notes:
- Q1 2025 gross margin excludes held-for-sale effect would be +60bps; operating income/EPS would be reduced by $1.5m/$0.08, respectively .
Segment Net Sales (Q1 FY25)
Product Group Net Sales (Q1 FY25)
KPIs and Operating Details (Q1 FY25)
Guidance Changes
Earnings Call Themes & Trends
Management Commentary
- CEO strategic focus: “As I look around the world, all I see is opportunity… stay true to our Four‑by‑Four Strategic Framework while embracing ‘few things, many places, bigger impact’” .
- Must‑Win Battles: “Sales of WD‑40 Multi‑Use Product were approximately $119 million (+10% y/y)… Specialist $19 million (+14% y/y)… premium formats up 17% y/y” .
- Geographic expansion: Brazil direct market contribution and long‑term targets; Mexico nearly quadrupled since 2020; India now second-largest by unit sales; clear land‑and‑expand runway .
- CFO on margin trajectory: Q1 GM 54.8% (+100bps y/y) driven by mix and lower specialty chemical costs; aiming for 55% by FY26 at latest, potentially by FY25 ex divested brands; leadership incentives aligned to GM recovery .
- Capital allocation: Dividend raised to $0.94; ~$16m returned in Q1 via dividends and buybacks; maintenance capex 1–2% of sales .
Q&A Highlights
- Americas profitability: OI down y/y due to timing of A&P spend, higher growth rewards accrual, and ~$0.8m bankruptcy charge; CFO quantified and flagged timing effects .
- Gross margin cadence: Logistics/warehousing costs pressure in U.S.; management “cautiously optimistic” on holding margin; confident in 55% by end of FY26, possibly sooner .
- U.S. demand: POS unit sales up ~4–5%; home center channel strong; promotions supportive but no outsized one‑time boosts .
- Easy Q2 comp: Prior‑year ERP go‑live disrupted Q2 FY24 top line by ~$2.5m; sets up easier comparison for Q2 FY25, with caveats on Asia distributors and Brazil lapping .
- Divestiture reporting: HCCP brands not discontinued ops; if not sold by Q2 end, will remain in reported results with transparent breakouts .
Estimates Context
- Wall Street consensus (S&P Global) for Q1 FY25 Revenue, EPS, EBITDA was unavailable at the time of analysis due to access limitations; therefore, a formal beat/miss vs consensus cannot be provided at this time. Values would normally be retrieved from S&P Global.
- Given strong y/y growth and margin trajectory, we expect sell-side models to reflect: sustained maintenance product momentum, EIMEA outperformance, and cautious Asia distributor cadence. Consensus adjustments may tilt toward higher GM assumptions within the 54–55% range and modestly higher FY25 EPS within guidance, subject to FX/logistics and divestiture timing .
Key Takeaways for Investors
- Margin story intact and improving: Q1 GM 54.8% with a credible path to 55% supported by mix and supply chain initiatives; leadership incentives now directly tied to GM recovery .
- Core growth durable: Maintenance products up 10% y/y with volume as the primary driver; EIMEA and Americas broad‑based strength indicate healthy end‑market demand .
- Asia timing to watch: Distributor order cadence is the main swing factor; management expects 2H improvement—monitor Q2/Q3 for rebound confirmation .
- Divestiture is a catalyst: Classification to held for sale and ongoing discussions signal progress; if not completed, FY25 results get a positive add‑on (~$23m sales, ~$6m OI, ~$0.33 EPS) .
- FX and structure changes: EIMEA functional currency changed to EUR; expect distinct FX translation methodology in FY25 and reversion to constant currency in FY26—modeling nuance for segment results .
- Capital returns: Dividend lifted to $0.94 and buybacks continued; asset‑light model enables ongoing shareholder returns with maintenance capex 1–2% of sales .
- Near‑term trading implications: Q2 has easier prior‑year comp (ERP impact); potential positive setup, balanced by Asia cadence and logistics cost inflation; watch updates on HCCP divestiture progress and tax benefit exclusion in non‑GAAP Q2 EPS .
Appendix: Additional Relevant Items
- Held‑for‑sale adjustments: Excluding HCCP held‑for‑sale assets, Q1 gross margin would be +60bps, while OI and diluted EPS would be reduced by $1.5m and $0.08, respectively .
- Subsequent tax event: $11.9m favorable income tax adjustment in FY25 (Q2), to be excluded in non‑GAAP EPS; be mindful of reported vs adjusted comparisons .
- FX translation impacts in Q1: Favorable ~$1.5m to total net sales; EIMEA +$2.0m; Asia Pac +$0.6m; Americas -$1.1m .