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WD40 Company Reports Operating Results (10-Q)

January 11, 2010 | About:

10qk

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WD40 Company (WDFC) filed Quarterly Report for the period ended 2009-11-30.

Wd40 Company has a market cap of $527.52 million; its shares were traded at around $31.88 with a P/E ratio of 20.18 and P/S ratio of 1.81. The dividend yield of Wd40 Company stocks is 3.14%. Wd40 Company had an annual average earning growth of 3% over the past 10 years.WDFC is in the portfolios of Murray Stahl of Horizon Asset Management.

Highlight of Business Operations:

Gross profit was $39.9 million, or 51% of net sales, for the three months ended November 30, 2009 compared to $38.7 million, or 46% of net sales, for the corresponding period of the prior fiscal year. Worldwide price increases implemented during the first quarter of fiscal year 2009 added 1.6 percentage points to our gross profit percentage for the three months ended November 30, 2009. Gross profit percentage also benefited from a decline in the cost of petroleum-based materials and the impact of product conversions/sourcing changes which had a favorable impact on our gross profit percentage of 3.9 percentage points and 1.3 percentage points, respectively, for the three months ended November 30, 2009. In addition, we initiated manufacturing of WD-40 Smart Straw in Europe during the fourth quarter of fiscal year 2009. Previously, WD-40 Smart Straw for all markets was manufactured only in the U.S. This manufacturing shift had a positive impact on our gross profit percentage of 0.5 percentage points for the three months ended November 30, 2009.

Note that our gross profits may not be comparable to those of other reporting entities, since some entities include all costs related to distribution of their products in cost of products sold, whereas we exclude the portion associated with amounts paid to third parties for distribution to our customers from our contract packagers and include these costs in selling, general and administrative expenses. These costs totaled $3.3 million and $4.1 million for the three months ended November 30, 2009 and 2008, respectively.

Selling, general and administrative (SG&A) expenses for the three months ended November 30, 2009 decreased to $19.8 million from $21.1 million for the corresponding period of the prior fiscal year. However, as a percentage of net sales, SG&A expenses increased to 25.5% for the three months ended November 30, 2009 from 25.3% for the corresponding period of the prior fiscal year. The decrease in SG&A expenses was largely attributable to the impact of foreign currency translation and to lower freight costs. Changes in foreign currency exchange rates compared to the corresponding period of the prior fiscal year decreased SG&A expenses by $0.4 million for the three months ended November 30, 2009. Thus, on a constant currency basis, SG&A expenses for the first quarter of fiscal year 2010 would have been $20.2 million for a decrease of $0.9 million, or 4%, from the corresponding period of the prior fiscal year. Freight costs decreased $0.7 million due to reduced fuel costs, improved shipping efficiencies and lower sales revenue. Professional services costs decreased $0.5 million primarily due to lower legal costs. Other miscellaneous expenses, including broker sales commissions, stock-based compensation and bad debt expense, decreased by $0.5 million. Partially offsetting these decreases was an increase in employee-related costs, which include salaries, profit sharing and other fringe benefits, of $0.7 million due to annual compensation increases towards the end of the first quarter of the prior fiscal year and higher staffing levels primarily to support the growth of international operations.

Advertising and sales promotion expenses for the three months ended November 30, 2009 decreased to $5.2 million from $5.4 million for the corresponding period of the prior fiscal year. However, as a percentage of net sales, these expenses increased to 6.7% for the three months ended November 30, 2009 from 6.5% for the corresponding period of the prior fiscal year. The decrease in advertising and sales promotion expenses was due primarily to the timing of investment in advertising activities and the favorable impact of changes in foreign currency exchange rates period over period. Investment in global advertising and sales promotion expenses for fiscal year 2010 is expected to be in the range of 6.5% to 8.0% of net sales.

As a percentage of sales, advertising and sales promotion expenses may fluctuate period to period based upon the type of marketing activities employed by the Company and the period in which the costs are incurred. The costs of certain promotional activities are required to be recorded as reductions to sales, while others remain in advertising and sales promotion expenses. For the three months ended November 30, 2009, total promotional costs recorded as a reduction to sales were $4.9 million compared to $5.7 million for the corresponding period of the prior fiscal year. Therefore, our total investment in advertising and sales promotion activities totaled $10.1 million and $11.1 million for the three months ended November 30, 2009 and 2008, respectiv

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