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Hampered by Inflation, WD-40 Perseveres

Despite positive earnings results, fiscal 2022 guidance was downgraded

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Apr 08, 2022
Summary
  • 2nd-quarter revenue and net income grew.
  • CEO Garry Ridge touts ‘significant’ improvements to supply chain, production capacity.
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WD-40 Company (

WDFC, Financial) reported rising revenue and net income for its second quarter of fiscal 2022, even as executives lowered their full-year fiscal 2022 guidance. Investors didn't seem daunted by the lowering of expectations, as they bid the stock price up more than 11% to trade around $193.96 near midday on Friday.

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On Thursday, the household products manufacturer behind the iconic WD-40 brand reported financial results for its second quarter of fiscal 2022, which ended Feb. 28. While the results were considered good, the management lowered its fiscal 2022 net income estimate by 2% to between $70.7 million and $72.5 million.

CEO Garry Ridge said in a statement that the downward revision was the result of the "challenging inflationary environment we are currently operating in." At the same time, WD-40 has maintained its revenue guidance, and foresees top-line and bottom-line growth in fiscal 2022.

For the second quarter, total net sales were $130.0 million, an increase of 16% compared to the prior-year quarter. Year-to-date total net sales were $264.7 million, a gain of 12%.

Net income for the second quarter was $19.5 million, an increase of 13%. Year-to-date net income was $38.1 million, a decrease of 7%. Diluted earnings per share were $1.41 in the second quarter compared to $1.24 per share for the prior-year quarter. Year-to-date diluted earnings per share were $2.75 compared to $2.96 a year ago.

"The resilience of the WD-40 Brand has enabled us to be off to a solid start in fiscal year 2022 with maintenance product sales up 14% year-to-date," said Ridge. Various policies have resulted in “significant” improvements to the company’s supply chain in the United States. Those enhancements have enabled the company to increase the production capacity of its highest volume products “and return to solid growth in our largest market, the United States, which experienced a 26% increase in maintenance product sales in the second quarter."

Ridge conceded that, like other companies, inflation has continued to deteriorate gross margin. The company's growth plan calls for managing the business in order to restore gross margin at or above its target of 55% over the longer-term. That, Ridge said, will be accomplished by implementing price increases to offset higher input costs.

Translation of the company's foreign subsidiary results to U.S. dollars had an unfavorable impact on sales for the current quarter and a favorable impact on sales year-to-date. On a constant currency basis, total net sales would have been $130.9 million for the second quarter and $262.2 million year-to-date without currency headwinds.

Guidance for fiscal 2022 calls for net sales growth of 7% to 12% with net sales expected to be between $522 million and $547 million. Gross margin percentage for the full year is estimated to be between 50% and 51%. Net income is projected to be between $70.7 million and $72.5 million, while diluted earnings per share is expected to be between $5.14 and $5.27 based on an estimated 13.7 million weighted average shares outstanding.

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