WD-40 Company Is Unsticking Shareholder Value
WD-40 Company (NASDAQ: WDFC) may seem like an odd winner from the pandemic but it is. The company was in the midst of a major operational overhaul wh...
A Game-Changing Year For WD-40 Company
WD-40 Company (NASDAQ: WDFC) may seem like an odd winner from the pandemic but it is. The company was in the midst of a major operational overhaul when the pandemic struck and was set up perfectly for stay-at-home trends. Now, more than a year later, the combination of repositioning efforts, marketing, and expanding markets has driven revenues to new highs. The good news is that the strength is not expected to end. Although the company expects the pandemic surge to peak and subside it also expects to retain its new customers and sustain a high level of growth into the future.
"The post-pandemic era is coming. We do not expect to see sales growth of this magnitude over the long-term, however, we believe that the new end-users who have interacted with our products during the pandemic will become permanent users of our maintenance products,” Said CEO Gary Ridge.
WD-40 Company Beats And Raises
WD-40 Company had a fantastic fiscal Q3 and that is saying something because these comps were not easy. The company’s gross revenue of $136.41 is up 38.8% from last year, beat the consensus by 2500 basis points, and is up 20% on a 2-year basis. In terms of year-over-year growth, the company's growth accelerated from 12% in the second quarter to 38% in the third quarter with a 600 basis point positive impact from currency conversion.
The only area of weakness was in the home care product line which fell 13% from last year. The mitigating factor here is that Home Care saw a triple-digit gain in last year's third quarter so the - 13% decline is negligible. The maintenance products segment grew 45% year-over-year with strength in all three operating regions. On a regional basis, emerging markets Europe and Africa grew by 80% on widespread economic reopening while the Americas grew 20% and Asia/Pacific14%.
Moving down the report, the company's gross margin shrank by 90 basis points from last year due to rising input costs but the full year-to-date gross margin is wider than it was in the previous year. Moving down to the bottom line, the company's GAAP EPS of $1.52 is up sequentially, year-over-year, for the last two years, and beat the consensus by $0.37.
Looking forward, the company expects sequential strength to continue into the fourth quarter and has raised guidance accordingly. The company is now expecting full-year net sales in a range of $475 to $490 and this is a conservative estimate. At the low low end, the guidance assumes a low single-digit decline while on the high end a high single-digit YOY increase. In both cases, it assumes a sequential down-tick in Revenue that we don't see coming, not during the summer and not during the economic reopening.
WD-40 Is A Fortress For Your Dividend Portfolio
WD-40 Company doesn't pay great dividends in terms of yield. At the current share price it's only yielding about 1.1% but it is very safe and comes with a high expectation of future increases. The company has been increasing the dividend for 11 years at an 11.25% CAGR and there is plenty of room in the cash flow and balance sheet to continue raising. Turning to the balance sheet, the company has a very low 2.4X leverage ratio, ample coverage, and ample free cash flow. With a payout ratio below 50%, revenue and earnings growth in the picture we see this distribution growing at a double-digit CAGR over the next couple of years.
The Technical Outlook: WD-40 Company Rockets Higher
Shares of WD-40 company are up more than 10% in premarket action and look like they're ready to move higher. The Q3 results and outlook are more than robust for this company and suggest its 45X earnings multiple is well deserved. The risk for investors now is resistance at the $287 level. Once that resistance level is broken we see this stock moving up to the $320 level and then setting a new all-time high.
Featured Article: What is a Buy-Side Analyst?