WD-40 (NASDAQ:WDFC) Surprises With Q3 Sales But Full-Year EPS Guide Misses

WDFC Cover Image — WD-40 (NASDAQ:WDFC) Surprises With Q3 Sales But Full-Year EPS Guide Misses

Radek Strnad

Thu, Oct 17, 2024, 1:17 PM 5 min read

Household products company WD-40 (NASDAQ:WDFC) reported revenue ahead of Wall Street’s expectations in Q3 CY2024, with sales up 11.1% year on year to $156 million. The company’s full-year revenue guidance of $615 million at the midpoint also came in 10,817,941,853% above analysts’ estimates. Its GAAP profit of $1.23 per share was 6.1% below analysts’ consensus estimates.

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WD-40 (WDFC) Q3 CY2024 Highlights:

Revenue: $156 million vs analyst estimates of $149.2 million (4.6% beat)
EPS: $1.23 vs analyst expectations of $1.31 (6.1% miss)
Management’s revenue guidance for the upcoming financial year 2025 is $615 million at the midpoint, meeting analyst estimates and implying 4.1% growth (vs 9.9% in FY2024)
EPS (GAAP) guidance for the upcoming financial year 2025 is $5.33 at the midpoint, missing analyst estimates by 6.3%
Gross Margin (GAAP): 54.1%, up from 51.4% in the same quarter last year
Free Cash Flow Margin: 16.9%, down from 28.9% in the same quarter last year
Market Capitalization: $3.57 billion

Company Overview

Short for “Water Displacement perfected on the 40th try”, WD-40 (NASDAQ:WDFC) is a renowned American consumer goods company known for its iconic and versatile spray, WD-40 Multi-Use Product.

Household Products

Household products stocks are generally stable investments, as many of the industry's products are essential for a comfortable and functional living space. Recently, there's been a growing emphasis on eco-friendly and sustainable offerings, reflecting the evolving consumer preferences for environmentally conscious options. These trends can be double-edged swords that benefit companies who innovate quickly to take advantage of them and hurt companies that don't invest enough to meet consumers where they want to be with regards to trends.

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

WD-40 is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from economies of scale.

As you can see below, WD-40’s sales grew at a mediocre 6.6% compounded annual growth rate over the last three years. This shows it couldn’t generate demand in any major way and is a tough starting point for our analysis.

This quarter, WD-40 reported year-on-year revenue growth of 11.1%, and its $156 million of revenue exceeded Wall Street’s estimates by 4.6%.

Looking ahead, sell-side analysts expect revenue to grow 3.8% over the next 12 months, a slight deceleration versus the last three years. This projection doesn't excite us and indicates the market believes its products will face some demand challenges. At least the company is tracking well in other measures of financial health.

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Cash Is King

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

WD-40 has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 15.9% over the last two years.

Taking a step back, we can see that WD-40’s margin dropped by 2.2 percentage points during that time. WD-40’s two-year free cash flow profile was compelling, but shareholders are surely hoping for its trend to reverse. Continued declines could signal that the business is becoming more capital-intensive.

WD-40’s free cash flow clocked in at $26.36 million in Q3, equivalent to a 16.9% margin. The company’s cash profitability regressed as it was 12 percentage points lower than in the same quarter last year, which isn’t ideal considering its longer-term trend.

Key Takeaways from WD-40’s Q3 Results

We were impressed by WD-40’s revenue, which outperformed Wall Street’s estimates. On the other hand, its EPS and full-year earnings forecast missed Wall Street’s estimates. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The areas below expectations seem to be driving the stock move, and it traded down 1.8% to $260 immediately after reporting.

Is WD-40 an attractive investment opportunity at the current price?When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter.We cover that in our actionable full research report which you can read here, it’s free.