WD-40 Company Reports First Quarter 2016 Financial Results

~ Foreign currency exchange headwinds continue to obscure underlying business performance

~~ Management updates previously issued fiscal year 2016 guidance

Jan 07, 2016, 16:05 ET from WD-40 Company

SAN DIEGO, Jan. 7, 2016 /PRNewswire/ -- WD-40 Company (NASDAQ: WDFC), a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world, today reported financial results for its first fiscal quarter ended November 30, 2015.

Financial Highlights and Summary

  • Total net sales for the first quarter were $92.5 million, a decrease of 4 percent compared to the prior year fiscal period.
  • Translation of the Company's foreign subsidiary results from their functional currencies to U.S. dollars had an unfavorable impact on sales for the current quarter. On a constant currency basis total net sales would have been $96.2 million for the first quarter.
  • Net income for the first quarter was $12.1 million, an increase of 12 percent from the prior year fiscal period.
  • Diluted earnings per share were $0.83 compared to $0.73 in the prior year fiscal period.
  • Gross margin was 55.6 percent compared to 51.6 percent in the prior year fiscal period.
  • Selling, general and administrative expenses were up 2 percent in the first quarter to $27.8 million when compared to the prior year fiscal quarter.
  • Advertising and sales promotion expenses were down 4 percent to $5.7 million compared to the prior year fiscal quarter.

"Although foreign currency exchange rate fluctuations negatively impacted our reported sales, we continue to see maintenance product sales growth in local currencies in nearly all our markets," said Garry Ridge, WD-40 Company's president and chief executive officer.  "Our European markets, in particular, continue to be heavily impacted by the weakening of the euro against the pound sterling as well as the strength of the U.S. dollar.  When we remove all foreign currency exchange rate impacts, we grew consolidated sales by about half a percentage point which is a little lighter than we would have liked to see. This was caused by the timing of customer orders and promotional activities as well as unstable market conditions in Russia.   While we expect we will continue to see fluctuations in the performance of certain markets quarter to quarter, our long-term growth plans remain unchanged," continued Ridge.  

Net Sales by Product Group (in thousands):

Three Months Ended November 30,

2015

2014

%

Change

Maintenance products

$

82,241

$

84,904

(3)%

Homecare and cleaning products

10,281

11,449

(10)%

Total

$

92,522

$

96,353

(4)%

 

  • Net sales of maintenance products, which are considered the primary growth focus for the Company, decreased 3 percent in the first fiscal quarter when compared to the prior fiscal quarter period. The decline in the first quarter was driven primarily by the unfavorable impact of foreign currency exchange rates, the timing of orders and promotional activity and unstable market conditions in Russia.
  • Net sales of homecare and cleaning products decreased 10 percent for the current quarter compared to the prior fiscal year period. The homecare and cleaning products, particularly those in the U.S., are considered harvest brands providing healthy profit returns to the Company but are becoming a smaller part of the business as net sales of maintenance products grow per the execution of the Company's strategic initiatives.

Net Sales by Segment (in thousands):

Three Months Ended November 30,

2015

2014

%

Change

Americas

$

44,412

$

44,773

(1)%

EMEA

32,086

34,591

(7)%

Asia-Pacific

16,024

16,989

(6)%

Total

$

92,522

$

96,353

(4)%

 

  • Net sales by segment as a percent of total net sales for the first quarter were as follows: for the Americas, 48 percent; for EMEA, 35 percent; and for Asia-Pacific, 17 percent.
  • The decline in sales in the Americas in the first quarter was primarily driven by unfavorable impacts of foreign currency exchange rates, specifically those in Canada, and sales declines in Latin America due to the timing of customer orders. These decreases were almost completely offset by increased sales of maintenance products in the U.S. due to promotional activities and the added distribution of our new WD-40 EZ-REACH™ product. On a constant currency basis sales in the Americas for the first quarter would have remained constant at $44.8 million when compared to the prior year fiscal year period.
  • The decline in sales in EMEA in the first quarter was primarily driven by unfavorable impacts of foreign currency exchange rates, primarily in the Company's euro-based direct markets, as well as decreased sales in the Company's distributor markets in Eastern Europe due to unstable market conditions in Russia. On a constant currency basis EMEA sales for the first quarter would have decreased by $0.4 million or 1% compared to the prior year fiscal year period.
  • The decline in sales in Asia-Pacific in the first quarter was primarily driven by unfavorable impacts of foreign currency exchange rates, as well as the timing of customer orders in the Company's Asian distributor markets. On a constant currency basis Asia-Pacific sales for the first quarter would have increased by $0.2 million or 1% compared to the prior year fiscal year period.

Dividend and Share Repurchase As previously announced, WD-40 Company's board of directors declared on Tuesday, December 8, 2015 a quarterly dividend of $0.42 per share reflecting an increase of 11 percent over the previous quarter's dividend. The quarterly dividend is payable on January 29, 2016 to stockholders of record at the close of business on January 15, 2016.

On October 14, 2014 the board of directors approved a share repurchase plan.  The plan became effective at the beginning of the third quarter of fiscal year 2015. Under the plan, the Company is authorized to acquire up to $75.0 million of its outstanding shares through August 31, 2016. The timing and the amount of any repurchases of common stock will be determined by management based on its evaluation of market conditions and other factors. During the period from March 1, 2015 through November 30, 2015, the Company repurchased 278,334 shares at a total cost of $23.8 million under this $75.0 million plan.

Updated Fiscal Year 2016 Guidance The Company updated its guidance for fiscal year 2016 as follows:

  • Net sales growth is projected to be between 4 and 6 percent with net sales expected to be between $393 million and $401 million.
  • Gross margin for the full year is expected to be above 54 percent.
  • Advertising and promotion expenses are projected to be between 6.0 percent and 7.0 percent of net sales.
  • Net income is projected to be between $47.5 million and $48.5 million.
  • Diluted earnings per share is expected to be between $3.30 and $3.37 based on an estimated 14.4 million weighted average shares outstanding.

This guidance does not include any future acquisitions or divestitures and assumes that foreign currency exchange rates and crude oil prices will remain close to current levels.

"We've updated our fiscal year 2016 guidance to reflect our current view of the business taking into consideration today's foreign currency headwinds and crude oil price tailwinds, said Jay Rembolt, WD-40 Company's vice president and chief financial officer.  "Although some level of foreign currency exchange volatility had been built into our previous guidance, with approximately 40 percent of our revenue expected to be generated in currencies other than the U.S. dollar in fiscal year 2016, the continued strengthening of the U.S. dollar has weakened our top-line growth expectations."

Webcast Information As previously announced, WD-40 Company management will host a live webcast at approximately 5:00 p.m. ET / 2:00 p.m. PT today to discuss these results. Other forward-looking and material information may also be discussed during this call.  Please visit http://investor.wd40company.com for more information and to view supporting materials. 

About WD-40 Company WD-40 Company is a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world. The Company markets its maintenance products and homecare and cleaning products under the following well-known brands: WD-40®, 3-IN-ONE®, GT85®, X-14®, 2000 Flushes®, Carpet Fresh®, no vac®, Spot Shot®, 1001®, Lava® and Solvol®.  

Headquartered in San Diego, WD-40 Company recorded net sales of $378 million in fiscal year 2015 and its products are currently available in more than 176 countries and territories worldwide. WD-40 Company is traded on the NASDAQ Global Select market under the ticker symbol "WDFC." For additional information about WD-40 Company please visit http://www.wd40company.com.

Forward-Looking Statements Except for the historical information contained herein, this press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect the Company's current expectations with respect to currently available operating, financial and economic information.  These forward-looking statements are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated in or implied by the forward-looking statements.

Our forward-looking statements include, but are not limited to, discussions about future financial and operating results, including:  growth expectations for maintenance products; expected levels of promotional and advertising spending; plans for and success of product innovation, the impact of new product introductions on the growth of sales; anticipated results from product line extension sales; and forecasted foreign currency exchange rates and commodity prices.  Our forward-looking statements are generally identified with words such as "believe," "expect," "intend," "plan," "could," "may," "aim," "anticipate," "estimate" and similar expressions. 

The Company's expectations, beliefs and forecasts are expressed in good faith and are believed by the Company to have a reasonable basis, but there can be no assurance that the Company's expectations, beliefs or forecasts will be achieved or accomplished.  

Actual events or results may differ materially from those projected in forward-looking statements due to various factors, including, but not limited to, those identified in Part IItem 1A, "Risk Factors," in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2015, and in the Company's Quarterly Report on Form 10-Q for the period ended November 30, 2015 which the Company expects to file with the SEC on January 7, 2016.

All forward-looking statements included in this press release should be considered in the context of these risks. All forward-looking statements speak only as of January 7, 2016, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Investors and prospective investors are cautioned not to place undue reliance on our forward-looking statements.

Table Notes and General Definitions

(1)

The Company markets maintenance products under the WD-40®, GT85® and 3-IN-ONE® brand names. Currently included in the WD-40 brand are the WD-40 Multi-Use Product and the WD-40 Specialist® and WD-40 BIKE® product lines.

(2)

The Company markets the following homecare and cleaning brands:  X-14® mildew stain remover and automatic toilet bowl cleaners, 2000 Flushes® automatic toilet bowl cleaners, Carpet Fresh® and no vac® rug and room deodorizers, Spot Shot® aerosol and liquid carpet stain removers, 1001® household cleaners and rug and room deodorizers and Lava® and Solvol® heavy-duty hand cleaners.

(3)

The Americas segment consists of the U.S., Canada and Latin America.

(4)

The EMEA segment consists of countries in Europe, the Middle East, Africa and India.

(5)

The Asia-Pacific segment consists of Australia, China and other countries in the Asia region.

(6)

Constant currency represents the translation of the current quarter and year-to-date results from the functional currencies of the Company's subsidiaries to U.S. dollars using the exchange rate in effect for the corresponding periods of the prior fiscal year. 

 

WD-40 COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except share and per share amounts)

November 30,

August 31,

2015

2015

Assets

Current assets:

Cash and cash equivalents

$

65,071

$

53,896

Short-term investments

47,665

48,603

Trade and other accounts receivable, less allowance for doubtful accounts of $445 and $491 at November 30, 2015 and August 31, 2015, respectively

57,782

58,750

Inventories

35,575

32,052

Current deferred tax assets, net

6,957

5,824

Other current assets

4,392

6,127

Total current assets

217,442

205,252

Property and equipment, net

10,844

11,376

Goodwill

96,291

96,409

Other intangible assets, net

22,075

22,961

Other assets

3,276

3,259

Total assets

$

349,928

$

339,257

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable

$

20,671

$

17,128

Accrued liabilities

15,192

15,200

Accrued payroll and related expenses

12,393

13,357

Income taxes payable

2,607

2,287

Total current liabilities

50,863

47,972

Revolving credit facility

118,000

108,000

Long-term deferred tax liabilities, net

24,918

23,145

Other long-term liabilities

2,301

2,282

Total liabilities

196,082

181,399

Commitments and Contingencies

Shareholders' equity:

Common stock ― authorized 36,000,000 shares, $0.001 par value; 19,594,908 and 19,546,888 shares issued at November 30, 2015 and August 31, 2015, respectively; and 14,406,219 and 14,450,490 shares outstanding at November 30, 2015 and August 31, 2015, respectively

20

20

Additional paid-in capital

141,815

141,651

Retained earnings

267,245

260,683

Accumulated other comprehensive income (loss)

(11,385)

(8,722)

Common stock held in treasury, at cost ― 5,188,689 and 5,096,398 shares at November 30, 2015 and August 31, 2015, respectively

(243,849)

(235,774)

Total shareholders' equity

153,846

157,858

Total liabilities and shareholders' equity

$

349,928

$

339,257

 

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)

Three Months Ended November 30,

2015

2014

Net sales

$

92,522

$

96,353

Cost of products sold

41,114

46,652

Gross profit

51,408

49,701

Operating expenses:

Selling, general and administrative

27,848

27,424

Advertising and sales promotion

5,660

5,915

Amortization of definite-lived intangible assets

755

769

Total operating expenses

34,263

34,108

Income from operations

17,145

15,593

Other income (expense):

Interest income

148

134

Interest expense

(372)

(294)

Other (expense) income, net

(51)

102

Income before income taxes

16,870

15,535

Provision for income taxes

4,808

4,749

Net income

$

12,062

$

10,786

Earnings per common share:

Basic

$

0.83

$

0.73

Diluted

$

0.83

$

0.73

Shares used in per share calculations:

Basic

14,404

14,668

Diluted

14,461

14,738

Dividends declared per common share

$

0.38

$

0.34

 

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

Three Months Ended November 30,

2015

2014

Operating activities:

Net income

$

12,062

$

10,786

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

1,661

1,633

Net gains on sales and disposals of property and equipment

(3)

(24)

Deferred income taxes

3

(615)

Excess tax benefits from settlements of stock-based equity awards

(1,390)

(494)

Stock-based compensation

633

498

Unrealized foreign currency exchange losses, net

360

461

Provision for bad debts

78

164

Changes in assets and liabilities:

Trade and other accounts receivable

430

(720)

Inventories

(3,730)

624

Other assets

1,688

2,841

Accounts payable and accrued liabilities

3,617

(3,563)

Accrued payroll and related expenses

(3,187)

(4,931)

Income taxes payable

2,403

2,698

Other long-term liabilities

20

40

Net cash provided by operating activities

14,645

9,398

Investing activities:

Purchases of property and equipment

(448)

(1,582)

Proceeds from sales of property and equipment

-

79

Acquisition of business

-

(3,705)

Purchases of short-term investments

(2,933)

(82)

Maturities of short-term investments

2,846

-

Net cash used in investing activities

(535)

(5,290)

Financing activities:

Treasury stock purchases

(8,075)

(9,863)

Dividends paid

(5,500)

(5,003)

Proceeds from issuance of common stock

421

685

Excess tax benefits from settlements of stock-based equity awards

1,390

494

Proceeds from revolving credit facility

10,000

-

  Net cash used in financing activities

(1,764)

(13,687)

Effect of exchange rate changes on cash and cash equivalents

(1,171)

(1,782)

Net increase (decrease) in cash and cash equivalents

11,175

(11,361)

Cash and cash equivalents at beginning of period

53,896

57,803

Cash and cash equivalents at end of period

$

65,071

$

46,442

 

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SOURCE WD-40 Company



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