Will it be a slick quarter for WD-40
What analysts say:
- Buy, sell, or waffle? The four analysts covering WD-40 slide right down the spectrum of opinion: One says strong buy, one says buy, one says hold, and one says sell.
- Revenues. Sales growth is forecast to slide some this quarter, growing at a rate of only 7.8%, to $72.5 million.
- Earnings. Earnings are expected to fall as well, dropping to $0.42 per share -- a 7% drop from last year's $0.45 run.
What management says:
While WD-40's primary lubricant business is U.S.-based, it has a number of consumer cleaning products that it markets here and abroad. The maker of cleansers such as heavy-duty hand cleaner Lava and household product CarpetFresh is expanding its presence in China. Garry Ridge, president and CEO, says, "While we continue to look for acquisitions that meet our guidelines for success, we feel the investments we are making in China now are similar to an acquisition, but they impact the P&L [(profit and loss statement)], more so than the balance sheet." Asian-market sales were one of WD-40's bright spots last year with 12% growth, double the 6% increase of the Americas.
What management does:
You can see the impact that investment in China is having on margins. Gross profits have been increasing for the past four quarters, but margins are down. With revenues projected to be in the 7% to 12% range for the year, and the lower end of that for the first quarter, investors can expect WD-40 to post weak results for a couple of quarters at least.
|
Margin % |
08/05 |
11/05 |
02/06 |
05/06 |
08/06 |
|---|---|---|---|---|---|
|
Gross |
49.2 |
48.6 |
48.5 |
48.6 |
48.2 |
|
Op. |
18.0 |
18.6 |
18.9 |
18.8 |
16.7 |
|
Net |
10.6 |
11.0 |
11.3 |
11.2 |
9.8 |
One Fool says:
Growth rates have failed to grease the skids for WD-40, and the first quarter looks like it will be no different. The 7% growth in revenues is down more than 30% from the 11% growth recorded in the first quarter the year before, and off more than 50% from the 16% growth seen in 2004. With declining revenues, expect to see declining earnings, impacted all the more by investments made overseas.
It's not a bad move on WD-40's part to pay attention to China, which should prove a lucrative market as its economy grows. But the U.S. is the company's main source of revenues, and sales here have been lagging. They were off 6% last quarter and up only 6% on the year. Ingratiating the flagship product -- what it calls its "fortress brand" -- further into the consciousness of the American public is certainly a difficult task: WD-40 is already synonymous with spray lubricants. The same can't be said for 2000 Flushes, though. It will take more than slick marketing for WD-40 to expand beyond its core product.
Competitors:
- Colgate-Palmolive
(NYSE:CL) - Clorox
(NYSE:CLX) - Procter & Gamble
(NYSE:PG)
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. Colgate-Palmolive is a Motley Fool Inside Value recommendation. The Motley Fool has a disclosure policy.
