The latest earnings report from WD-40 Company (NASDAQ:WDFC) contained a mix of positives and negatives, but it likely left many investors questioning whether some of the company's long-term aspirations were still achievable. Let's take a look at those goals, and what the company will have to do to meet them in the light of its fiscal 2019 results and 2020 guidance.

WD-40 gives earnings

The first point to note is that the fiscal fourth-quarter earnings were disappointing compared to the full-year guidance given during the previous earnings presentation in July.

  • Full-year net sales increased 4% to $423.5 million, compared to guidance for a 4% to 7% increase to a range of $425 million to $437 million.
  • Full-year gross margin came in at 54.9%, compared to guidance for 55%.

WD-40 also missed earnings estimates with full-year diluted EPS of $4.02 compared to the guidance range of $4.58 to $4.65, but don't worry too much about that. The company was hit by a one-time tax charge worth around $0.63 per share -- adding that back to the reported figure puts the result at the high end of the guidance range.

A greasy gear.

WD-40 helps lubricate and degrease gears. Image source Getty Images.

What the earnings report means for the long-term

In a nutshell, you could call it a "sales light, earnings fine" type of quarter. That in and of itself is not particularly concerning. And as CEO Garry Ridge noted on the earnings call, "it's common for our sales results to fluctuate one period to another due to various factors, including the level of promotional activities, specific programs being run at customer locations, the timing of customer orders or the impact of new product launches." In other words, investors should not get too wrapped up in any single quarter's sales results.

That said, the full-year results and the guidance for 2020 suggest that management was being a bit optimistic with the 2025 targets it has long held up as long term targets.

Management set a target of reaching $700 million in revenue by 2025, compared to the $408 million it took in during 2018. Sales of the core WD-40 multi-use product were projected to grow from $314 million to $530 million over that time frame. 

To hit those goals, the company will need to achieve a compound annual growth rate (CAGR) of 8%.

Plug in the actual 2019 results, though, and the company will have to manage a CAGR in the 9.1% to 9.9% range to get there. And as the 2020 guidance for revenue of $436 million to $453 million would only amount to 3% to 7% growth, the company is apparently poised to fall further behind that pace next year.

That was partly acknowledged this month in management's updated target for a CAGR of 8% to 9% through 2025. However, based on its guidance range for 2020, it implies management believes it can get to a 9.1% to 9.9% CAGR for 2021 through 2025. And considering revenue growth at constant currency has only been at 6% for the last two years, that target looks optimistic.

WD-40 Company Scenarios

2018

2019

2020

2025

Required 2021-2025 CAGR

Low 2020 case (assumes 3% growth)

$408 million

$423 million

$436 million

$700 million

9.9%

High 2020 case (assumes 7% growth)

$408 million

$423 million

$453 million

$700 million

9.1%

Data source: WD-40 presentations. Author's analysis.

Some perspective

While management's 2025 targets can be called into question based on 2019's results and 2020's guidance, it's necessary to note that Ridge told investors on the earnings call "that these long-term targets are guideposts, not guidance, and they're probably wrong and roughly right."

Moreover, whichever way you look at it, WD-40 is still a growth business, and a lot can happen between now and 2025, especially when it can produce results like 25% constant-currency sales growth in the Asia-Pacific region, as it did in fiscal Q4. In short, there's still plenty of time and potential left for the company to make meaningful strides toward its long-term aspirations.

Moreover, the WD-40 product has powerful brand recognition that management can leverage to generate sales of new products, as it did with WD-40 specialist lubricants, cleaners and degreasers -- sales of which grew 13% in 2019 to $35.4 million. https://www.fool.com/premium/coverage/earnings/call-transcripts/2019/10/17/wd-40-co-wdfc-q4-2019-earnings-call-transcript.aspx

What investors might conclude from the results and guidance

All told, the slightly disappointing fiscal Q4 report isn't a game-changer when it comes to this stock, or to the overarching investment thesis for WD-40, but it does put some pressure on the company to deliver in its fiscal 2020. Given that the stock trades at more than 37 times the midpoint of its forward guidance for 2020, it's fair to say that the upside for investors could be limited until the company demonstrates at least a few quarters of revenue growth commensurate with the rates discussed above.