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Why WD-40 Fell 18.8% in April

By Royston Yang - May 7, 2021 at 11:30PM

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The maintenance products company was bogged down by supply chain issues during the month.

What happened

Shares of WD-40 (WDFC 4.69%) fell by 18.8% in April, according to data from S&P Global Market Intelligence.

Shares of the maintenance products company hit an all-time high back in February but have since tumbled close to 4% year to date.

Person spraying degreaser fluid on a metal part of a machine

Image source: Getty images.

So what

WD-40 released its second-quarter earnings for the period ended Feb. 28, where net sales grew 12% year over year, led by a 19% year-over-year increase in sales to EMEA and a 39% year-over-year jump in sales to the Asia-Pacific region. Net income for the quarter surged by 20% year on year to $17.2 million. However, net sales to the Americas region dipped by 1% year over year, primarily because of an 11% year-over-year drop in the sales of maintenance products in the United States.

The reason for the decline was supply-chain disruptions and bottlenecks caused by the COVID-19 pandemic that resulted in the company's inability to meet increased demand. Investors may feel worried that growth is stalling in the U.S. as a result, even though the Americas region made up less than half of total sales. Despite this setback, WD-40 still went on to increase its quarterly dividend to $0.72 per share, up 7% from the previous quarter.

Now what

The company is currently working on a supply-chain recovery plan, according to Chief Operating Officer Steve Brass. Some of the initiatives include increasing production from third-party manufacturers and sourcing for new manufacturers that can handle the increased production load. He believes that these supply-chain issues should be resolved by the second half of this year. Investors should also take heart that demand continues to be strong in the U.S. and that this problem should be a temporary one.

WD-40 estimates that the global market opportunity for its portfolio of products stands at close to $1 billion. Current annualized sales are around $475 million, implying significant room for revenue and profit growth for the company. Increased demand for renovation and home maintenance in the wake of the pandemic should also contribute to sustained demand for the company's products.

Royston Yang has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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