By Street standards, WD-40
Results for this third quarter were quite good, as both revenues and earnings came in ahead of analysts' expectations at $211.7 million and $0.42 per share. However, the company also lowered earnings and revenues forecasts for the full year by a tad; the price hikes the company implemented over the past year are affecting sales more than expected. Accordingly, the company will have to increase its investment in marketing (read: promotions) to move the product off the shelves. No doubt, the reason for the miss is the continued rise in oil prices, and the company is struggling with the need to pass along its cost increases.
However, the company has a dominant fortress in its WD-40 product, and to its credit, it has recently expanded the delivery systems for that product line with the Big Blast can, the WD-40 No-Mess Pen, and the Smart Straw can. The Big Blast has a wider spray pattern than a regular can and was developed for customers in the farming industry who use the product to prevent rusting on farming tools. The Smart Straw is an obvious enhancement -- it permanently fixes the oft-lost straw to the can. (Would you believe that 80% of consumers lose that straw?) Investors worrying about any cannibalizing of the original WD-40 line need not worry about the effect of the Smart Straw can -- consumers are paying a roughly 30% premium for the convenience. And finally, the WD-40 pen came out of focus groups tests, in which women were requesting the product in an easier-to-use format without the mess or a strong odor.
This focus on innovation could not have come at a better time -- this Fool thinks that consumer-products companies such as Colgate-Palmolive
Although the stock seems fully valued at a P/E of roughly 18, it has a nice 2.6% dividend yield. Sure, it doesn't match up to the high standards at the Motley Fool Income Investor newsletter, but for a small-cap company this dividend is a nice extra. The stability and strength of the core product, combined with solid operating margins of 18% (granted, a bit below P&G's 20%), and continued international expansion, make this company one to place on the watch list for a Mr. Market Blue Light Special.
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Colgate, Wal-Mart, and Home Depot are all Motley Fool Inside Value recommendations.