Last night after the close San Diego-based maintenance, cleaning, and homecare manufacturer WD-40 (WDFC 164.82, -7.52) reported mixed second quarter results but it was commentary about fiscal year 2019 sales guidance that ultimately sent the stock to a five-month low on Wednesday morning.
The oil lubrication manufacturer reported a modest miss on top line revenues of $101.3 million with bottom line earnings slightly beating market expectations at $1.14 on a 30 basis point gain in gross margins to 55.4%.
The company’s largest geographic business segment, Americas, accounted for 43% of overall sales in the quarter. The company reported modest weakness in this area with Q2 sales down 2% mostly due to lower sales of maintenance products, which decreased 1% compared to the prior year. This sales decline was primarily due to lower sales of WD-40 Multi-Use Product in the United States which declined 6% compared to last year, driven by the normal rotation that occurs in the warehouse club channel and some delayed promotions with a key customer. Higher sales of WD-40 Specialist in the United States and higher sales of maintenance products in Canada and Latin American were not enough to offset weakness in the WD-40 Multi-Use Product.
The two other business area, EMEA and Asia-Pacific, were split in Q2 as a 3% sales increase out of EMEA, primarily due to higher sales of homecare and cleaning products, was partially offset by weakness in Asia-Pacific which saw Q2 sales decline 1% owing to a decline in sales of maintenance products in the Australia and the Asia distributor markets.
With an eye on the Q2 revenue miss investor ire focused on commentary from CFO Jay Rembolt who stated in the press release that the company now expected FY19 net sales to be, “at the lower end of the range we've shared with investors,” citing current foreign currency exchange rates. Specifically, WD-40 sees FY19 net sales growth between 4-7% to about $425-437 million, unchanged from prior guidance. Earnings guidance for the year also remained unchanged at $4.51-4.58 and FY19 gross margin percentage is still expected to be near 55%.
The Q2 sales miss is the likely impetus for CFO Rembolt’s ill-received commentary about FY19 net sales, though we'd caution at jumping ship just yet as Mr. Rembolt is correct, foreign exchange rates are relatively high; this could spell more trouble for WD-40 in the future as a higher dollar means domestic-produced goods are more expensive for foreign customers.
In recent trade shares pare their session-worst levels from Wednesday's open, now down 4.4% compared to 6.5% at this morning's lows. It appears that investors have caught the piece from Mr. Rembolt's commentary that FY19 sales are expected to come in at the low end of guidance given foreign exchange rates rather than some negative development or unforeseen catalyst that is company-specific.