Some interesting trading action has unfolded in maintenance
product manufacturer WD-40 (WDFC 159.25, +6.2, +4.05%) following its third
quarter beat and lowered FY18 guidance.
To the latter point, WDFC lowered its Fiscal Year 2018 guidance to reflect recent changes in foreign currency exchange rates. Namely, the company now sees earnings per share for the year between $4.05-4.10, down from the previous $4.07-4.14 outlook. Revenue expectations were also trimmed; WDFC now sees FY18 sales in the range of $403-411 mln, down from prior guidance of $407-415 mln. Management held firm on guidance for gross margins of 55% for the year on net income of $56.3-57.0 mln, down from $56.6-57.5 mln.
To the former point, WDFC handed in a solid third quarter. Total net sales for the third quarter were ahead of Street expectations at $107.0 mln while diluted earnings per share were $1.15. Gross margins were 54.8% in the third quarter compared to 55.3% a year ago.
Net sales in the company’s Americas business were particularly strong, up 8% in Q3 primarily due to higher sales of maintenance products, which were up 12% compared to last year. This sales increase was mostly driven by the timing of customer orders for WD-40 Multi-Use Product and higher sales of WD-40 EZ-REACH Flexible Straw product in the United States. The increase in sales was also driven by higher sales of maintenance products in Canada and Latin American driven by successful promotional programs in the regions. In addition, sales in the Americas were higher year over year due to certain customers buying product in advance of a price increase, which went into effect in June 2018.
Translation of the company's foreign subsidiary results to U.S. dollars had a favorable impact on sales for the current quarter and year-to-date. On a constant currency basis, total net sales would have been $102.6 mln for the third quarter and $295.8 mln year to date.
Management highlighted WDFC continuing to see the impact of higher commodity prices, which have begun to deteriorate its gross margins in all three operating segments. To combat this margin pressure, management implemented the aforementioned price increases to ensure gross margin remains in-line with its 55/30/25 business model.
Now, despite opening lower – likely in reaction to the guidance trim – shares of WDFC have made a round trip from being down 4.7% at the open to now boasting gains near 4%, reaching all-time highs above $158.
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