WD-40 Company Earnings Call: Growth With Cost Risks
WD-40 Company ((WDFC)) has held its Q2 earnings call. Read on for the main highlights of the call.
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WD-40 Company’s latest earnings call struck a cautiously upbeat tone as management highlighted double-digit sales growth, expanding gross margins, and strong momentum in core maintenance products. Executives acknowledged mounting cost pressures tied to higher oil prices and elevated operating expenses, but reiterated confidence in meeting full-year targets, supported by resilient demand and a diversified supply chain.
Broad-Based Net Sales Growth
WD-40 posted Q2 net sales of $161.7 million, up 11% year over year, with gains driven mainly by maintenance products rather than lower-margin legacy lines. Management emphasized that growth was healthy across multiple regions, positioning the company well for its fiscal 2026 revenue goals despite uneven macro conditions.
Maintenance Products Drive the Engine
Maintenance products generated $156.8 million in Q2 sales, rising 13% and accounting for roughly 97% of total revenue as the portfolio shift continues. In constant currency terms, maintenance sales grew 6%, underscoring genuine volume and mix improvement rather than simple FX translation benefits.
Americas and U.S. Show Strong Momentum
Sales in the Americas climbed to $71.8 million, up 10%, powered by robust demand in the U.S. and solid performance in maintenance lines. U.S. maintenance sales rose 15%, including a $5 million, 15% increase in WD-40 Multi-Use Product, and management expects high single- to low double-digit full-year growth for the region backed by heavier promotional activity in the back half.
Asia Pacific Rebounds Sharply
Asia Pacific revenue jumped to $25 million, a 19% increase, or 16% in constant currency, signaling a meaningful recovery from prior softness. China was a standout, with maintenance sales up 25% and WD-40 Multi-Use Product up 18%, while distributor markets gained 19% and the WD-40 Specialist line surged 55% in the region.
EIMEA Direct Markets Underpin Regional Performance
EIMEA reported sales of $64.9 million, up 9% in reported terms but down 3% on a constant currency basis, reflecting FX tailwinds masking real weakness. Still, direct markets, which make up 70% of the region, rose 12% to $45.6 million, with local currency growth in WD-40 Multi-Use Product in France, Iberia, and Benelux all in the low- to mid-teens.
Gross Margin Expansion Despite Cost Pressures
Gross margin improved to 55.6%, an increase of 100 basis points from last year, or 56% on an adjusted basis excluding assets held for sale. The gain was fueled by about 80 basis points of relief from lower specialty chemical costs and roughly 70 basis points from pricing and favorable product mix, partially offset by FX and other headwinds.
Operating Income Shows Leverage
Operating income rose 13% to $26.3 million, with constant currency growth of 4%, demonstrating that higher sales and improved margins are reaching the bottom line. Management highlighted this as evidence of solid operating leverage, even as investments in people and brand-building remain elevated.
Premium Portfolio and Channels Power Growth
Year to date, WD-40 Multi-Use Product has generated $245 million in sales, up 6%, while WD-40 Specialist climbed 19% to $44.9 million, reflecting success in higher-value segments. Premiumized formats such as Smart Straw and EZ Reach grew 9% and now represent about half of Multi-Use sales, with e-commerce revenue up 23% year to date, underscoring channel expansion.
Supply Chain Resilience Limits Volatility
The company reported a global on-time-in-full rate of 96%, indicating strong supply reliability despite geopolitical and logistics challenges. Diversified manufacturing partnerships, including a new EIMEA partner, and deliberate inventory builds are designed to support heavy Q3 promotions and cushion near-term gross margin swings.
Capital Allocation Remains Shareholder-Friendly
WD-40 repurchased $8 million of stock, buying back 38,175 shares and leaving about $14 million under its existing authorization. The board also approved a quarterly dividend of $1.02 per share, signaling confidence in cash generation and a continued commitment to returning capital while maintaining a solid balance sheet.
EIMEA Faces Constant Currency Softness
Beneath headline growth, EIMEA’s constant currency sales declined 3% as weakness in distributor markets offset strength in direct channels. Distributor revenue in the region grew just 1% to $19.2 million, with timing issues and transition challenges in the Middle East weighing on reported results.
Strategic Exit from Homecare & Cleaning
Homecare and cleaning sales fell 13% in the quarter as WD-40 continues reshaping its portfolio around higher-margin maintenance products. The prior sale of the U.K. homecare business reduced Q2 revenue by $1.5 million, while the divestiture of the American homecare and cleaning unit remains in process with timing still uncertain.
Tax Comparisons Distort EPS View
Reported net income came in at $20.3 million versus $29.6 million a year earlier, but last year’s figure included an $11.9 million noncash tax benefit that inflated the comparison. Reported diluted EPS of $1.50 versus $2.19 understates underlying progress, as adjusted non-GAAP EPS excluding that one-time benefit would have grown about 14% year over year.
Oil-Linked Input Costs Pose New Risk
Management warned that recent geopolitical developments in the Middle East have driven crude oil assumptions up to $95–$115 per barrel, versus roughly $65–$85 previously. Because many of WD-40’s specialty chemicals are petroleum-based and pricing typically lags 90–120 days, the company sees potential gross margin pressure emerging in Q4 unless further mitigations are implemented.
Working Capital Elevated by Inventory Builds
The company intentionally built inventory, particularly in EIMEA and the U.S., to support market transitions and aggressive Q3 promotional plans. While this strategy temporarily inflates working capital and may cause some balance sheet “blips,” management expects inventory levels to begin normalizing and turning down in Q4.
Operating Costs Still High
The cost of doing business remained at 38% of net sales, unchanged as a percentage but up $7 million in dollar terms, a 13% increase or 7% in constant currency. Higher employee-related expenses and stepped-up advertising and promotion, which rose to 5.5% of sales from 5.1%, limited further operating leverage in the quarter.
EBITDA Margin Progress Stalls
Adjusted EBITDA margin held flat at 18% in Q2, short of management’s midterm target band of 20%–22%. Leaders acknowledged that, despite stronger gross margins, the company still needs further efficiency gains and scale benefits to reach its longer-term profitability ambitions.
Geopolitics Add Execution Risk
While direct sales exposure to the Middle East is modest at about 3% of global revenue, distributor disruptions and regional uncertainty remain a concern. Management also flagged broader macro and cost risks stemming from the region that could affect demand patterns and margin trajectories beyond the direct sales footprint.
Guidance and Outlook
The company reaffirmed its fiscal 2026 outlook, calling for pro forma net sales of $630–$655 million and reported revenue of $650–$680 million, implying mid- to high-single-digit underlying growth. Management targets gross margin of 55.5%–56.5%, operating income of $103–$110 million, and EPS of $5.75–$6.15, with expectations that revenue lands in the upper half of the range even as oil-linked cost inflation likely weighs on Q4 margins.
WD-40’s earnings call painted a picture of a brand-led consumer industrial business delivering solid growth while navigating a more volatile cost environment. For investors, the story is one of robust demand in core maintenance products, improving mix and margin, but also persistent cost pressure and stalled EBITDA margin progress, leaving execution on pricing, efficiency, and portfolio reshaping as key drivers to watch.
