WD-40 Company Unsticks The Door To Higher Share Prices
WD-40 Company (NASDAQ: WDFC) is a stock we like to own but you have to be prepared for some volatility. The business is trending higher on internal efforts to expand territory and deepen penetration but it can be spotty on a quarter to quarter basis. Along with that is the omnipresent threat of inflation, supply chain disruptions, and rising freight costs but the fundamentals remain the same. The company is trending larger, positioning itself for growth, and delivering on long-term goals if not always on near-term expectations. That’s why the institutions like the stock, the long-term outlook, and they have been buying it steadily every since the pandemic bottom 9 quarters ago.
The institutions have been net buyers of WD-40 Company for 9 consecutive quarters and have the ownership up to almost 88%. The sum of activity over the past 2 years includes a fair amount of selling as well but we chalk it up to rotation and profit-taking because the balance is firmly in favor of the bulls. Net-buying over the past 9 quarters is worth more than $0.525 billion or over 20% of the market cap with shares trading near $17.00. The $17.00 level is, coincidentally, very near the 2020 pandemic low and prices are rocketing up from that level now, in the wake of the FQ2 earnings report.
WD-40 Company Moves Up On Accelerating Growth
As we’ve said, the WD-40 Company results can be spotty in terms of growth and expectations. The FQ2 results, however, are one of those quarters in which the results of company efforts can be clearly seen. The company reported $129.99 million in net revenue for a gain of 16.2% over last year. This is not only 250 basis points better than expected but YOY growth accelerated on both a month-to-month and YOY basis. On a segment basis, the Americas grew by 18%, EMEA by 9%, and APAC by 34% while the Housing segment declined 12%. The Housing segment is not the company’s growth driver, it is filled with harvest brands, but does provide substantial cash flow and profits the company is not ready to give up.
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The margin came under pressure as well but this is where the news gets really good. The company’s gross margin contracted by only 500 basis points which is less than expected and execs say they are on track to recoup the lost margin. The gross margin came in at 50.4% to drive a 13% increase in net income. SG&A declined as well leaving the GAAP EPS at $1.41. This is up sequentially despite a sequential downtick in revenue and up in both the 1 and 2-year comparisons.
WD-40 Guides In-Line
The guidance is also good because the company maintained its outlook for revenue and lowered its guidance for earnings while keeping both in line with the consensus. We’d prefer to see the company raising its guidance but steady is better than the alternative which is headwinds are cutting into the top and bottom-line results.
"I am also happy to share with you that our commitment to continuous improvement has resulted in significant improvements to our supply chain in the United States,” said company CEO Garry Ridge. “The enhancements we have made have enabled us to increase the production capacity of our highest volume products and return to solid growth in our largest market … We are focused and committed to managing our business so that we can restore gross margin to or above our target of 55 percent over the longer-term. We will restore our gross margin over the near term by implementing price increases to offset the higher input costs we are experiencing. Over the longer term, our margin accretive Must-Win Battles will further enhance gross margin."
The Technical Outlook: The Bottom Is In For WD-40 Company
Shares of WD-40 Company are up more than 10% in the wake of the Q2 results aided by a high 12.6% short interest. This move is confirming support at the $185 level which is consistent with key levels in 2020. Assuming the market follows through on this move, we see the stock retracing back up to the 150-day EMA near the $220 level and then moving higher. If not, this stock may remain range-bound but we don’t think it will hit $185 again.
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