WD-40 Company Q3 FY2026 earnings call

### Strategic Must-Win Battles (Core Growth Drivers) - **Lead geographic expansion**: Year-to-date WD-40 multi-use product sales increased 13% to $398 million, with 20% YoY growth in the US, 21% in China, and 27% in Iberia. The total attainable market for multi-use products is ~$1.9 billion, with significant remaining long-term growth opportunity after fiscal 2025 sales of $478 million. - **Accelerate premiumization**: Combined year-to-date sales of WD-40 SmartStraw and EasyReach premium formats increased 19% YoY, and now represent 50% of total WD-40 multi-use product sales. The company targets annual premium product growth of over 10%. - **Drive WD-40 Specialist growth**: Year-to-date Specialist sales increased 22% YoY to $72.9 million. The total attainable market for Specialist products is ~$665 million, with 90% of current sales coming from just 10 markets, leaving large untapped growth opportunity. The company recently launched its first bio-based lubricant in several European markets, with strong early results, and targets annual Specialist growth of over 10%. - **Turbocharge digital commerce**: Year-to-date e-commerce sales increased 22% YoY, led by the US and China, with pure-play e-commerce remaining one of the company's fastest growing channels. Social media and digital outreach have expanded end user reach and engagement, supporting all other strategic priorities.

### Organizational and Strategic Updates - **Leadership restructuring**: The company announced internal leadership transitions to accelerate strategy execution, including two new C-suite roles: Chief Strategy and Innovation Officer and Chief Brand and Marketing Officer. CFO Sara Hyzer will transition to President of the Americas Division during an ongoing transition period. All changes are designed to support long-term growth. - **Home Care and Cleaning divestiture update**: After completing the UK home care divestiture in 2025, the company paused active marketing of the Americas home care portfolio for the foreseeable future due to unfavorable macro conditions, reclassified these assets as held for use, and will manage them as harvest brands with expected gradual sales decline while generating positive returns. - **New enduring business model**: The company is sunsetting its legacy 55-30-25 business model and will transition to the new Enduring Business Model starting in fiscal 2027. The new framework targets: mid-to-high single digit maintenance product sales growth, gross margins above 55%, adjusted EBITDA growth faster than net sales growth, and minimal capital investment. This model is designed to deliver ROIC above 25%, strong free cash flow, and a balanced capital allocation strategy focused on organic growth, dividends, and share repurchases.

### Financial Operational Highlights - Third quarter gross margin increased 40 basis points YoY to 56.6%, driven by lower aerosol can and fill costs and favorable sales mix, partially offset by higher other input costs. Cost of doing business (adjusted operating expenses) fell to 34% of net sales from 38% YoY, driven by operating leverage from higher sales. Adjusted EBITDA margin increased to 23% from 20% YoY. Operating income grew 47% YoY to $40.3 million (42% YoY growth on a constant currency basis). - The company's Board authorized a new $100 million share repurchase program with no expiration date.

Consolidated net sales increased 24% year-over-year (YoY) to $195.1 million. The Maintenance Products segment, which contributed 97% of total net sales, saw 26% YoY growth to $189.7 million (22% YoY growth on a constant currency basis), a new company record. Within Maintenance Products, direct market sales grew 28% YoY, while distributor market sales grew 18% YoY. The non-core Home Care and Cleaning segment saw a 9% YoY sales decline; the Americas portion of this segment represents $12 million in annual sales, less than 2% of global revenue.

By regional trade block: - Americas: Net sales increased 29% YoY to $101.2 million, with Maintenance Products sales up 31% to $98.3 million, driven by WD-40 multi-use product growth in the US and Latin America. WD-40 Specialist sales grew 22% here, while Home Care and Cleaning sales declined 9%. - IMEA: Net sales increased 17% YoY to $66.6 million (10% YoY growth on a constant currency basis), with broad-based volume growth across direct and distributor markets. WD-40 Specialist sales grew 31% in the region. The 2025 UK Home Care divestiture reduced reported third quarter sales by $1.1 million. - Asia Pacific: Net sales increased 24% YoY to $27.3 million (18% YoY growth on a constant currency basis), with broad-based growth led by China and regional distributor markets. WD-40 Specialist sales grew 32% ($1 million) in the region.

- **Fiscal 2026 net sales**: After incorporating the reclassified Americas Home Care and Cleaning assets (adding ~$12 million in net sales) and narrowing guidance ranges based on year-to-date performance, the company now expects constant currency net sales of $652-$667 million, representing 6-9% YoY growth compared to pro forma fiscal 2025 net sales of $614 million. Based on current exchange rates, reported net sales are expected to be $675-$690 million, representing 10-12% YoY growth. The guidance raised the lower bound of the original revenue range. - **Fiscal 2026 gross margin**: Gross margin is now expected to be 54.5-55.5%, a 100 basis point downward revision from original guidance (40 basis points from the inclusion of lower-margin home care assets, 60 basis points from higher-than-expected input costs). Pricing and cost saving initiatives have already been implemented, with most of the benefit expected to flow through in fiscal 2027. - **Fiscal 2026 profitability**: Advertising and promotion investment is still expected to be approximately 6% of net sales. Non-GAAP operating income is expected to be $107-$113 million (adding ~$2.9 million in operating income from reclassified home care assets), representing 5-11% YoY growth, with the lower bound of the original operating income guidance raised by ~$1.1 million. Non-GAAP diluted EPS is expected to be $6.05-$6.35, representing 6-11% YoY growth, with ~$0.17 of EPS contribution from reclassified home care assets. The effective tax rate is expected to be ~22.5%. - **Long-term margin outlook**: Management expects gross margin to progressively improve throughout fiscal 2027 as cost increases are absorbed and pricing/cost saving actions take effect, and remains committed to defending gross margins above 55% long-term. - **Regional growth outlook for fiscal 2026**: Maintenance products are expected to grow low double-digits in the Americas, low-to-mid single digits (constant currency) / high single digits (reported) in IMEA, and high single-digit to double-digits in Asia Pacific.

- Geopolitical uncertainty in the Middle East has driven significant, unanticipated spikes in input costs for base oils and specialty chemicals, with costs increasing 50% or more in some cases in the third quarter, creating near-term pressure on gross margins that will mostly impact the fourth quarter of fiscal 2026. Continued escalation of conflict could prolong elevated input costs and delay margin recovery. - A portion of third quarter sales came from advanced buying ahead of planned price increases and Middle East supply uncertainty, pulling demand forward from the fourth quarter of fiscal 2026. - Unfavorable macroeconomic conditions prevented the divestiture of non-core Americas home care and cleaning assets as a bundled package, requiring the company to retain the assets for the foreseeable future. - Input cost decreases are expected to occur at a slower pace than the rapid cost increases seen in the third quarter, delaying margin recovery even if commodity prices stabilize. - There is inherent uncertainty around the timing and pace of gross margin recovery given ongoing volatility in global commodity and geopolitical conditions.

Q: How sustainable is gross margin above 55% given recent input cost pressure from Middle East geopolitical disruption? / A: Third quarter margins held above expectations due to existing inventory that absorbed cost increases, but higher costs will flow through to the P&L in the fourth quarter. Pricing increases and cost reduction actions have already been implemented to offset pressure, with most benefits starting in fiscal 2027. Management is comfortable with full year fiscal 2026 guidance of 54.5-55.5% margin, which they view as a strong result given current global conditions.

Q: What is the magnitude of recent price increases, and has there been pushback from retail partners? / A: Mid-to-high single digit price increases have been implemented across Asia Pacific and Europe, with slightly larger increases for higher-cost bulk products. Price increases were smaller in scale than the large rounds implemented in prior cycles, and retailer pushback has been minimal. Approximately $3 million in global sales were pulled forward into the third quarter from the fourth quarter due to advance buying ahead of the price increases.

Q: Can you share details on where WD-40 Specialist is seeing faster-than-expected adoption? / A: Specialist is growing strong double digits across all regions, with particularly strong growth in China, the US, and Europe. Growth is driven by disciplined focus on the top 6 SKUs that make up 80% of Specialist sales, expanded distribution, and new product innovation. The newly launched bio-based lubricant in Europe already ranks as one of the top selling Specialist products in its launch market of France. Distributors and retailers are receptive because Specialist complements the core multi-use product line, creates a full category offering, and helps gain additional shelf space for the entire WD-40 brand. Only 10 markets currently account for 90% of Specialist sales, leaving significant long-term growth runway.

Q: How has the pull-forward of demand into the third quarter impacted your fourth quarter outlook, and what is the change to guidance from including home care assets? / A: More demand than expected was pulled into the third quarter from the fourth quarter, but combined sales for the two quarters remain on track to land in the mid-to-high end of the original guidance range. After adjusting for the addition of the $2.9 million in operating income from reclassified home care assets, management actually raised the lower bound of full year operating income guidance by $1.1 million via discretionary cost cuts in the fourth quarter to protect the bottom line. Gross margin for the fourth quarter will be slightly lower than previously expected due to input costs, but the change is small relative to original guidance.