WD-40 Company Q4 FY2025 earnings call

Strategic Progress - Focused on 4x4 strategic framework including geographic expansion (WD-40 Multi-Use Product global sales $478 million, up 6% y/y), accelerating premiumization (premiumized products account for ~50% of WD-40 Multi-Use Product sales, targeting CAGR >10% for net sales of premium format products), driving growth in WD-40 Specialist (global sales $82 million, up 11% y/y, targeting CAGR >10% for net sales), and accelerating digital commerce (e-commerce sales up 10% in FY 2025). - Strategic Enablers: Ensuring a people-first mindset (94% engaged in work in Feb 2025 Global Engagement Survey), building an enduring business for the future (to introduce first bio-based WD-40 Specialist product in upcoming fiscal year), achieving operational excellence in supply chain (global on-time delivery 96.4% in FY 2025), and driving productivity through enhanced systems (investing in AI-enabled systems like D365 and Salesforce).

Financial Performance - Fiscal year 2025 net sales, gross margin (55.1% full-year, 54.7% Q4), adjusted EBITDA margin (18% for FY 2025 and Q4), operating income, and diluted EPS all in line with expectations. - Business Model: Built around gross margin, cost of doing business, and adjusted EBITDA. Fourth quarter gross margin improved due to factors like lower specialty chemical costs and higher average selling prices, offset by unfavorable sales mix and higher logistics costs.

Consolidated net sales for the fourth quarter were $163 million and $620 million for the full fiscal year 2025, each reflecting approximately 5% growth compared to the prior year. Maintenance products account for approximately 95% of total net sales. In the Americas, sales in the fourth quarter decreased 2% to $77 million, making up 47% of global business; full-year maintenance product sales totaled $277 million, up 4% year-over-year. In EMEA, total sales grew 7% to $63 million in the fourth quarter, with maintenance product sales up 8% to $60.7 million; full-year maintenance product sales were $230 million, up 9% year-over-year. In Asia Pacific, sales grew 28% to $23 million in the fourth quarter, making up 15% of global business; full-year maintenance product sales were $84 million, up 6% year-over-year.

2026 Fiscal Year Guidance - Net sales growth from pro forma 2025 results projected to be between 5-9% with net sales between $630 million and $655 million after adjusting for foreign currency impact. - Gross margin expected to be between 55.5-56.5%. - Advertising and promotion investment projected to be around 6% of net sales. - Operating income expected to be between $103 million and $110 million. - Diluted earnings per share expected to be between $5.75 and $6.15, based on an estimated 13.4 million weighted average shares outstanding. Guidance assumes no major changes to current economic environment; if divestiture of Americas Home Care and Cleaning brands is unsuccessful, guidance would be positively impacted.

Risks - Macro-economic challenges such as instability in certain regions and foreign currency exchange fluctuations. - Geopolitical tensions and shifting policy landscapes. - Tariff uncertainty and inflationary pressures.

Q: I just need a clarification. So when you guys gave your initial guidance last year, that excluded the home care sales. Same thing as this year. But when you reported throughout the year, you reported including the home care sales. Is that correct?

A: Hi, Daniel. Yes. So in the press release and in the 10-Q, you'll see those include them, obviously, because those are reported on a GAAP basis or U.S. GAAP basis. In the investor deck on every quarter, we showed a pro forma view so that you could back out those sales, although you can easily see those sales in our footnotes because we do break out the HCCP sales in both The Americas and EMEA regions. But the pro forma view went a step further to take you all the way down in the P&L, you could actually see the impact down to EPS.

Q: I was wondering if you could provide color on that. I mean, I've assumed the premiumization is kind of a mixed tailwind, but I was wondering what's kind of countering that that you pointed out in the gross margin.

A: Oh, I think the mixed what I, so maybe it clear. The mix is a sales mix and other miscellaneous sales or other miscellaneous mix impact. So yes, so the premiumization, if you look at it for the full year, it's more for the quarter, the impact for the quarter, the sales mix, and other miscellaneous mix impacts had a headwind of about 140 basis points.

Q: I wonder if premiumization like an easy reach straw or or something like that would be applied to, like, the specialist product line. Is that something that's being considered? Or are we kind of far from that, or how we should think about it?

A: Hey, Daniel. It's Steve. And so the specialist the specialist yeah. The whole specialist line, you know, sells at a higher gross margin as well. So effectively, that is a premium. Every kind of the WD-40 Specialist we sell is margin accretive. And so that is a separate form of premiumization. Having said that, we already in several countries around the world, we've also launched particularly Easy Reach delivery system on things like our penetrant product, which you have in The U.S. and one or two other countries around the world. And so and certainly, Smart Straw, we leverage as part of our specialist premiumization strategy. So yes, it applies to both the core product and to specialists as well, Dan.

Q: I just wanted to ask if you could, you know, give any color or thoughts on potential gross margin headwinds and tailwinds that you're expecting within your 2026 guidance?

A: Hi, Keegan. This is Sara. So yes, I would say in our guidance, we have, you know, we have built in both headwinds and tailwinds. We are seeing stability from a cost input standpoint. And when you look at what we've built into our gross margin guidance, if oil stays at the levels that they're at right now, that could be a small tailwind for us since we've tried to be a little bit conservative in what we've built in for an oil assumption because you just never really know which direction that is going to go. There are a number of cost-saving initiatives that we have in the pipeline based on actions that we've taken in FY 2025. That will feed into FY 2026 along with new actions that we've built around cost supply chain optimization and continuation of the efforts that we've had in FY 2025 on the sourcing side. We had a lot of success this year from a global sourcing standpoint and our cost savings expectations that we had this year. Some of those will then benefit our margin going into FY 2026.

Q: As I looked at kind of the sales results in Asia Pacific specifically, say that five times, it looks like the distributors accounted for, you know, most of the growth there. What what did kind of the runway left for, I guess, the that distributor market?

A: Sure. It's a very, very long runway. And so China also had a good well, all three areas were up, right? So Australia, I believe, was up 6% for the year. China was up in double digits. And then yes, for the fourth quarter in particular, we had a very strong comeback in distributor. And so as we look at all of those markets, there's a very, very long runway for growth. In places like Indonesia, where we've introduced our new kind of hybrid business model, it's been growing at a CAGR of around 20% over the past few years. Many of those other key markets across the Asia region have a very, very long runway for growth. And so the improved performance in the back half in Asia and there may be some kind of impact in terms of customer distributors are a little more lumpy, right? And so going into the first quarter, you may see some kind of pullback. That's just really, again, kind of inventory management in Asia for Q1. But beyond that, we see a really strong rebound in Asia Pacific later in the fiscal year.