WD-40 Company's Q3 FY25 Earnings: A Foundation of Sustained Growth and Undervalued Potential

The WD-40 Company (NASDAQ: WDFC) delivered a resilient performance in its third quarter of fiscal 2025, reporting record net sales of $156.9 million—a 1% year-over-year increase—amid global macroeconomic headwinds. While the top-line growth may appear modest, the results underscore a strategic shift toward high-margin maintenance products, operational efficiency gains, and geographic diversification. This article dissects the drivers of WD-40's sustained momentum and evaluates its valuation relative to its financial health and growth trajectory, concluding that the stock presents a compelling buy opportunity.

Earnings Highlights: A Record Quarter Built on Core Strengths

WD-40's Q3 FY25 results marked its highest quarterly sales in history, with net income rising 6% to $21.0 million and diluted EPS increasing 5% to $1.54. Key highlights include:
- Maintenance Product Dominance: These products, which include the iconic WD-40 Multi-Use and Specialist lines, accounted for 96% of sales and grew 2% year-over-year. The U.S. and Asia-Pacific markets were standout performers, with China and Indonesia driving double-digit sales growth.
- Margin Expansion: Gross margin surged to 56.2%, up 310 basis points from 2024, exceeding the company's long-term 55% target. This reflects cost management, pricing discipline, and a focus on high-margin maintenance products.
- Global Reach: With operations in 176 countries, WD-40 leveraged regional strengths:
- Americas: 4% sales growth, led by U.S. promotional campaigns.
- Asia-Pacific: 7% growth, fueled by China and distributor markets.
- EIMEA: A 5% decline was attributed to softness in Turkey and the Middle East, though WD-40 Specialist sales in France and Germany offset some weakness.

Growth Drivers: Maintenance Products and Strategic Divestitures

WD-40's strategy centers on its maintenance product franchise, which generates outsized margins and recurring demand. The 2% growth in this segment reflects disciplined market penetration:
- Geographic Expansion: In Asia-Pacific, WD-40 capitalized on emerging markets like Indonesia and Taiwan, where distributor partnerships expanded shelf space. In Europe, Specialist sales rose 15% in France and the DACH region (Germany, Austria, Switzerland) due to bike product promotions.
- Divestiture Focus: The company announced plans to exit its low-margin homecare and cleaning product (HCCP) portfolios in the Americas and U.K. While HCCP sales fell 17%, this shift will free resources to fuel maintenance product growth. Analysts estimate the divestiture could add $20 million in sales, $6 million in operating income, and $0.33 in EPS annually if executed.

ROIC has averaged 26% over the past decade, reflecting efficient capital allocation. The metric remains robust, supporting reinvestment in high-return initiatives.

Valuation: Underappreciated Metrics and Upside Potential

WD-00's valuation appears undemanding relative to its financial metrics and growth profile. Key metrics to consider:
1. ROIC Trends: At 26% (as of August 2024), WD-40's return on invested capital is exceptional. High ROIC signals capital efficiency and strong pricing power, which are critical in a competitive consumer goods market.
2. Sales Per Employee: At $920,000 per employee, WD-40 demonstrates operational leverage. This metric suggests further margin expansion is achievable as the company scales.
3. Debt-Free Balance Sheet: With $51.7 million in cash and no debt, WD-40 has flexibility to pursue acquisitions, repurchases, or dividends. The company recently extended its $50 million share repurchase plan and raised its quarterly dividend to $0.94 per share.

WD-40 outperforms peers in sales per employee, highlighting its lean, high-productivity operations.

Investment Thesis: Buy on Undervaluation and Strategic Clarity

The stock trades at a 16.8x forward P/E (based on $5.60 EPS guidance), below its five-year average of 20x. Analysts project $5.30–5.60 in EPS for FY2025, with 12–18% growth over FY2024. The average 12-month price target of $296 implies a 28% upside from current levels (~$229).

Catalysts for revaluation include:
- Margin Expansion: The 56.2% gross margin is a structural improvement, not a one-off.
- Divestiture Completion: Removing low-margin businesses will boost EPS and free cash flow.
- Share Buybacks: $32 million remains under the $50 million repurchase plan, with a low float (~25%) enhancing per-share metrics.

Risks to Consider

• Currency Fluctuations: A $1.6 million sales drag in Q3 due to foreign exchange could worsen if the U.S. dollar strengthens further.
• Supply Chain Volatility: Input cost pressures or distribution disruptions could squeeze margins.

Conclusion: A Buy with a Long-Term Horizon

WD-40's Q3 results confirm its ability to grow organically through its maintenance product franchise while strategically pruning non-core assets. With a fortress balance sheet, industry-leading margins, and a valuation that undervalues its operational excellence, the stock offers a compelling risk-reward profile. Investors seeking a defensive consumer goods name with growth legs should consider adding WDFC to their portfolios.

Rating: Buy
Price Target: $296 (28% upside from $229)

Data as of July 10, 2025. Past performance does not guarantee future results.