WD-40's Margin Surge and Strategic Divestiture Signal a New Era of Value Creation

The WD-40 Company's Q3 2025 earnings report delivered a clear message: this maintenance-products powerhouse is sharpening its focus on high-margin core offerings while shedding non-core assets to unlock shareholder value. The results, including a gross margin of 56.2%—a full 310 basis points higher than a year ago—and a strategic divestiture plan for its struggling homecare and cleaning products (HCCP) portfolio, underscore a disciplined shift toward profitability. Combined with raised guidance for FY2025 diluted EPS of $5.30–$5.60 (up 12–18% year-over-year), these moves position WD-40 as a compelling investment in an era of margin-driven equity performance.

Margin Expansion: A Year Ahead of Schedule

The company's gross margin has long been a key metric for investors, as it directly ties to the health of its core business. In Q3 2025, WD-40 not only hit its 55% long-term margin target but surpassed it by 120 basis points, reaching 56.2%. This acceleration—originally expected by 2026—was driven by three factors:
1. Operational efficiencies, including better supply chain management and cost controls.
2. A favorable product mix shift toward higher-margin maintenance products (WD-40 Multi-Use and Specialist Line), which now account for 96% of net sales.
3. Volume recovery in key regions like the Americas and EIMEA, where demand for maintenance solutions remains robust.

This margin strength is critical because it suggests WD-40 can sustainably grow profitability even as it sheds lower-margin HCCP businesses. The year-to-date gross margin of 55.2% (up 210 basis points) reinforces this trend, giving management confidence to raise operating income guidance to $96–101 million for FY2025.

Strategic Divestiture: Simplifying for Growth

The decision to divest the HCCP portfolio—responsible for just 4% of Q3 sales—is a textbook example of focusing on core strengths. While the divestiture will reduce annual sales by ~$20 million and operating income by ~$6 million, it eliminates a segment that has been declining 17% year-over-year in key markets like the Americas. The move also reduces complexity:
- Capital allocation will now be directed toward high-margin maintenance products, which face less promotional pressure and volatility.
- Shareholder returns benefit directly: the company's $51.68 million cash balance and $32.2 million remaining under its buyback plan will likely be deployed to offset the EPS drag from the sale (estimated at $0.33).

Crucially, the divestiture is a strategic pivot, not a failure. WD-40 has long been clear that its core competency lies in maintenance solutions, and shedding underperforming assets aligns with its “one brand, one mission” strategy. Even if the sale falls through, the company's results would get an immediate boost—highlighting the binary upside here.

EPS Guidance: A Bullish Signal for Shareholders

The raised FY2025 EPS guidance of $5.30–$5.60 (up from prior estimates) is the most investor-relevant metric here. Assuming the HCCP sale closes, this represents 12–18% growth over 2024's $4.67. Even with the divestiture's headwinds, the company is banking on margin expansion and cost discipline to offset the loss of HCCP revenue.

Investors should note that WD-40's dividend yield of ~1.2% and extended share repurchase plan (now running through August 2026) further solidify its commitment to capital returns. With a forward P/E ratio of ~20x (vs. ~25x for the S&P 500), the stock appears reasonably priced if earnings growth materializes.

Risks and Considerations

• Execution risk: The HCCP sale must close on time to avoid a drag on FY2025 results.
• Currency headwinds: Weaker foreign exchange rates (especially in EIMEA) could pressure margins.
• Supply chain volatility: Sustained disruptions could reverse the volume recovery seen in Q3.

Investment Thesis: Buy the Margin Play

WD-40's Q3 results and strategic moves make it a compelling pick for investors focused on margin-driven growth. The company is proving it can deliver on its financial targets while simplifying its business model—two factors that often precede multi-year outperformance.

Action Items:
- Buy: For investors seeking a steady performer with clear margin tailwinds and shareholder-friendly policies.
- Hold: If you're already invested, but monitor the HCCP sale's progress closely.

WD-40's margin surge and strategic divestiture aren't just tweaks—they're foundational shifts. With a core business now firing on all cylinders and non-essential distractions on their way out, this could be the start of a sustained value-creation cycle.