WD-40 (WDFC): A Margin Story Amid Mixed Revenue—Is This a Buying Opportunity?

WD-40 Company (WDFC) delivered a mixed Q3 2025 report, with revenue missing estimates but margins surging to record levels, sparking a debate over whether its shares present a compelling entry point. Let's dissect the numbers, peer dynamics, and valuation to determine if the pullback offers value or signals caution.

Q3 Results: Revenue Miss, Margin Triumph

WD-40's Q3 revenue rose just 1% year-over-year to $156.9 million, falling short of analysts' $160.6 million consensus. The miss was partly due to currency headwinds ($1.6M drag) and softness in regions like Canada and the Middle East. However, margin resilience shone:
- Gross margin hit 56.2%, up 310 basis points from 53.1% a year ago, surpassing its 55% long-term target.
- EPS jumped 5% to $1.54, beating estimates ($1.42), driven by cost discipline and higher-margin products like WD-40 Specialist, which surged 15% in EIMEA.

Peer Comparison: WD-40's Margin Edge

While WD-40's revenue growth lagged peers, its margin expansion outperformed:
- McCormick (MKC) saw net sales dip 0.3%, with margins pressured by inflation, leading to a 2% net income decline. Its stock fell 8% post-earnings.
- General Mills (GIS) posted a 5% revenue drop, yet maintained a 13.03% net margin through cost cuts. WD-40's margin improvement highlights its operational agility in a tough sector.

FY25 Guidance: Narrowed Ranges, Elevated EPS

The company narrowed its FY25 revenue guidance to $600–620 million (+6–9% growth) and raised EPS to $5.30–5.60, up 12–18% from 2024. Analysts now see a $296 average 12-month price target, implying 28.8% upside from current levels ($234.58). Key drivers:
- Divestiture upside: Plans to sell non-core homecare products (contributing 4% of sales) could add $20 million in sales, $6 million in operating income, and $0.33 in EPS.
- Cost control: Advertising expenses fell 2% to 5.8% of sales, while gross margin is expected to stay near 55–56%.

Catalysts vs. Risks

Bull Case (Buy):
- Valuation: At $234.58, WDFC trades at 14.7x FY25E EPS versus its 5-year average of 16.5x. The $296 price target suggests undervaluation.
- Dividend yield of 0.8% and a $32.2M remaining buyback signal shareholder focus.
- Divestiture execution: If completed, it would streamline operations and boost margins further.

Bear Case (Hold):
- Currency risks: The dollar's strength continues to weigh on international sales, especially in the Americas (-$1.8M drag).
- Consumer staples slowdown: Peers like GIS and MKC face sluggish demand, raising questions about WD-40's ability to sustain growth in a cost-conscious market.

Investment Thesis

WD-40's margin outperformance and FY25 guidance upgrades suggest management is executing strategically. The $296 price target implies significant upside if the divestiture delivers and margins hold. However, investors must weigh currency risks and sector-wide softness.

Recommendation: Buy with a 6–12 month horizon, targeting $275–$290, but monitor macro conditions and divestiture progress. For cautious investors, wait for further dips below $220 before accumulating.

Conclusion

WD-40's margin resilience and FY25 guidance suggest it's navigating challenges better than peers. The stock's undervaluation and near-term catalysts make it a selective opportunity, but the path to $296 hinges on executing the divestiture and weathering currency headwinds. For now, the pullback looks like a buying opportunity for investors with a medium-term focus.