WD-40 (WDFC): Outlook Raises Concerns Despite Strong Q1 Performance

WD-40 Company, the iconic manufacturer of its namesake lubricant products, recently reported robust earnings and sales growth for its fiscal first quarter. However, its stock experienced a sharp decline, falling to six-month lows.

The market's muted response to these results highlights investor concerns over the company’s unchanged full-year guidance and the potential headwinds it faces in maintaining its growth trajectory.

Q1 Performance Highlights

In the fiscal first quarter ending November, WD-40 delivered better-than-expected results:

Earnings per share increased by 9 percent to $1.39, beating consensus estimates.

Revenue rose 9.2 percent year-over-year to $153.3 million, driven by solid performance in key markets.

The Americas region led the charge, with sales climbing 8 percent to $69.4 million. This growth was supported by strong demand for the WD-40 brand and promotional activities.

The EIMEA region, encompassing Europe, India, the Middle East, and Africa, recorded an impressive 18 percent sales growth, buoyed by maintenance product sales and increased adoption of WD-40 Specialist products.

Despite these positive trends, sales in the Asia-Pacific region, which includes markets like China and Australia, fell by 4 percent to $26.6 million. Declining distributor market sales in Asia remain a concern, particularly given the region’s long-term growth potential.

Unchanged FY25 Guidance Sparks Concerns

WD-40’s decision to maintain its previously lowered fiscal 2025 guidance overshadowed its strong quarterly results. The company reaffirmed its outlook for earnings between $5.20 and $5.45 per share on revenue growth of 6 to 11 percent.

This guidance suggests that management anticipates slower growth in the coming quarters. To meet the midpoint of its EPS guidance, WD-40 would need to average $1.31 in earnings per share over the next three quarters—below its Q1 performance.

The lack of upward revision to guidance, despite the strong start to the fiscal year, signals potential challenges ahead. Management’s caution reflects concerns over economic uncertainty, uneven performance across regions, and potential disruptions in key markets like Asia.

Regional Insights and Growth Drivers

The company's regional performance underscores a mixed picture:

The Americas region continues to show resilience, supported by strong retail foot traffic and promotional activities in the United States. This stability provides a solid foundation for the company’s overall performance.

In contrast, the Asia-Pacific region remains a weak spot. Declining distributor sales in key Asian markets suggest challenges in maintaining momentum in this geography.

The EIMEA region’s double-digit sales growth offers a bright spot, reflecting progress in geographic expansion and the successful execution of WD-40’s “Must-Win Battles” framework.

Strategic Initiatives and Challenges

WD-40 has outlined several strategic priorities under its “Must-Win Battles” framework, aimed at driving long-term growth:

Premium Formats. The company’s focus on higher-margin premium formats of WD-40 is a critical driver of revenue and profit growth.

Specialist Products. WD-40 Specialist, which targets niche maintenance and industrial applications, saw a 14 percent year-over-year sales increase in Q1. This product line remains a significant growth lever.

Portfolio Optimization. WD-40 is divesting its underperforming homecare and cleaning product portfolio, with a sale expected in Q2. This move aligns with its strategy to focus on core growth areas and streamline operations.

Despite these initiatives, the company faces significant challenges, including slowing growth in Asia-Pacific, persistent inflationary pressures, and potential macroeconomic headwinds.

Investor Sentiment and Stock Performance

The market’s reaction to WD-40’s Q1 results highlights a key issue: investors are looking for stronger signals of future growth. While the company’s performance in the Americas and EIMEA regions is encouraging, concerns over Asia-Pacific and the lack of guidance upgrades have kept sentiment subdued.

The stock’s decline reflects broader concerns about the sustainability of WD-40’s growth trajectory. Until management provides greater clarity on its ability to navigate regional challenges and deliver stronger performance in the second half of the fiscal year, the stock may face continued pressure.

Conclusion

WD-40’s fiscal first-quarter results demonstrate the company’s resilience and ability to deliver strong performance in key markets. However, its unchanged guidance for fiscal 2025 has raised questions about its growth outlook and ability to sustain momentum.

Investors will closely watch the company’s execution of its strategic initiatives, particularly in addressing weaknesses in the Asia-Pacific region and optimizing its product portfolio. While WD-40’s fundamentals remain solid, its near-term stock performance will depend on management’s ability to instill confidence in a brighter second half of the year.

For long-term investors, WD-40’s focus on innovation, geographic expansion, and premium product growth offers a compelling case. However, in the short term, the stock may remain volatile as the market seeks greater clarity on the company’s growth prospects and regional performance.