This Household Product Makes for a Smooth Running Portfolio
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
WD-40 Company (NASDAQ: WDFC) is best-known for its WD-40 lubricant and sprays that we all have under the sink or in the garage. The company also makes hand cleaners, carpet cleaners, bathroom cleaning sprays, toilet bowl cleaners. Its brands besides WD-40 include 3-IN-ONE, BLUE WORKS, Spot Shot, X-14, 2000 Flushes, Lava, Carpet Fresh, Solvol, no vac, and 1001.
WD-40 blew away earnings expectations for the third quarter. Earnings came in at $0.66 per share whereas the street was only expecting $0.56 per share. The stock rose 14% in after-hours trading after the results were released.
Overall, it was a great quarter for the company. Net sales rose 7% to $93.1 million. Sales of the company's flagship WD-40 product grew 9%. Sales in the Americas segment rose 9% and account for 51% of total sales. Sales in Europe were up 8% and account for 35% of global sales. Sales in the Asia-Pacific region were flat and account for 14% of global sales. The company's gross margin in the third quarter was 51.3%.
In looking forward, WD-40 raised its guidance for earnings to $2.40 to $2.48 per share for this year, which is higher than analyst's expectations for $2.39 per share. Furthermore, the board approved a $60 million repurchase plan. The company pays an annual dividend of $1.24 per share for a yield of 2.1%. The dividend payout ratio is 48% and slightly below the company's stated goal for a 50% payout ratio. The dividend will likely increase as earnings continue to increase and remain strong.
For growth, WD-40 just rolled out its new motorbike line in the U.K. This new product will meet maintenance and repair needs for motorcycle enthusiasts and mechanics in garages, workshops and motorcycle race events. The company is considering expanding this new product into other markets. Separately, the company just launched WD-40 BIKE that is marketed to independent bike distributors. These products specialize in cleaning, protecting and lubricating bikes.
WD-40 is also looking at potential acquisitions and has not identified any new targets. The company has only $50 million in debt, so it can easily finance an acquisition. The company is also looking at strategic alternatives for its home care and cleaning products. These products are not growing as fast as the WD-40 branded products and a divestiture or sale is a possibility.
Lastly, WD-40 is developing products for the lawn and landscape segment. These products are designed to keep machine powered lawn equipment running and operating smoothly. This new product line is being evaluated and may be launched next year. Lawn equipment is a huge market opportunity for WD-40 branded products.
Other household product companies
Two other companies that have household items in every home are Church & Dwight (NYSE: CHD) and Clorox (NYSE: CLX). Church & Dwight is best-known for its Arm & Hammer baking soda line. Other products from Church & Dwight include Aim toothpaste, FIRST RESPONSE pregnancy kits, Nair hair remover and Trojan Condoms. Clorox is best-known for its Clorox bleach. Other products include Formula 409, Liquid Plumr, Pine-Sol, Burt's Bees, Tilex, S.O.S., Glad storage bags, Fresh Step cat litter, Kingsford charcoal, and Hidden Valley Ranch salad dressing.
In the first quarter of this year, Church & Dwight reported earnings of $0.76 per share compared to $0.66 in 2012. Revenues rose 12.8% to $779 million. Gross margin for the quarter was 44.9%. The company repurchased $50 million in stock and paid back $50 million of debt.
Going forward, Church & Dwight will continue to benefit from the positioning of its Arm & Hammer brand. Arm & Hammer is considered a value brand that delivers high-quality at a lower price. Arm & Hammer Laundry Detergent is now the number three laundry detergent in the U.S. The brand has delivered 13 consecutive quarters of share growth. The company's other laundry detergent XTRA is now the number two liquid laundry detergent in the U.S. Between these two brands, Church & Dwight is now the number two laundry detergent company in the U.S.
Church & Dwight will benefit in the second quarter from increased marketing spending in the first quarter and new products. The company increased marketing spending by $10 million, or 30 basis points. Church & Dwight also introduced new products and over the past four years, new products accounted for 50% of organic revenue growth. For the full year, management expects earnings per share to increase 14% over last year to $2.79 per share.
For Clorox, the latest quarter was a disappointment. Sales rose only 1% while earnings fell 2%. The company's gross margin decreased 20 basis points to 42.1%.
Going forward, Clorox expects sales growth for the rest of the year to be between 2% and 4%. The sales growth of 1% seen in the latest quarter was from price increases. The company expects sales volumes to increase and that coupled with price increases led to the sales growth forecast for the rest of the year. Sales were also affected by winter weather, which led to lower charcoal sales for its Kingsford brand.
In international markets, the fastest-growing brand for Clorox is its Burt's Bees segment. Sales there are growing in the double-digits. In terms of all brands, a strong segment for growth is in Latin America. Sales in Latin America grew 4% in the last quarter. This is in spite of the currency losses the company suffered in Venezuela and Argentina as their respective currencies have dropped.
WD-40 is the one household products company that should be in your portfolio. This is evidenced by its most recent earnings report and the economic moat of its core WD-40 products. WD-40 is the one lubricant everyone thinks of when there's a squeaky door or a stuck window. The company continues to find new products with its WD-40 formula and I see further gains ahead for this company.
After WD-40, I would rate Church & Dwight second and Clorox third. Church & Dwight is seeing growth in its laundry detergent business. Clorox is not growing as fast as WD-40 or Church & Dwight and that's why I think they are better investments.
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Mark Yagalla has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!