Consider This Consumer-Products Company for Your Portfolio
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WD-40 (NASDAQ: WDFC), with its headquarters in San Diego, is a global consumer-products company committed to delivering unique, high-value, and easy-to-use solutions for a wide variety of maintenance needs of "doers" and "on-the-job" users. So one can expect the company's products to be widely used in various applications, which means that it has a moat around its business.
Its recent results confirm the fact, and with WD-40's brands encompassing multi-purpose maintenance products for household, marine, automotive, construction, repair, sporting goods, gardening, and various industrial applications, I think that it can do well in the future.
It sells its products through a number of avenues, such as mass retail and home- center stores, warehouse-club stores, grocery stores, hardware stores, automotive-parts outlets, and industrial distributors and suppliers. The wide range of its products and its availability at maximum customer touch points enables the company to be a market leader.
A look at the results and prospects
In the third quarter, the company's revenue was $93 million, which is an increase of 7% over the previous year's period. Net income was $10.3 million, which is an impressive increase of 12% over the previous year's period. Diluted earnings per share came in at $0.66 in the quarter, up from $0.57 per share in the year-ago period.
The company topped analysts’ estimates comfortably in the quarter. It continues to return capital to shareholders through share buybacks and the board approved another $60 million for share repurchases. The company focused on two major areas to achieve such phenomenal growth -- its customer-specific promotional program in the U.S., and double-digit growth in European distributor markets. Also, the launch of a new motorbike line in the U.K. during the third quarter and WD-40 Specialist products contributed in solidifying the company's leadership position in the market place with incremental sales.
The company has continued to research and develop new WD-40 Specialist products in the lawn and landscape segment. This new product line may be launched in fiscal 2014, after due consideration.
It is also putting a lot of emphasis on development of its workforce. In the third quarter, WD-40 completed its "think big" reorganization by realigning innovation teams and providing opportunities for home-care and cleaning-product sales so that it could also support customers and initiatives under multipurpose maintenance products.
WD-40 is strategically looking at acquisitions and partnerships, and the strategic alternatives for its brands and products, especially for the Americas home-care and cleaning-products segment. However, no decision has been made regarding the future plans for the home-care and cleaning-product brands.
Although WD-40 is involved in many niche areas where it enjoys a leading market position, it competes with Church & Dwight (NYSE: CHD) and Clorox (NYSE: CLX) in various segments of consumer products, such as home care and cleaning.
Church & Dwight is best-known for Arm & Hammer baking soda, apart from other products. The company operates in three segments – consumer domestic, consumer international, and the specialty products division. It is focused on improving its penetration in more markets and this was the reason why it recently decided to increase its marketing budget. Most importantly, its new products are the main reason why WD-40 needs to keep a close watch on it. In the last four years, Church & Dwight's new products have contributed more than 50% of organic revenue growth, and if this trend continues, it will provide good competition to WD-40.
Clorox manufactures and markets consumer and professional products globally and has various brands, such as Clorox, Formula 409, Green Works, Clorox Healthcare etc. The company did not perform well in the previous quarter, but it is intent on getting better. It is looking at growth in sales to the extent of 2% to 4% this year, and expects global sales to help improve performance. Clorox, well known for its bleach, is also looking at South America as its next growth frontier. But, I don't think that it is a better investment than WD-40 since Clorox is already big in size and has limited growth prospects.
WD-40 is eyeing expansion in other markets and is aiming to be the global leader in its product categories. The company also plans to concentrate on the new motorbike line, which was introduced in the third quarter in the U.K. Riding on its better-than-expected performance, WD-40 is in an excellent position to grow revenue on a worldwide basis. Its global sales and distribution infrastructure and its strength in brand development should make sure the same is achieved in the coming quarter and fiscal year, too.
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