WD-40 Company Balances Margin Gains With Asia Weakness

WD-40 Company ((WDFC)) has held its Q1 earnings call. Read on for the main highlights of the call.

WD-40 Company Strikes Cautiously Optimistic Tone Amid Margin Gains and Asia Drag

WD-40 Company’s latest earnings call carried a cautiously optimistic tone, balancing solid operational execution and product momentum against visible pressure on profitability and Asia Pacific distributor weakness. Management highlighted expanding gross margins, robust growth in direct markets, strong demand for higher-margin products like WD-40 Specialist, and record employee engagement as reasons for confidence, while also acknowledging elevated operating costs, softer Asia distributor volumes, and quarter-to-quarter volatility that weighed on earnings. The leadership team reiterated faith in a stronger second half and reaffirmed full-year guidance, but uncertainty around the home-care divestiture and above-target cost ratios kept the mood measured rather than outright bullish.

Steady Top Line: Maintenance Products Anchor Modest Growth

Net sales for the quarter came in at $154.4 million, up 1% year over year, with the core maintenance portfolio doing the heavy lifting. Maintenance products, which account for roughly 96% of WD-40’s business, generated $148.9 million in revenue, up 2% from the prior year. While the headline growth rate is modest, the mix continues to tilt more heavily toward the company’s strategic maintenance category, underscoring WD-40’s ongoing shift away from non-core home-care assets and toward its primary brand franchise.

Direct Markets Deliver Growth in Line With Long-Term Targets

Direct markets were a crucial source of strength, representing 83% of global sales and posting an 8% advance in maintenance-product revenue during the quarter. That growth rate is firmly in line with WD-40’s long-term algorithm, suggesting that where the company controls distribution more closely, the business continues to perform well. This dynamic also highlights the contrast between direct markets and distributor-led regions, where timing and inventory decisions by partners can create more volatility in reported results.

WD-40 Specialist Shines as High-Margin Growth Engine

WD-40 Specialist, the company’s targeted, higher-margin line tailored to professional and advanced consumer use-cases, continued to outperform. Sales hit $22.5 million, an 18% year-over-year increase, signaling strong traction in this premium portfolio. The outperformance supports the company’s strategy to deepen its presence in specialized maintenance applications, expand wallet share with professional users, and further enhance margin mix as Specialist grows as a percentage of total sales.

E-Commerce and Premium Formats Support Pricing Power

Digital channels and premium packaging formats continued to drive incremental growth and profitability. E-commerce sales rose 22% in the quarter, while premiumized formats like Smart Straw and EZ REACH grew 4% and now account for roughly 49% of WD-40 Multi-Use Product sales. This shift toward higher-value, convenience-driven formats supports WD-40’s pricing power and is a key contributor to margin expansion, as premium SKUs typically carry better unit economics than traditional packaging.

Gross Margin Expansion Underscores Operational Discipline

Gross margin was a standout positive, rising to 56.2%, up 150 basis points sequentially and 140 basis points year over year. On an ex-assets-held-for-sale basis, gross margin was an even stronger 56.7%. The expansion was driven by approximately 110 basis points of benefit from lower specialty chemical and can costs and around 60 basis points from higher average selling prices. This combination of input-cost relief and disciplined pricing suggests WD-40 is effectively managing both sides of the margin equation, and sets a constructive foundation for future earnings once operating expenses normalize.

Regional Strength in Americas, EMEA, and China

Regionally, performance was solid in key markets outside of Asia distributor channels. In the Americas, sales rose to $71.9 million, up 4% year over year, with maintenance-product revenue growing 5%. EMEA, excluding the divested business, delivered sales of $58.7 million, up 5%, supported by particularly strong 27% growth in WD-40 Specialist. China also posted about 8% growth, powered by distribution expansion and promotional activity. Together, these regions demonstrated that the core brand continues to resonate globally where distribution and execution remain closely managed.

People and Operations: High Engagement and Strong Supply Chain

WD-40 emphasized its internal strengths, citing a record 95% employee engagement index and 97% of employees reporting active collaboration. On the operations side, the global supply chain delivered 97.6% on-time performance while production capacity was expanded to support growth initiatives. These metrics reinforce the company’s narrative that its culture and operational backbone remain key competitive advantages, helping it execute through regional and macro variability.

Capital Allocation: Buybacks, Higher Dividend, and Confidence in the Plan

The company continued to return cash to shareholders while investing for growth. WD-40 repurchased 39,500 shares for $7.8 million and still has roughly $22 million remaining under its current authorization. The board also approved an increase in the quarterly dividend, underscoring confidence in cash generation and long-term prospects. Importantly for investors, management reaffirmed its fiscal 2026 pro forma guidance on sales, margins, and earnings, signaling that the current earnings softness is seen as transitory rather than structural.

Asia Pacific Distributor Weakness Weighs on Results

The clearest soft spot was Asia Pacific, where sales dropped to $23.9 million, down 10% year over year, a decline of $2.7 million. WD-40 Multi-Use Product in the region fell 12%, and distributor markets in Asia saw sales decline by about £3.3 million, roughly a 33% drop, due primarily to timing-related order and inventory adjustments. Management framed these issues as largely temporary and tied to distributor behavior rather than end-user demand, but the pullback highlights the risk that distributor channels can inject significant volatility into quarterly results.

Cost of Doing Business Above Target Range

Despite gross margin gains, profitability was pressured by elevated operating costs. The cost of doing business rose to 40% of net sales, well above the company’s 30–35% target range, with expenses increasing by $4.6 million, or 8%, year over year. Foreign exchange was a headwind of about $1.3 million, and higher employee-related expenses added approximately $2.8 million. While management characterized some of this spending as planned and front-loaded, the current cost profile is a key area to watch as WD-40 works to align its operating model with its long-term margin goals.

Earnings Under Pressure Despite Healthy Top-Line Mix

Higher costs and regional mix issues translated into weaker bottom-line performance. Adjusted EBITDA margin declined to 17%, down from 18% a year ago. Operating income fell 7% to $23.3 million, net income declined 8% to $17.5 million, and diluted EPS dropped 8% to $1.28. On a pro forma basis, excluding the divested business, operating income and net income were down about 45%, highlighting how heavily the quarter’s profitability was affected once non-core assets are stripped out. For investors, this underscores that while the top-line mix is improving, the earnings recovery will depend on normalizing costs and stabilizing distributor markets.

Home-Care Divestiture Casts a Shadow Over Comparability

The ongoing effort to divest the Americas Home Care & Cleaning brands remains a key swing factor. Management reported that the sale process is active with multiple discussions underway but reiterated that there is no certainty of completion. The pending divestiture continues to cloud year-over-year comparisons and guidance optics. WD-40 noted that if the sale does not occur, it would lift full-year guidance by about $12.5 million in net sales, $3.6 million in operating income, and roughly $0.20 in EPS, highlighting the materiality of this non-core portfolio to near-term reported results.

Regional Margin Headwinds Highlight Mix and Input Risks

While consolidated gross margin improved, regional margin performance was not uniform. Asia Pacific gross margin slipped 70 basis points to 58.9%, largely due to lower average selling prices tied to sales mix. In EMEA, higher filling and filling-fee costs trimmed gross margin by roughly 50 basis points. Management also reiterated ongoing exposure to commodity, tariff, and inflationary pressures across markets. These factors mean that while current margin trends are positive at the consolidated level, they remain vulnerable to shifts in regional mix and input cost dynamics.

Distributor-Driven Volatility Adds Noise to Quarterly Picture

Marketing distributors, which account for about 17% of WD-40’s sales, contributed significantly to quarter-to-quarter swings in reported results. The timing of promotions and order patterns in these channels amplified the Q1 softness and created uneven visibility in some markets. Management emphasized that this volatility is more about timing than underlying demand, but for investors, it underlines the need to look beyond single-quarter figures and focus instead on multi-quarter trends in core demand and margin performance.

Front-Loaded Spending and Seasonal Costs Inflate Ratios

First-quarter cost ratios were also impacted by timing-related investments and seasonal expenses. Planning activities, increased travel, and incremental headcount pushed the cost of doing business above the target range. Advertising and promotion (A&P) spending came in at 5.3% of sales, slightly below 5.5% a year ago, but management indicated that A&P is expected to move back toward approximately 6% of sales for the full year as planned brand-building programs ramp. This suggests some of the current margin pressure may ease as revenue builds into these fixed cost levels over the year.

Minor Reporting Inconsistencies Spark Questions but Not Concerns

The call also featured a minor reporting inconsistency regarding the quarterly dividend level, with different figures cited at different points. While this created some confusion in the transcript, it does not appear to alter the company’s broader capital allocation narrative or underlying fundamentals. Still, such discrepancies highlight the importance of clear and consistent communication, especially as investors parse details in a period of earnings volatility and strategic transition.

Reaffirmed 2026 Guidance and Back-Half Rebound Expectations

Management reaffirmed its fiscal 2026 pro forma guidance, projecting net sales of $630–$655 million, representing 5–9% growth after foreign-exchange effects, and a gross margin of 55.5–56.5%. The company plans to invest around 6% of sales in advertising and promotion, targeting operating income of $103–$110 million and diluted EPS of $5.75–$6.15, both up 5–12% on a pro forma basis. The outlook assumes a tax rate of 22.5–23.5% and is based on roughly 13.4 million weighted average shares. Management expressed confidence in landing toward the mid-to-high end of these ranges, contingent on no major macroeconomic disruptions and supported by back-half initiatives and margin improvement. The guidance excludes the Americas Home Care & Cleaning brands currently held for sale, though management noted that failure to divest would provide an additional uplift to sales, operating income, and EPS.

In summary, WD-40’s earnings call painted a picture of a fundamentally healthy brand portfolio generating solid gross margin expansion and strong growth in strategic areas like direct markets, WD-40 Specialist, and e-commerce, but wrestling with elevated costs, Asia distributor weakness, and noisy comparisons tied to the pending divestiture. For investors, the key takeaways are that core demand and margin structure appear intact, management remains confident enough to reaffirm multi-year guidance, and near-term earnings volatility is driven more by timing and investment than by structural deterioration. How quickly the company can normalize costs, stabilize Asia, and resolve the home-care portfolio will likely determine whether the stock can fully reflect the longer-term growth and margin story outlined on the call.