WD-40 Q3: Can Pricing Power Hold as Input Costs Climb?

WD-40 Company (WDFC) reports fiscal third-quarter results after the close Thursday. The market is watching whether the maintenance-products maker can sustain the pricing power that has supported margins through two years of cost inflation.

Consensus calls for earnings of $1.56 a share on revenue of $172.8 million. That would mark a roughly 4% revenue gain from the year-ago quarter, a deceleration from the 6% growth posted in the first half of the fiscal year.

The deceleration matters because WD-40's gross margin has been the stock's primary support. The company reported a 53.6% gross margin in the fiscal second quarter, up from 52.1% a year earlier, driven by price increases and favorable product mix. The question is whether that trajectory holds as input costs – particularly petroleum-based solvents and aerosol propellants – have ticked higher through the summer.

Analysts at several firms have flagged the risk. The company's flagship WD-40 Multi-Use Product relies on a supply chain that has seen lubricant-grade base oil prices rise about 8% since April, according to industry data. WD-40 has historically hedged some of that exposure through forward contracts. The lag between cost increases and price adjustments typically runs one to two quarters.

On the revenue side, the Americas segment – roughly half of total sales – has been the growth engine, with home-center and hardware channel demand holding steady. The EMEA region has been softer, with distributor destocking in parts of Europe and currency headwinds from a stronger dollar against the euro and pound.

WD-40's industrial division, which sells maintenance products to factories and commercial fleets, has been a quieter contributor but offers a more stable margin profile. That segment tends to see less promotional pressure than the consumer channel.

The stock trades at about 32 times trailing earnings, a premium to the broader consumer-staples group. That multiple has compressed from 37 times a year ago as the growth rate has slowed. It still leaves little room for a miss. The company has beaten consensus estimates in three of the past four quarters, though the beats have narrowed – the last quarter's 2-cent upside was the smallest in two years.

Guidance will matter more than the headline numbers. WD-40 typically provides a full-year revenue and earnings range in its quarterly release. The current fiscal-year consensus of $7.10 a share implies fourth-quarter earnings of about $1.80. That target looks achievable if margins hold but vulnerable if input costs continue to climb.

A key number to watch in the release is the gross margin line. If it comes in below 52.5%, the stock could see selling pressure as the valuation premium comes under scrutiny. If it holds above 53%, the bull case – that WD-40 can pass through costs without losing volume – gets another quarter of support.

The company reports after the close Thursday, with a conference call scheduled for 5 p.m. Eastern.