WD-40 shares drop after quarterly sales disappoint

BOSTON -- Shares of WD-40 Co. tumbled on Tuesday after the maker of spray lubricant and cleaning products reported disappointing quarterly results and a sharp decline in sales to European customers.

THE SPARK: After Monday's close of regular trading, WD-40 reported its fiscal fourth-quarter earnings fell nearly 12 percent from the year-ago period to about $9 million, or 56 cents per share. Revenue fell nearly 7 percent to $84.9 million. Analysts surveyed by FactSet had expected earnings of 72 cents per share on revenue of $95.5 million.

The San Diego-based company said revenue declined because sales it expected to book in the quarter were pushed into the fiscal first quarter of 2013 instead, especially in Europe.

In the latest quarter, sales in Europe declined 17 percent from the same period a year earlier, while sales in the Americas rose 1 percent and Asian sales slipped 3 percent. WD-40 also issued a fiscal 2013 earnings forecast that was short of analysts' consensus forecast.

THE BIG PICTURE: European sales account for about one-third of WD-40's overall revenue. The strength of the European market has declined, with many European countries in recession as leaders struggle to contain the continent's debt crisis. WD-40 also has been challenged by higher raw materials costs.

THE ANALYSIS: Analyst Liam Burke of Janney Capital Markets cut his fiscal 2013 earnings estimate for WD-40 and reduced his fair value estimate for the stock to $43 from $46, while maintaining a "Neutral" rating. Burke said in a note to clients that he expects earnings-per-share growth to remain in the mid-single digits in percentage terms because of headwinds the company is experiencing in certain markets. Burke said the company has been "very proactive" in reducing production expenses in response to the rise in raw materials costs.

SHARE ACTION: Shares of WD-40 fell $3.95, or 7.7 percent, to $47.10 in midday trading, after falling as low as $46.47 earlier in the session. The stock is off its 52-week high of $54.42 reached on Oct. 5. Shares traded as low as $37.86 last November.