WD-40 CEO reveals strategy for oil costs and global expansion

Key Concepts

• Decentralized Supply Chain: Manufacturing products close to the end-users in different geographical regions to minimize reliance on long-distance shipping and avoid tariffs.
• Tariff Headwinds/Crosswinds: Economic challenges posed by import/export taxes that can increase costs and disrupt supply chains.
• Petroleum-Based Solvents: Key ingredients in products like WD-40, making the company susceptible to fluctuations in oil prices.
• Time Lag in Pricing: The delay between changes in raw material costs (like oil) and their impact on the final product price.
• Share Buybacks: A corporate strategy where a company repurchases its own outstanding shares, signaling confidence and potentially increasing shareholder value.
• Dividend Strategy: A company's policy on distributing a portion of its earnings to shareholders as dividends.
• Brand Divestiture: Selling off certain brands or product lines to focus resources on core, high-growth areas.
• Core Product Growth: Expansion and increased sales of a company's primary and most successful products.
• International Growth Runway: Significant potential for expansion and increased sales in global markets.
• Water Displacement, 40th Attempt: The origin of the WD-40 brand name, highlighting its development process.

Supply Chain Strategy and Tariff Mitigation

WD-40 Company's core principle is to manufacture products as close as possible to their end-users. This strategy has proven advantageous during recent times of tariffs, as the company largely avoids being subject to many tariffs because it manufactures within specific markets (e.g., in the U.S. for the U.S., in China for China) and does not export or import large volumes of products across markets.

The company is continuously assessing its manufacturing locations as it expands geographically. Recent expansions include opening operations in Dubai to serve the Middle East market and plans to open a contract manufacturing facility in Thailand shortly. This proactive approach to expanding its network aims to meet local growth requirements and serve customers effectively. The company's efforts to decentralize its supply chain were aimed at mitigating tariff impacts, and this strategy is reportedly working well.

Impact of Oil Prices on WD-40

The discussion highlights the potential impact of rising oil prices on WD-40, as petroleum is a key ingredient, making up about 35% of the product's content. The company operates with a 90-day time lag between changes in oil prices and their reflection in the end product's cost. For fiscal year 2026, WD-40 plans for oil prices within a range of $65 to $85. While the company has had to implement small price increases in the past when oil prices spiked above $100, the current price range is considered comfortable. The company will monitor the situation and wait to see how oil prices evolve.

Share Buyback and Dividend Strategy

WD-40 Company announced a plan to buy back shares, signaling strong confidence in its strategy and guidance for the upcoming fiscal year, despite a relatively flat household product segment over the past 12 months. This buyback is part of a broader commitment to shareholder returns, which also includes a strong dividend strategy of paying out approximately 50% of earnings in dividends. The company aims to more than double its share buyback program in FY 2026 compared to the prior year, specifically increasing it by 2.5 times.

Brand Portfolio and Expansion Strategy

Beyond the flagship WD-40 product, the company owns other brands such as Spot Shot, 2000 Flushes, and Lava. However, WD-40 is currently divesting many of these older household brands acquired 20 or so years ago. The rationale behind this divestiture is to achieve "focus is power in business." The company sees a significant international runway for growth in its core product, WD-40, which accounts for 80% of sales and typically contributes over 70% of growth. The growth opportunity for the core WD-40 product alone is estimated to be over $1 billion. The company has already divested its UK household brands towards the end of the last fiscal year and is in active negotiations to further focus the business on its core products and the WD-40 Specialist line extension.

International Growth Potential

Despite being a well-known brand, WD-40 still has significant untapped potential in international markets. While 65% of its sales are currently outside the U.S., there are many consumers internationally, including in China, who have yet to encounter the brand. This presents a substantial runway for continued international growth.

Conclusion

WD-40 Company's strategic focus on localized manufacturing, a robust approach to managing raw material cost fluctuations, and a commitment to shareholder returns through buybacks and dividends are key drivers of its resilience and growth. The company is actively streamlining its brand portfolio to concentrate on its core WD-40 product and its specialist line, recognizing the immense international growth potential that remains. The origin of the brand name, "Water Displacement, 40th Attempt," underscores a history of persistent development and innovation that continues to inform its business strategy.