Getting a real fix on the global economy: key points from WD-40′s earnings
I know Alcoa’s numbers are typically cited as the formal start of the earnings season but for me I always look to WD-40. The eponymous multi-use lubricant is not the only product sold by the company but it is the critical one and with a truly global sales base it provides a great insight into the world economy.Â
Here are my top three insights into the global economy - and potentially themes for the Q2 earnings season - from yesterday’s WD-40 announcement:
(1) The dollar, the dollar, the dollar
As the WD-40 management noted: 'foreign currency headwinds are distorting our results'...you can kind of see what they mean especially in their multi-purpose maintenance product sales:Â
On an underlying basis the comments on the various regions as noted below were reasonably solid...but the company still got hit on translation. Â The dollar may have come off its peak in recent weeks but is it going to up front and center in the Q2 earnings observations (excuses): you bet.Â
Americas performed 'very well', strong growth of multi-use products
Asia 'on track for a good year' although 'China a bumpy road'. Â Long-term China a 'large market', think growth next year (this year c. 10%)
EMEA 'reported sales impacted by currency headwinds...impacted by political instability (no sales in Ukraine, only sales in last month of the quarter to Russia). Â For latter 'inventory being absorbed'
(2) The cost of the cost of doing business
The below chart looks ugly, right on a cost of doing business basis. Â
But hang on...gross margins were firm due to the fall in input costs.  That’s an important sub-trend to note.Â
So why’s the cost of business much higher than targeted (and hence bringing down ebitda margin generation)?Â
Well that would be investment in innovation in products like this:Â
Want to know why WD-40 stock was down 5% after hours? Â Well that would be the dullish guidance impacted by currencies and shorter-term business investments hurting ebitda margins. Â
So you put it all together and the world is tricky but no disaster however currency factors hinder and specifics - sometimes good specifics such as investing in products - matter. Â Mix all of that together together and welcome yourself to a world of company differentiation.Â
Time to get stock specific, listen to those conference calls and ignore index level investing options. Â Newsflow may be all big picture macro risk on/off calls at the moment but the key message from WD-40 is that it is a lot more complex than that. Â
Unless you make the wrong calls stock pickers should not be complaining. Â
Chris Bailey is the Founder of Financial Orbit Limited. Â You can follow his thoughts at www.financialorbit.com and on Twitter @financial_orbit
All images above from the WD-40 corporate website or July 2015 quarterly presentation. Â
