By now you probably already know the story behind WD-40.
If not, the short of it is WD-40 was originally developed in the 1950s to lubricate and prevent corrosion of machine parts on naval ships.
Later it was used as a de-icer for intercontinental ballistic missiles (ICBMs) and a million other things. The name "WD-40" stands for “Water Displacement, 40th formula.”
But what you might be surprised to learn is that — unlike almost every other major consumer brand — WD-40 isn’t owned by a giant conglomerate. The WD-40 Company (NASDAQ: WDFC) is a conglomerate itself.
The WD-40 Company obviously makes WD-40 and all of its spinoff products. But it also owns other brands including Lava soap, Spot Shot carpet cleaner, 2000 Flushes toliet bowl cleaner, and Carpet Fresh, among a few lesser-known others.
One quite interesting note about the WD-40 Company is its employee-to-sales ratio.
According to the company’s 2021 annual report, the WD-40 company employs 540 what they call “tribe members.” That same year, the company had total net sales of a little over $488 million — meaning it generated more than $900,000 in total net sales per employee, which is pretty darn good when you consider what it's selling.
There are several different lists of companies ranked by employee-to-sales and employee-to-revenue ratio. None that I found includes the WD-40 Company. But $900,000 in total net sales would put WD-40 within the top 10 billion-dollar public U.S. companies with the highest sales per employee.
But here’s where things get a little odd…
The WD-40 Company probably isn't the company you think it is.
WD-40 Company (NASDAQ: WDFC) — One Year
You might think the WD-40 Company is a consumer products company… or a chemical company… or a chemical company that sells consumer products.
And you’d be correct. That's what it does.
But that’s not exactly how the company identifies itself.
In all of the WD-40 Company’s investor materials, the company refers to itself as a “global marketing organization.” It says that the WD-40 Company is:
[A] global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world.
What does “creating positive lasting memories” have to do with making and selling WD-40?
Well, keep reading…
It seems that sometime between May 2014 and early June of the same year, the WD-40 company changed its whole business model.
In all of the company’s press releases and SEC filings prior to May 2014, the WD-40 company identified itself as, “a global consumer products company” dedicated to “building the brand fortress” of the company. The last press release to mention this (dated May 1, 2014) says the company is…
[A] global consumer products company dedicated to delivering unique, high-value and easy-to-use solutions for a wide variety of maintenance needs of "doer" and "on-the-job" users by leveraging and building the brand fortress of the company.
I was unable to find any public notice of the change. But in the company’s next press release (dated June 18, 2014), it began identifying itself as “a global marketing organization dedicated to creating positive lasting memories” and has stuck with that since then.
What’s with the change?
We can only speculate. But my guess is that the company realized (or admitted) its whole business model has really been on shaky ground for years.
I mentioned that the WD-40 Company is a conglomerate. And it is. It makes WD-40, its spinoff products, the brands mentioned earlier, and others. Here are a just few of the WD-40 Company's products:
But if you take a look at the company’s earnings reports, its entire business really relies on WD-40.
According to the company’s most recent quarterly report, it earned about $123.7 million in total net sales. And more than 93% of those sales came from the company’s “maintenance products.” Those include products from three brands: WD-40, GT85, and 3-IN-ONE.
This is as specific as the company gets with its sales. So we don’t exactly know how much of the company's revenue relies on the one WD-40 brand. But unless you’re a bike enthusiast or have need of very specific lubricant products, it’s likely you’ve only heard of WD-40.
So I think it’s safe to assume that at least 80% of the company’s revenue relies on the WD-40 brand. (I’d bet on it being closer to 90%.)
Now, of course, it’s not uncommon at all for a company to rely on one major source for income. But a brand like WD-40 can easily be marketed out of existence. All it would take is one company to create a competing spray lubricant product and market it better and the whole business would be in a very bad position.
Many have already tried. There are multiple competing spray lubricant products available, including from major manufacturers like 3M (NYSE: MMM). And there are countless articles, blogs, videos, forums, and social media posts arguing over which is the best spray lubricant. But no one has yet to best the brand name of WD-40.
According to the WD-40 Company’s latest corporate presentation, the WD-40 product has a 57% market share of work users and 79% market share of home users in the U.S.
So far, WD-40 has maintained its market dominance. But I have to wonder… For how long?
Now, don’t get me wrong. I don’t think there’s any catalyst for sales of WD-40 to drop off. I don’t think there’s any rising star in the spray lubricant game. And the next time I need to buy a can of spray lubricant, I’m probably not going to experiment with some other brand. But as an investor, it feels like the WD-40 company has too many eggs in one (kind of weak) basket. As I mentioned, it seems like a better-marketed competing spray lubricant could kill sales.
Moreover, there’s no big fundamental catalyst that’s going to drive sales higher either. I can’t even imagine a real scenario where people all of a sudden decide they need more WD-40. Most of us are going to buy three or four cans in our lifetime.
Investing in a company like WD-40 is a long-term bet. You’re betting the company will be able to maintain its market dominance over the long-term. So far, the WD-40 Company has been successful. But if history is any guide, most brands disappear over time.
I’m not a buyer.
