Release Date: June 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Oil-Dri Corp of America (ODC, Financial) achieved a record net income of $30.901 million through nine months, surpassing the previous fiscal year's record of $20.551 million.
- The company reported its 12th consecutive quarter of year-over-year sales growth, with consolidated net sales reaching $106.8 million, a 1% increase over the prior year.
- Gross profit for the third quarter increased by 10% to $30.1 million, with gross margins expanding to 28% from 26% in the prior year.
- The acquisition of Ultra Pet is expected to be accretive from day one, enhancing Oil-Dri's position in the rapidly growing crystal cat litter segment.
- Year-over-year cash and cash equivalents increased substantially from $29.7 million to $46.8 million, providing ample financial flexibility for future growth opportunities.
Negative Points
- Consolidated net sales growth was partially offset by lower volumes, indicating potential challenges in maintaining sales momentum.
- Domestic cost of goods sold per ton increased by 3%, driven by higher labor, repair, depreciation, and freight costs.
- Selling, general, and administrative expenses rose significantly by $6.7 million, reflecting higher compensation, advertising expenses, and transaction costs related to the Ultra Pet acquisition.
- Advertising expenses are expected to be higher for the full year of fiscal 2024 compared to fiscal 2023, indicating increased marketing costs.
- The integration of Ultra Pet will incur additional expenses during the fourth quarter of fiscal 2024, which may impact short-term profitability.
Q & A Highlights
Q: Given the inflation of the last couple of years, is there any evidence that more consumers are switching to private label cat litter?
A: Yes, private label is showing the greatest share gains across the litter category. - Christopher Lamson, Group Vice President of Retail and Wholesale
Q: Are you experiencing any headwinds of sales or adoption of your animal health products due to the ongoing outbreaks of avian flu domestically or elsewhere?
A: While avian influenza and African swine fever have made it more challenging to visit customer locations, they have not directly impacted product adoption. Our products generally improve animal productivity and bottom-line performance. - Wade Robey, Vice President of Agriculture, President of Amlan International
Q: Do you see continued growth for your products in the renewable diesel market?
A: Yes, we expect continued growth as several new plants are being built, which will drive sales of our bleaching clay products. - Bruce Patsey, Vice President of Fluids Purification Group
Q: How did the Ultra Pet deal unfold? What was the catalyst for them to join the Oil-Dri family versus any of your larger competitors?
A: We identified Ultra Pet as a strategic fit during our planning process. They chose us over higher offers due to cultural alignment and our vision for growth. - Christopher Lamson, Group Vice President of Retail and Wholesale
Q: What progress is Amlan making? How are trials of Amlan products with potential customers going?
A: Despite challenging markets, customer interest in our products remains high. We have ongoing trials globally, and each has shown positive responses, which is crucial for adoption and commercial activity. - Wade Robey, Vice President of Agriculture, President of Amlan International
Q: Are there other crystal litter manufacturers or larger competitors developing this type of product?
A: Yes, Clorox with Fresh Step and Ralston with Tidy Cat have entered the crystal litter segment. We see this as beneficial for segment growth, and our unique positioning offers great value and efficacy. - Christopher Lamson, Group Vice President of Retail and Wholesale
Q: Can management discuss the cash flow ROI or ROIC expected from the recent acquisition? What was the hurdle rate, return expectation, IRR for this deal?
A: Our weighted average cost of capital is just under 9%, and we target an IRR in excess of 15%. This acquisition meets that criteria, and we expect significant market synergies. - Daniel Jaffee, Chairman of the Board, President, Chief Executive Officer
Q: How much goodwill or intangibles were added to the Oil-Dri balance sheet with the Ultra Pet acquisition?
A: We expect a significant portion of the purchase price to be goodwill, but we will provide a definitive number after completing the valuation process. - Susan Kreh, Chief Financial Officer
Q: How much of management's bonuses could be based on meeting Ultra Pet's financial expectations?
A: For fiscal '23, none of the bonuses are based on Ultra Pet's financials. However, for fiscal '24, the acquisition will be fully integrated into our bonus and budget plans. - Daniel Jaffee, Chairman of the Board, President, Chief Executive Officer
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
