Oil-Dri Corporation of America — Q1 FY2024 Form 10-Q
Reporting period: Three months ended October 31, 2023, compared with the three months ended October 31, 2022. The company develops, mines, manufactures and markets sorbent products, including cat litter, fluid-purification products, agricultural products, and animal-health products. Its reportable segments are Retail and Wholesale Products and Business to Business Products.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Net sales | $111.4 million | $98.5 million | Up 13% |
| Gross profit / gross margin | $31.0 million / 28% | $22.3 million / 23% | Profit up 39%; margin up 5 percentage points |
| Income from operations | $13.2 million | $6.6 million | Up 100% |
| Net income attributable to Oil-Dri | $10.7 million | $5.2 million | More than doubled |
| Diluted EPS, Common Stock | $1.50 | $0.78 | Up |
| Operating cash flow | $8.6 million | $2.8 million | Up |
| Capital expenditures | $8.1 million | $6.7 million | Up |
Revenue growth reflected price increases in both segments and higher Business to Business volumes. Retail and Wholesale sales were $72.3 million, up 11%; Business to Business sales were $39.2 million, up 16%. Segment operating income was $11.3 million for Retail and Wholesale (up 50%) and $11.1 million for Business to Business (up 53%).
Gross margin improved despite higher domestic cost of goods sold per ton, which rose 11%. Higher non-fuel manufacturing, freight and packaging costs were partly offset by natural gas cost per ton falling 55%. SG&A increased 13% to $17.8 million, including higher corporate compensation costs and Retail and Wholesale advertising. The effective tax rate used for the quarter was 16%.
Cash, liquidity and debt
- Cash and cash equivalents were $29.6 million at October 31, 2023, versus $31.8 million at July 31, 2023. Net cash decreased $2.2 million during the quarter.
- Operating cash flow of $8.6 million was largely offset by $8.1 million of capital expenditures and $2.8 million of financing outflows, principally dividends. Cash dividends paid were $1.9 million; dividends declared were $2.0 million.
- Total assets were $288.8 million and stockholders’ equity was $185.9 million. Current assets were $136.8 million and current liabilities $52.3 million.
- Notes payable were approximately $31.8 million net of debt issuance costs, including $1.0 million of current maturities. The company reported no revolver borrowings and $1.0 million of letters of credit outstanding. It was in compliance with debt covenants.
- The company stated that operating cash flow, existing cash and available financing should be sufficient for foreseeable needs for at least 12 months. It expects FY2024 capital expenditures to exceed FY2023 levels.
Material changes, outlook and notable items
- Management reported record quarterly sales and higher operating income and net income. It attributed the improvement mainly to pricing, with additional volume growth in Business to Business.
- A cyberattack affecting a cat-litter customer disrupted that customer’s ordering and receiving during the quarter, contributing to a $1.6 million decline in co-packaged cat-litter sales.
- China subsidiary sales included a sell-off of existing inventory to a new master distributor. Future China sales are expected to be made directly by Oil-Dri rather than through that subsidiary.
- Management expects FY2024 advertising expense to be higher than FY2023, though more evenly distributed through the year. No specific sales or earnings guidance was provided.
- A $2.5 million reserve for anticipated modifications at the company’s sole landfill in Ochlocknee, Georgia, was unchanged. Management cautioned that costs above the accrual are reasonably possible and could materially affect results, financial condition or cash flows.
- The filing says ordinary-course legal proceedings are not expected to have a material adverse effect and reports no material changes to the risk factors in the FY2023 Form 10-K. Forward-looking results remain subject to economic, operating and other risks.
Important facts for investors to verify
- Whether price increases and Business to Business volume growth persist, and how much margin improvement is retained as manufacturing and freight costs evolve.
- The recovery of co-packaged cat-litter sales following the customer cyberattack and the effect of the China distribution transition on subsequent sales.
- Actual FY2024 capital spending, operating cash conversion and liquidity as investment and working-capital needs change.
- Whether landfill modification costs remain within the $2.5 million reserve, given the disclosed uncertainty around site conditions and regulatory requirements.
- Debt covenant headroom and the availability and terms of any additional financing, including shelf notes.