Oil-Dri Corporation of America (NYSE: ODC) — FY2021 Form 10-K
Reporting period: Fiscal year ended July 31, 2021. Although the request identifies 2021 Q4, this filing reports annual results; it does not provide a complete standalone fourth-quarter income statement or cash-flow summary.
Business context
Oil-Dri develops, mines, manufactures and markets mineral-based sorbent products, including cat litter, agricultural carriers, animal-health products, bleaching and purification clays, industrial absorbents and sports-field products. Its two reporting segments are Retail and Wholesale Products and Business to Business Products. Walmart represented 18% of FY2021 sales; foreign subsidiaries contributed $17.4 million, or about 6% of consolidated sales.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $305.0 million | $283.2 million |
| Gross profit / margin | $65.2 million / 21% | $68.7 million / 24% |
| Income from operations | $13.0 million | $24.8 million |
| Consolidated net income | $11.0 million | $18.7 million |
| Net income attributable to Oil-Dri | $11.1 million | $18.9 million |
| Diluted EPS, common stock | $1.57 | $2.65 |
| Net cash provided by operating activities | $13.6 million | $42.5 million |
| Capital expenditures | $18.8 million | $14.7 million |
At July 31, 2021, cash was $24.6 million, current assets were $101.9 million and current liabilities were $39.0 million. Notes payable totaled $8.9 million, including $1.0 million due within a year. No borrowings were outstanding under the $45 million revolving credit facility; letters of credit of $0.964 million were outstanding. The company reported compliance with debt covenants.
Sales rose 8%, but gross profit fell 5% and operating income fell 47%. The operating-income comparison includes a $13 million one-time patent license receipt in FY2020; excluding that receipt, FY2021 operating income was 10% higher, according to management. Operating cash flow declined substantially, while investing and financing activities used $18.8 million and $11.3 million, respectively.
Segments and material changes
- Retail and Wholesale: Sales increased 9% to $194.9 million, mainly on cat litter growth, including branded and private-label products, e-commerce and higher pet-related demand. Segment operating income rose 3% to $11.9 million.
- Business to Business: Sales increased 6% to $110.1 million, with growth across product categories, led by agricultural and horticultural products. Segment operating income declined 12% to $25.1 million, reflecting higher costs and spending on the animal-health business.
- Higher freight, packaging, natural gas, materials and other manufacturing costs pressured margins. Freight cost per manufactured ton rose about 13%, packaging cost per ton about 19%, and natural-gas cost per ton about 15% year over year.
- Cash declined by $16.3 million to $24.6 million. Management cited use of prior-year cash, including the $13 million license receipt and $10 million of borrowings received in FY2020, as well as higher capital expenditures and working-capital movements.
Outlook, risks and unusual items
Management provided no specific FY2022 revenue or earnings guidance. It said cash from operations, existing cash and available financing should meet foreseeable requirements for at least 12 months. It expected FY2022 advertising expense to be higher than FY2021 and anticipated recovering some cost increases through price increases.
Management described COVID-19’s overall impact to date as not material to results, while noting ongoing uncertainty, transport and supply-chain pressure, elevated commodity costs, shipment risks, and disruption to some markets. Other principal risks include intense competition, reliance on major customers, cost inflation and the ability to pass costs on, customer demand changes, mining and environmental regulation, and dependence on successful product development. The company’s mineral reserves totaled an estimated 279.3 million tons, which management considered adequate for more than 40 years at FY2021 consumption rates, excluding certain inactive reserves.
- FY2020 included the one-time $13 million patent license payment, recognized as other operating income.
- The company disclosed an immaterial prior-period classification error: certain manufacturing-related costs were reclassified from SG&A to cost of sales. The revision did not change net income, and management said prior filings did not require amendment.
- The pension plan was frozen in FY2020; in FY2021, the company purchased an $8.5 million annuity and recorded $0.631 million of settlement expense. No FY2021 pension contribution was made, and management did not expect one in FY2022.
- A former service provider’s contract claim was recorded at management’s reasonable estimate; the company considered a material loss unlikely, but noted the outcome remained uncertain.
- The independent auditor issued unqualified opinions on the financial statements and internal controls. Goodwill impairment testing was identified as a critical audit matter; no impairment was recorded.
Important facts for investors to verify
- Review the FY2020 $13 million license payment when comparing recurring operating performance and margins.
- Track whether pricing offsets rising freight, packaging, energy and material costs without weakening sales volume or margins.
- Monitor operating cash flow, receivables and capital spending, given the sharp year-over-year decline in operating cash generation.
- Assess Walmart concentration, customer purchasing patterns and the durability of pandemic-related cat-litter demand.
- Check debt covenant headroom, dividend capacity and the terms and availability of additional financing.
- Follow the service-provider litigation, mining and environmental obligations, and any changes to the disclosed pension and reclamation estimates.