Oil-Dri Corporation of America — Form 10-Q Summary
Reporting period: Second quarter and six months ended January 31, 2021; fiscal year ends July 31. Unaudited consolidated financial statements. Oil-Dri develops, mines, manufactures and sells clay-based sorbent products through its Business to Business and Retail and Wholesale Products groups.
Key financial results
| Metric | Three months ended Jan. 31, 2021 | Change vs. prior year | Six months ended Jan. 31, 2021 | Change vs. prior year |
|---|---|---|---|---|
| Net sales | $74.5 million | Up 5% | $150.6 million | Up 6% |
| Gross profit | $18.2 million | Down 4% | $38.5 million | Down 1% |
| Gross margin | 24% | Prior year: 27% | 26% | Prior year: 27% |
| Operating income | $4.2 million | Down 28% | $9.4 million | Down 6% |
| Net income attributable to Oil-Dri | $4.3 million | Down 11% | $8.3 million | Down 1% |
| Diluted EPS, Common / Class B | $0.61 / $0.46 | Prior year: $0.67 / $0.51 | $1.17 / $0.88 | Prior year: $1.17 / $0.88 |
Cash flow and liquidity: Six-month operating cash flow was $3.1 million, down from $14.3 million, largely reflecting higher receivables and reductions in payables and accrued expenses. Capital expenditures were $7.6 million; cash dividends paid were $3.6 million and treasury-stock purchases were $2.2 million. Cash fell to $30.7 million from $40.9 million at July 31, 2020. At January 31, current assets were $102.8 million and current liabilities $34.9 million, or approximately $67.9 million of working capital.
Debt: Notes payable totaled $9.9 million, including current maturities. The company reported no borrowings under its $45 million unsecured revolving credit facility during the six-month period and was in compliance with debt covenants. The facility expires January 31, 2024; senior notes bear 3.95% interest and mature in 2030.
Business and period-over-period changes
- Second-quarter segment sales: Business to Business sales rose 7% to $26.3 million; segment operating income increased 1% to $7.7 million. Retail and Wholesale sales rose 4% to $48.2 million, but operating income fell 27% to $4.1 million.
- Six-month segment sales: Business to Business sales increased 6% to $53.8 million, with operating income essentially flat at $15.9 million. Retail and Wholesale sales increased 6% to $96.8 million, while operating income declined 4% to $8.6 million.
- Cat litter growth, including e-commerce, new and existing customer business, and stronger pet-related demand, supported sales. Industrial and sports products weakened as businesses and sports fields remained closed or operated at reduced levels.
- Higher freight, packaging, and other manufacturing costs pressured margins. Freight cost per manufactured ton rose about 13% in the quarter and 10% in the six-month period; packaging cost per ton rose about 13% and 10%, respectively. Quarterly natural-gas cost per ton was up about 8%.
Outlook, commentary and risks
- Management said COVID-19 had not significantly affected the business overall through the period, but its effects on the remainder of fiscal 2021 were uncertain. Cat litter demand benefited from pandemic-related pet adoption and purchasing patterns; industrial and sports sales, jet-fuel purification demand, and U.K. industrial granules were negatively affected.
- Management expected cash from operations and available liquidity to meet requirements for at least the next 12 months. Fiscal 2021 capital expenditures were expected to exceed fiscal 2020 levels; advertising expense was expected to be comparable to fiscal 2020. No earnings or sales guidance was provided.
- Other income included an approximately $0.8 million pension actuarial gain in both the quarter and six-month results. The prior-year quarter included a $1.3 million gain from the SERP plan freeze, affecting comparability. The pension plan was frozen effective March 2020; the SERP was terminated in June 2020.
- The company deferred approximately $2.3 million of 2020 employer payroll taxes under the CARES Act, payable in equal installments in the fourth quarters of 2021 and 2022.
- Management considered pending proceedings, including a former service provider’s contract claim, unlikely to have a material adverse effect, while noting the claim’s outcome is uncertain. The filing also highlights COVID-19, transportation and supply-chain pressures, intellectual-property disputes, and the potential effects of share repurchases as risks.
Important facts for investors to verify
- Whether increased freight, packaging, labor and other input costs continue to compress gross margins, and whether pricing or product mix offsets those pressures.
- Whether working-capital demands and lower operating cash flow persist as receivables, payables and accrued expenses change.
- How quickly industrial and sports demand recovers, and whether cat litter growth and international sales remain durable.
- Planned capital spending, dividends and share repurchases relative to cash generation; the company had authority to repurchase 838,022 common shares at January 31, 2021.
- Developments in COVID-19 impacts, deferred payroll-tax payments, the former service provider litigation, and the company’s pension and SERP obligations.