Oil-Dri Corporation of America — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2021, ended April 30, 2021; comparison periods ended April 30, 2020. The company develops, mines, manufactures and markets clay-based sorbent products. Its reportable segments are Business to Business Products Group and Retail and Wholesale Products Group. Financial statements are unaudited.
Financial performance
| Metric | Three months ended April 30, 2021 | Three months ended April 30, 2020 | Nine months ended April 30, 2021 | Nine months ended April 30, 2020 |
|---|---|---|---|---|
| Net sales | $76.255 million | $76.256 million | $226.852 million | $218.383 million |
| Gross profit / margin | $16.523 million / 22% | $21.385 million / 28% | $54.999 million / 24% | $60.278 million / 28% |
| Operating income | $1.931 million | $5.700 million | $11.352 million | $15.694 million |
| Net income attributable to Oil-Dri | $2.227 million | $4.648 million | $10.510 million | $13.014 million |
| Diluted EPS, Common / Class B | $0.32 / $0.24 | $0.65 / $0.49 | $1.49 / $1.11 | $1.82 / $1.37 |
| Operating cash flow | Not presented separately for the quarter | Not presented separately for the quarter | $8.340 million | $22.269 million |
For the nine-month period, cash used in investing activities was $10.753 million, primarily reflecting $10.757 million in capital expenditures. Cash used in financing was $8.324 million, including $5.399 million of dividends paid and $2.925 million of share repurchases. Cash declined $10.572 million to $30.318 million.
Liquidity, debt and balance sheet
- At April 30, 2021, cash was $30.318 million, current assets were $103.870 million and current liabilities were $35.909 million.
- Notes payable were reported at $9.871 million net of debt issuance costs, including $1.000 million current. The company had issued $10 million of 3.95% senior notes due May 15, 2030. Its $45 million revolving credit facility was undrawn; the company reported covenant compliance.
- Management said cash from operations, existing cash and investments, and available financing should meet foreseeable needs for at least the next 12 months. Fiscal 2021 capital expenditures were expected to exceed fiscal 2020 levels.
- Working capital movements, including receivables, prepaid expenses, payables and accrued expenses, contributed to lower operating cash flow compared with the prior year.
Material changes and management commentary
- Quarterly sales were essentially unchanged, while nine-month sales increased 4%. Nine-month Business to Business sales rose 3% and Retail and Wholesale sales rose 4%.
- Profitability weakened substantially: quarterly gross profit fell 23% and operating income fell 66%; nine-month gross profit fell 9% and operating income fell 28%. Management attributed margin pressure principally to higher freight, packaging, materials, natural gas and other manufacturing costs.
- Freight cost per manufactured ton rose about 28% in the quarter and 15% year to date; packaging cost per ton rose about 19% and 13%, respectively. Management anticipated recovering some cost increases through price increases, without quantifying the expected recovery.
- Retail and Wholesale quarterly sales benefited from a 20% increase in industrial and sports products as businesses and sports fields reopened. Cat litter sales declined 3% in the quarter against pandemic-related pantry loading in the prior-year period, though year-to-date cat litter sales were higher.
- COVID-19 had not materially affected the business as a whole to date, but continued to affect customer demand, travel, supplier timing and certain product markets. Management cited transportation constraints, commodity inflation and uncertainty about future pandemic effects.
- Management expected fiscal 2021 advertising expense to be lower than fiscal 2020. No specific revenue or earnings guidance was provided.
Contingencies and unusual items
- On May 4, 2021, after quarter-end, the company purchased a pension annuity settling $8.5 million of projected benefit obligations and recognized an approximately $0.6 million settlement loss.
- The company had deferred approximately $2.3 million of employer Social Security payroll taxes under the CARES Act, payable in equal portions in the fourth quarters of calendar 2021 and 2022.
- A former service provider’s contract and contingency-fee claim remained pending. The company had recorded an estimated liability and said it believed the claim lacked merit and any loss was unlikely to be material, while noting uncertainty in the outcome.
- The pension plan and supplemental executive retirement plan were frozen; the SERP was terminated effective June 30, 2020. The company made no pension plan contribution in the first nine months of fiscal 2021 and reported no minimum funding requirement for the remainder of the year.
Important facts for investors to verify
- Whether pricing actions can offset continuing freight, packaging, materials and energy cost inflation, and the resulting effect on gross margins.
- Whether reopening-related industrial and sports demand persists and cat litter sales stabilize after prior-year pantry loading.
- Drivers of the decline in operating cash flow and the company’s ability to maintain cash generation while funding elevated capital expenditures and dividends.
- Terms and accounting effects of the post-quarter pension annuity settlement, including the reported settlement loss.
- Developments in the former service provider litigation and scheduled CARES Act payroll-tax repayments.