Oil-Dri Corporation of America — Q2 FY2024 10-Q
Reporting period: Quarter and six months ended January 31, 2024. Oil-Dri develops, mines, manufactures, and sells clay-based sorbent products through Retail and Wholesale and Business to Business segments. Amounts below are in U.S. dollars; financial statement amounts are unaudited.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Net sales | $105.7 million | $101.7 million | $217.1 million | $200.2 million |
| Gross profit | $30.9 million | $23.0 million | $61.9 million | $45.3 million |
| Gross margin | 29% | 23% | 29% | 23% |
| Operating income | $15.2 million | $7.3 million | $28.3 million | $13.9 million |
| Net income attributable to Oil-Dri | $12.4 million | $3.9 million | $23.1 million | $9.1 million |
| Diluted EPS, Common | $1.70 | $0.56 | $3.19 | $1.34 |
- Q2 sales grew 4%; six-month sales grew 8%. Management attributed Retail and Wholesale growth mainly to pricing, and Business to Business growth to higher volumes and pricing.
- For the six months, Business to Business sales rose 10% to $75.4 million and segment operating income rose 47% to $22.1 million. Retail and Wholesale sales rose 8% to $141.7 million and segment operating income rose 43% to $23.2 million.
- Management cited improved selling prices and product mix as supporting margins. Lower natural gas and packaging costs helped, while labor, repairs, depreciation, and freight costs increased. Six-month SG&A rose 7% to $33.6 million.
Cash, liquidity, and debt
- Six-month operating cash flow was $17.9 million, versus $14.2 million a year earlier. Capital expenditures were $15.5 million, producing approximately $2.4 million of operating cash flow after capital expenditures.
- Cash and cash equivalents were $27.8 million at January 31, 2024, down $4.0 million from July 31, 2023. The company attributed the decline principally to capital spending and dividends, partly offset by operating cash generation.
- Reported notes payable, including current maturities, totaled $31.9 million, net of debt issuance costs. The company also has a $45 million unsecured revolving facility; there were no borrowings during Q2 and $1.0 million of letters of credit outstanding. The company reported compliance with debt covenants.
- Current assets were $139.4 million and current liabilities were $46.2 million at January 31, 2024. Dividends paid during the six months were $3.9 million; treasury stock purchases used $2.6 million.
Outlook, risks, and unusual items
- No specific earnings or sales guidance is provided. Management expects available cash, operating cash flow, and financing sources to cover foreseeable requirements for at least 12 months. It expects FY2024 capital expenditures to exceed FY2023 levels and advertising expense to be higher than FY2023.
- The company increased its reserve for modifications at its sole Ochlocknee, Georgia landfill by $0.5 million in Q2, with $0.3 million of payments made. The accrued reserve was $2.8 million at January 31, 2024. Management notes that costs above the reserve are reasonably possible and could materially affect results, financial condition, or cash flows.
- A customer cyberattack disrupted order placement and receipt during Q1, affecting co-packaged cat litter sales; some sales shifted into Q2. Management also reported weaker animal health and nutrition demand in certain markets and declining sales in Mexico.
- The company determined it no longer qualifies as a smaller reporting company because its public float exceeded $250 million. It expects to lose access to scaled reporting requirements beginning with the Form 10-Q for the quarter ending October 31, 2024; management warns the added compliance burden could affect the business if requirements are not met promptly.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. Ordinary-course legal proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether pricing and product mix can sustain higher gross margins as labor, freight, repair, and other manufacturing costs evolve.
- Progress, final cost, and any additional reserve needs for the Georgia landfill modifications.
- Durability of fluid-purification growth, including demand from renewable diesel, edible oil, and jet-fuel customers, and trends in animal health and nutrition markets.
- FY2024 capital spending, operating cash conversion, and the company’s ability to maintain liquidity and covenant compliance.
- Costs and operational impact of the transition to standard reporting requirements after smaller-reporting-company status ends.