Oil-Dri Corporation of America — Form 10-Q summary
Reporting period: Second quarter and six months ended January 31, 2012; fiscal year ends July 31. The company develops and sells sorbent products, including cat litter, industrial absorbents, bleaching clay, agricultural products, and animal-health products. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Three months ended Jan. 31, 2012 | Six months ended Jan. 31, 2012 | Comparable prior period |
|---|---|---|---|
| Net sales | $60.203 | $119.785 | $57.201 and $113.486 |
| Gross profit | $14.554; 24% margin | $28.757; 24% margin | $12.492; 22% margin / $25.700; 23% margin |
| Operating income | $4.829 | $6.625 | $3.054 / $6.876 |
| Net income | $3.239 | $4.314 | $1.777 / $4.296 |
| Diluted EPS | $0.45 | $0.60 | $0.25 / $0.60 |
For the six-month period, sales rose 6% while net income was nearly flat year over year; gross margin improved, but SG&A increased to $22.132 million from $18.824 million. For the quarter, sales rose 5% and net income increased 82%. Six-month consolidated operating income declined despite stronger Business to Business results, reflecting lower Retail and Wholesale segment income and higher corporate expenses.
- Segments, six months: Business to Business sales increased 14% to $42.237 million and operating income rose 41% to $13.867 million. Retail and Wholesale sales increased 1% to $77.548 million, but operating income fell 68% to $1.839 million.
- Cash flow: Operating cash flow was $10.281 million, versus $7.256 million. Capital expenditures were $3.512 million. Cash and equivalents increased $9.474 million to $27.359 million.
- Liquidity and debt: Short-term investments were $8.965 million; current assets were $94.101 million and current liabilities $26.250 million. Notes payable totaled $31.2 million, including $3.8 million current maturities. The company had not drawn on its $15 million revolving credit facility and reported compliance with its covenants.
- Capital returns and obligations: Six-month dividends paid were $2.262 million. The company expected to contribute approximately $1.068 million to its pension plan in fiscal Q3.
Changes, outlook, and risks
- Price increases and a richer product mix supported sales and margins. Business to Business growth included fluid purification, agricultural, and animal-health products. Retail cat-litter volume remained pressured, including declines in private-label and coarse litter.
- Higher packaging, freight, and material costs partly offset improved pricing and mix. Management cited higher diesel-related freight costs, packaging inputs, and non-fuel manufacturing costs.
- Management expected fiscal 2012 earnings to be below fiscal 2011. It planned significant Cat’s Pride Fresh & Light advertising and promotions for the remainder of fiscal 2012, expected annual spending thereafter to remain above historical levels, and said promotional costs would exceed the product’s additional contribution in fiscal 2012.
- Management believed cash, operating cash flow, and available credit would fund foreseeable needs for at least 12 months. Fiscal 2012 capital expenditures were expected to be lower than fiscal 2011; requirements could change with business conditions or acquisitions.
- Risks highlighted include fuel and other input-cost volatility, pension-asset performance and future funding, foreign-currency movements, competitive pressure in foreign markets, and increased regulation affecting food-chain-related markets. Natural-gas contracts covered approximately 35% of planned fiscal 2012 kiln-fuel needs.
- The company extended its revolving credit agreement through December 31, 2014. The filing reports no material control changes and says disclosure controls were effective as of period end.
Important facts for investors to verify
- Whether the planned advertising rollout improves Cat’s Pride sales and contribution enough to change the full-year earnings outlook.
- Whether Business to Business growth persists and Retail and Wholesale segment profitability recovers amid volume and input-cost pressures.
- Actual fiscal 2012 earnings, capital spending, pension contribution, and cash generation versus management’s expectations.
- Debt repayment terms, credit-facility covenant headroom, and the effect of interest rates and pension-market changes.
- Exposure to natural-gas, packaging, freight, and regulatory risks, including how much planned fuel demand remains uncontracted.