Oil-Dri Corporation of America — Form 10-Q Summary
Reporting period: Fiscal first quarter ended October 31, 2012; comparisons are with the three months ended October 31, 2011. Oil-Dri develops, mines, manufactures and markets clay-based sorbent products, including cat litter, industrial absorbents, agricultural products and fluid-purification products.
Financial performance
| Metric | Q1 FY2013 | Q1 FY2012 |
|---|---|---|
| Net sales | $61.417 million | $59.582 million |
| Gross profit | $17.231 million; 28% of sales | $14.203 million; 24% of sales |
| Operating income | $6.399 million | $1.796 million |
| Net income | $4.452 million | $1.075 million |
| Diluted EPS | $0.64 | $0.15 |
| Operating cash flow | $4.424 million | $0.377 million |
- Sales increased 3%; net income rose substantially, supported by improved gross profit and lower selling, general and administrative expenses. SG&A was 18% of sales versus 21% a year earlier.
- Management attributed improved sales to lower trade spending, price increases and favorable product mix. Profitability also benefited from reduced advertising, lower packaging costs and lower fuel costs, partly offset by higher non-fuel manufacturing costs.
- Business to Business Products: Sales rose 4% to $21.782 million; segment operating income increased 1% to $7.523 million. Higher sales were partly offset by higher material costs.
- Retail and Wholesale Products: Sales rose 3% to $39.635 million; operating income was $4.524 million, compared with a $1.219 million loss. Lower advertising and promotion spending, approximately $2.6 million less year over year, was a major contributor. Cat-litter sales increased about 5% despite an approximately 5% decline in volume.
Cash, debt and liquidity
- Cash and cash equivalents were $27.177 million at October 31, 2012, and short-term securities were $7.940 million. Cash increased $84,000 during the quarter.
- Total notes payable were $27.4 million, including $5.0 million current maturities; the company paid down $2.3 million of principal during the quarter. Total liabilities were $85.670 million.
- Operating activities provided $4.424 million. Investing activities used $928,000, including $2.157 million of capital expenditures; financing activities used $3.391 million, primarily for debt payments and dividends.
- The company had a $15 million unsecured revolving credit facility expiring December 31, 2014, with no borrowings during the quarter; it reported compliance with its covenants. Management stated available cash, investments, operating cash flow and credit availability should cover foreseeable needs for at least 12 months.
Outlook, risks and notable items
- No specific earnings or sales guidance was provided. Management expected fiscal 2013 capital expenditures to exceed fiscal 2012 levels, while anticipating advertising and promotion spending below fiscal 2012 but above historical levels.
- Management expected freight-cost pressure in Retail and Wholesale to continue. It reported 5% higher non-fuel manufacturing cost per ton overall, partly offset by a 30% decline in fuel cost per ton. The company was buying natural gas at spot rates and had not contracted for fiscal 2013 kiln-fuel needs.
- The company expected approximately $45,000 of additional capacity-rationalization expense during the remainder of fiscal 2013, following $12,000 recorded in the quarter for relocating production from Mounds, Illinois, to Mississippi.
- Estimated fiscal 2013 pension contributions were approximately $1.880 million; no contribution was made in the quarter. Actual funding needs may change with pension asset values and actuarial assumptions.
- On December 4, 2012, the board declared accelerated dividends of $0.36 per Common share and $0.27 per Class B share, covering the third and fourth fiscal-quarter payments. The filing characterized this as an acceleration, not an increase or special dividend.
- Disclosed risks include commodity and fuel prices, foreign-exchange movements, pension-market volatility, regulatory developments in food-chain-related markets, and the possibility that economic or operating conditions could affect results and liquidity. The filing cautions that quarterly results are not necessarily indicative of full-year performance.
Important facts for investors to verify
- Whether lower advertising and promotional spending can be sustained as management resumes higher spending during the remaining quarters.
- Whether margin improvement persists amid higher non-fuel manufacturing costs and continuing freight pressure.
- Actual costs and timing of the Mounds production relocation, including the estimated additional $45,000 expense.
- Final pension contribution requirements and the effect of market changes on future funding.
- Cash needs and capital spending against debt maturities, the revolving facility’s covenants and the accelerated dividend schedule.