Oil-Dri of America (ODC)

Q2 2011 Earnings Call

March 11, 2011 10:00 am ET

Executives

Jeffrey Libert - Chief Financial Officer, Vice President and Treasurer

Ronda Williams - IR

Daniel Jaffee - Chief Executive Officer, President, Director and Member of Executive Committee

Analysts

Robert Smith - The Center for Performance

Ethan Starr - Private Investor

Brad Evans - Heartland

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Oil-Dri Corporation of America Earnings Conference Call. My name is Francine, and I am your operator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Dan Jaffee, President and Chief Executive Officer. Please proceed.

Daniel Jaffee

Thank you. Welcome everybody to the second quarter and six months teleconference. With me in the conference room is Doug Graham, our Vice President and General Counsel; Dan Smith, our Vice President and Chief Accounting Officer; Jeff Libert, our Vice President and Chief Financial Officer; and Rhonda Williams, who heads up all of our Investor Relations and will also walk us through the Safe Harbor.

Ronda Williams

Thank you, Dan. On today's call, comments may contain forward-looking statements regarding the companies performance in future periods. Actual results in those periods may materially differ. In our press release and our SEC filings, we highlight a number of important risk factors, trends and uncertainties that may affect our future performance. We ask that you review and consider those factors in evaluating the company's comments and in evaluating any investment in Oil-Dri stock. Thank you.

Daniel Jaffee

Thank you, Rhonda. And as always, we will start with somewhat detailed brief recap of the second quarter and six months that Jeff will walk us through, and then we will open it up to Q&A. And we encourage you to prioritize, ask your most important question first and then get back into the end of the queue. So Jeff, will you walk us through the results?

Jeffrey Libert

Thanks, Dan. Sales for the quarter and year-to-date were up 5%. For the quarter we sold about $57 million worth of product and $113 million for the year. EPS didn't fare quite as well. For the quarter, we earned $0.25 a share, which was down 19% versus a year ago. For the year, we earned $0.50, which is down 2% versus a year ago.

The story here for the top line is that we continue to experience success with a number of our product lines. However for the bottom line, things didn't go as well, and it's a story that we're hearing quite a bit in the business world these days. We've suffered due to increased costs, and it's really primarily oil-related.

Oil is a major factor of our freight and it's a major factor in our packaging cost. And we've all seen a spike in our healthcare-related cost. That's something that is going on in the community in general. Also our foreign subsidiaries have struggled during the year. We've seen a very vigorous competition in our foreign subsidiaries. And our spending in market research and advertising has increased. Those of you familiar with Oil-Dri know that this is reflective of our long-term philosophy.

In our business-to-business area, some of the areas that have done well. We've seen a lot of increase in our fluid purification products. However, sales of our Ag Chem and co-pack packaging litters have declined during the quarter. In our retail and wholesale area, sales were strong [indiscernible]. And sports turf products, however, they were not strong enough to cover some of the increased cost that we faced.

Moving onto our balance sheet. We are in a very strong position. Our cash investments balance is now $40.7 million. During the quarter, we closed on $18.5 million of borrowings. And as in the past, we remain committed to dividend. Our yield -- our quarter dividend was 16% and that represents a yield of 3.4% based on the quarter end closing price.

And we can also have continued our share repurchase program during the quarter. We bought almost 79,000 shares, which cost us $1.7 million during the quarter and for the year, we spent $2.2 million on share repurchase.

So that pretty much summarizes it.

Daniel Jaffee

Thanks, Jeff. I'll add a couple of bullet points, things that we've talked about in the past, which is our average selling price. And then in the past, this has gone up greater than our average cost, so we, for the last few years, have been able to show some margin expansion.

The good news is our average selling price in the first half was right around $256 a ton, up from just under $240 a year ago, so a nice increase. However, margins were still down. So that sort of amplifies what Jeff was saying, which is our ability to get the cost up. Again, our prices are greater than our cost, does not happen. And so we have seen margin erosion in the quarter.

We are working diligently. A lot of our prices are set contractually and there's an annual mechanism. So those will go up when it's time for them to go up. And a lot of our prices are committed through the end of our fiscal year. So those -- we want those commitments as well. Where we can, we're raising prices and oftentimes, it's in the form of passing on incremental fuel through a fuel surcharge on freight. So I think everyone has seen this probably in all areas of the economy. Commodity prices are going up that we're being impacted as well.

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