Oil-Dri of America (ODC)

Q3 2011 Earnings Call

June 17, 2011 11:00 am ET

Executives

Jeffrey Libert - Chief Financial Officer, Vice President and Treasurer

Douglas Graham - Vice President, Corporate Secretary and General Counsel

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

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 Oil-Dri Corporation of America Earnings Conference Call. My name is Kendall, and I'll be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Dan Jaffee, President and CEO. Please proceed.

Daniel Jaffee

Thank you, Kendall, and welcome, everybody to our third quarter and 9-month investor teleconference. With me is Jeff Libert, our CFO; and Doug Graham, our General Counsel; and Ronda Williams, who heads up all of our Investor Relations. And Ronda, will you take us through the Safe Harbor?

Ronda Williams

Certainly. Thanks, Dan. Welcome, everyone. On today's call, comments may contain forward-looking statements regarding the company's 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

Thanks, Ronda, and we'll stick to our usual format. Jeff, if you would walk us through the financial results.

Jeffrey Libert

Sure, Dan. As those of you who have read the release know, this was a challenging quarter financially. Sales were down 1% for the quarter, but up 3% year-to-date, a little over $56 million sales for the quarter and $169 million of sales for the year. EPS for the quarter was $0.28 per share, down 26% versus a year ago. For the year, EPS was $0.50 a share, down 10% versus a year ago. The story -- the top line has been essentially flat for a number of reasons, which I'll cover when I discuss the business group performance. The bottom line as we said in the last teleconference really suffered due to escalating commodity costs, primarily oil-related, but also somewhat paper-related.

Those of you who follow us know that oil is a major factor in our costs and for freight and packaging. Additionally, our foreign subsidiaries have struggled, as they have in the past quarter. Also, as disclosed in our release, we spent more than usual on market research and advertising. As we've said in the release, we've spent $400,000 in the quarter for a new product to be launched in fiscal '12, which Dan will cover in just a few minutes.

Covering the business groups and the Business to Business segment. Sales declined 1% for the quarter or last year's quarter, but income was down 13%. Co-packaging, international, animal health and bleaching earth sales declined during the quarter. For co-packaging/international, those are primarily coarse cat litter and of coarse cat litter segment of the cat litter market has continued to decline. We are still studying the matter, but we believe that some of the decline may be due to just say sluggish retail environment because of the economy in general.

Animal health declined due to a change in our distribution internationally, which we believe will be beneficial in the long term, but hurt us in the short term. Bleaching earth declined due to a slower sales of biodiesel products, the crop is especially good this year. And as a result, there was less needed for biodiesel. Additionally, some government subsidies were ratcheted down during the quarter and some biodiesel producers went out of business. One other point related to bleaching earth, last year the third quarter was the strongest quarter we've ever had. So it was still a very strong quarter for bleaching earth, but not as strong as a year ago. On the bright side, sales of agricultural carriers were up during the quarter.

For retail and wholesale, sales were down 1% for the quarter but income was down 27%. As I mentioned earlier, a lot of this was due to slow sales of coarse litter that have adversely affected our consumer business with a lot of our other business remaining somewhat flat. As we've said in past -- the past quarter, this has been a challenging environment to obtain price increases. We have plans in place that we are finalizing, but we have not achieved those price increases just yet.

On a positive side, our balance sheet remains very strong. Our cash investment balance is now $36.2 million that gives us a substantial cash reserve to combat any slow times and also for expansion opportunities. We spent during the quarter $10.2 million, but not in the quarter, but through 3 quarters, $10.2 million for capital expenditures. That's higher than average for Oil-Dri. We expect our spending this year to approach somewhere in the neighborhood of $15 million as we prepare our plans to launch our major new product. Of our total of $15 million, we expect $9 million to be related to this new product launch.

As in the past, we remain committed to dividends. Our core dividend of $0.16 per share represents a yield of 2.9% at the quarter's closing price. And also during the quarter, we have continued to repurchase shares, buying back almost 14,000 shares and spending $0.5 million during the quarter and $2.5 million for the year. That pretty much sums it up.

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