Oil-Dri of America (ODC)

Q1 2012 Earnings Call

December 09, 2011 11:00 am ET

Executives

Jeffrey M. Libert - Chief Financial Officer, Vice President and Treasurer

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

Douglas A. Graham - Vice President, General Counsel and Corporate Secretary

Ronda Williams -

Analysts

Unknown Analyst

Robert Smith

Ethan Starr

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2011 (sic) [2012] Oil-Dri Corporation of America Earnings Conference Call. My name is Regina, and I will be your conference operator for today. [Operator Instructions] Today's event is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Dan Jaffee, President and Chief Executive Officer. Please go ahead, sir.

Daniel S. Jaffee

Thank you, Regina. Welcome, everybody, to our teleconference, and as usual, Jeff Libert, Chief Financial Officer; Doug Graham, our Vice President and General Counsel; and Ronda Williams, who heads up our internal -- our investor relations effort is here. And Ronda, you'll cover the Safe Harbor?

Ronda Williams

Yes, I will. Thank you, Dan.

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 S. Jaffee

Thank you, and before I turn it over to Jeff, let me just say this was a dynamic quarter to say the least. The B2B group really performed exceedingly well across the board and then on the retail side, we launched what we believe to be a game changing new cat litter, changing litter for good, Cat's Pride Fresh & Light, and so we got a lot going on all fronts. And obviously, when you have that kind of activity in a company our size, ultimately, it's called investment spending, where you're spending more than the profits would cover in those quarters where you're getting the new product off the ground. And so you saw it in our bottom line that our EPS was down significantly in the quarter.

So Jeff, with that little lead in, why don't you take us through some of the details?

Jeffrey M. Libert

Thank you, Dan. I think you left a little bit for me to talk about. Dan, sales were up 6% for the quarter. They were a little under $59.6 million for the quarter. As you mentioned a second ago, EPS was down with $0.15 a share, which is down $0.57 versus a year ago. The story...

Daniel S. Jaffee

57%.

Jeffrey M. Libert

57%, yes. The story this quarter was all about Cat's Pride Fresh & Light launch. The additional sales drove our sales higher, but we spent $3 million in additional advertising and promotional expenses and ultimately, that accounted for our reduced earnings. Our gross margins have increased slightly from 23.5% to 23.8%, reflecting a higher margin product mix. B2B had a very strong quarter. Sales increased 10% and contribution increased 41%. Animal health and bleaching earth sales increased. Agricultural carriers were flat and co-pack litters declined. Our animal health and bleaching earth products continue to find new customers. Our co-pack was down due to the continued shift to scoopable litters.

Retail and Wholesale, where cat litter resides, sales were up 4% for the quarter. I mentioned earlier that the Fresh & Light launch reduced our income during the quarter but drove increased sales. Our ability to predict the timing of distribution gain, the consumer acceptance, is somewhat limited, honestly. So our understanding of how we're going to perform during the year is going be highly variable based on how well the product gets distribution and when it gets distribution. Despite all the encouraging news we received about the product, fiscal '12 will be a year of investment, as Dan mentioned a minute ago, due to the launch, and we now believe our earnings will be somewhat reflective of that investment. Our other scooping litters grew during the quarter, on the positive side, and sales of traditional litters declined. Our industrial and sports field products increased during the quarter.

As for the balance sheet, we continue to be in a very strong position. Our cash and investment balance is now $29.4 million. Our net debt, which is our cash less our outstanding debt, is a little under $2 million. We spent $1.6 million in the quarter on capital, and that's somewhat down from where we've been in past quarters. We've spent a lot of money last year in fiscal '11 launching Fresh & Light, and with that launch now underway, we expect our capital to be a little lower for this year. We remain committed to dividends. Our quarter dividend of $0.17 per share represents a 3.4% yield at the quarter's closing price.

That pretty much summarizes the quarter, financially.

Daniel S. Jaffee

Great. And rather than me trying to guess what's first and foremost on our investors' minds, Regina, what I'd like to do is open it up for Q&A and please encourage everyone prioritize your questions, ask your most important question first and then get back to the end of the queue to allow others to ask their questions before we run out of time.

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