Oil-Dri Of America's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Oil-Dri of America (ODC)

Q2 2012 Earnings Call

March 12, 2012 11:00 am ET


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

Ronda Williams -

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


Robert Smith - Center for Performance Investing



Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Oil-Dri Corporation Of America Earnings Conference Call. My name is Derek, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn it over it to Mr. Dan Jaffee, President and Chief Executive Officer. Please proceed.

Daniel S. Jaffee

Thank you, Derek, and welcome everyone to our second quarter and 6-month teleconference. As usual, Jeff Libert, CFO, is here; Doug Graham, our VP and General Counsel; and Ronda Williams, who heads up all of our Investor Relations, is here. And Ronda here is going to go through the Safe Harbor.

Ronda Williams

Sure. Thank you. 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

Thanks, Ronda. And when the news is bad, I always throw Jeff a bone and let him go first and take the beating. But when the news is good, I'll take one from the team and make -- take one for the team and make a few gratuitous comments, and then turn it over to Jeff for the play-by-play. But I keep a spreadsheet of all the quarters going back to when I first became President, which is back in 1995, so now I have 17 columns on this crazy spreadsheet. So I can't go back any further than that. But in terms of our net income of $3.2 million, this was an all-time record quarter, for any quarter. And we had never broken $3 million before, frankly, never even really close to $3 million before. And I looked and actually it was better than 4 consecutive entire fiscal years of earnings back around the new millennium. So that was very exciting.

And then from a sales perspective, it was an all-time record for a second quarter, and it was the second highest we've ever had. Back in '09, we had a huge first quarter that eclipsed it. So it was our second-highest sales quarter ever and our highest net income quarter ever.

The other metric that I like to communicate to you guys is help depict how we're doing in our mission of creating value from sorbent minerals, is the whole idea of net sales or gross profit per ton. And again, at an all-time record, we finished the last year at $260 a ton. We finished this quarter at $285, which was due primarily to mix, just selling more of the high-priced goods. And then, from a gross profit standpoint, again, last year, we made $57 on every ton we sold from a GP standpoint, and we made almost $69 in this quarter. So very -- some very positive metrics. And with that, if I stole all of Jeff's thunder, I'll turn it over to Jeff for some more of the details.

Jeffrey M. Libert

Well, I can tell more about the good news for the quarter. Sales were up 5% for the quarter and 6% for the year. Sales were $60.2 million for the quarter and $119.8 million for the year. For the quarter, EPS was $0.45 per share, which is up 80% versus a year ago. For the year, EPS was $0.50 a share, which is even with a year ago.

The story for the quarter was the marketing spend. It was a story for the first quarter, and it's a story for the second quarter. As well in the first quarter, we were spending behind our Cat's Pride Fresh & Light launch. And this quarter, we spent very little on the marketing for the launch, not because we are not committed to the launch, but we took a hiatus as we continue to get distribution. We're going to see more spending in the back half of the year.

We saw strong performance in our core business, and that's why the EPS was so strong. Our earnings was so strong because the earning power of our business is still very good. We especially saw a good earning power in our Business to Business area. We also saw lower natural gas prices, which is a pretty heavy component of our manufacturing costs. In combination with a more profitable product mix, our gross profit margins increased from 21.8% for the quarter a year ago to 24.2% for this quarter.

Going through our business areas, first, our Business to Business area, we had a very strong quarter. Sales increased 18%, and contribution increased 42% for the quarter. Animal health, bleaching earth and agricultural carriers also increased in sales, both volumes and average selling price increased. Co-packaged litters were down.

In our retail and wholesale area, sales were down 1% for the quarter. Sales increased due to Fresh & Light and other scooping litter products, but traditional coarse litters were down, especially private label. Group income was up 18% for the quarter. Advertising was slightly lower than a year ago. During the quarter, marketing spend was lower, as we said a second ago, as we pause for Fresh & Light advertising as we gain more distribution. Nevertheless, increased advertising and promotion will resume in the second half, and that will cause a decrease in our earnings versus a year ago in the short term while we invest in this very important product launch.

Read the rest of this transcript for free on seekingalpha.com