Oil-Dri Announces Second Quarter and First Six-Months of Fiscal 2019 Results

Company Release - 3/11/2019 6:58 AM ET

CHICAGO, March 11, 2019 (GLOBE NEWSWIRE) -- Oil-Dri Corporation of America (NYSE: ODC), producer and marketer of sorbent mineral products, today announced results for its second quarter and first six-months of fiscal 2019.

   
 Second QuarterYear to Date
 Ended January 31, 2019Ended January 31, 2019
       
 F19F18ChangeF19F18Change
Consolidated Results      
Net Sales$69,880,000$68,894,000 1%$136,023,000$135,540,000—%
Net Income Attributable to Oil-Dri$2,287,000$(1,096,000)N/A$3,193,000$1,954,00063%
Earnings per Diluted Share$0.30$(0.15)N/A$0.42$0.2662%
Business to Business      
Net Sales$26,458,000$27,355,000 (3)%$51,784,000$54,442,000(5)%
Segment Operating Income$7,272,000$9,759,000 (25)%$14,304,000$18,635,000(23)%
Retail and Wholesale      
Net Sales$43,422,000$41,539,000 5%$84,239,000$81,098,0004%
Segment Operating Income$2,653,000$2,422,000 10%$2,662,000$4,787,000(44)%
  

Daniel S. Jaffee, President and CEO, stated, “Our financial results are disappointing but reflect short-term growing pains and industry-wide challenges. While some of the negative impacts were anticipated, some were not. However, as I have stated previously,  I am confident that our long-term strategies are working. We are gaining traction in our focused markets, and as Head Coach of the Oil-Dri Team, I can assure you we have every intention of staying the course and winning over the long run.

The areas listed below are where the business experienced the greatest incremental approximate cost increases, year-over-year:

  • Freight
    ° Quarter: $2M
    ° Six-Months: $4M
  • Packaging
    ° Quarter: $900,000
    ° Six-Months: $1.7M
  • New Enterprise Resource Planning (ERP) System
    ° 
    Quarter: $250,000
    ° Six-Months: $1.2M
  • Customer Compliance Fines
    ° 
    Quarter: $200,000
    ° Six-Months: $700,000              

The most significant increases were largely outside of our control and driven by industry conditions, such as freight rates, natural gas cost and packaging material commodity pricing. We believe similar pressures will continue to affect our business for several future periods. We raised cat litter prices effective August 1, 2018, but this increase has proven to be insufficient.  In hindsight, we should have done a better job anticipating the magnitude of market conditions and adjusted our prices accordingly. For this reason, we are implementing another price increase on all cat litter products effective May 1, 2019.

In the first six-months of fiscal 2019, our costs related to non-fuel manufacturing increased approximately 7% year over year due to increased product transfers between plants and warehouses, repairs and preventative maintenance of our mining equipment, labor, additional leased warehousing space to house incremental inventory during our ERP implementation, and waste disposal. During the period, inventory increased by $5.6 million which can be attributed to anticipated sales requirements, incremental safety stock during our ERP implementation, and related higher product costs. We are working diligently to improve manufacturing efficiencies and expect these costs to progressively decrease in the second half of fiscal 2019.

While our cash position is slowly improving, it reflects the investment we made in our new ERP system and difficulties we experienced during the implementation process. We continue to address customer invoicing delays and other issues related to the new system. This contributed to an increase of approximately $4.7 million in accounts receivable during the first half of the year.

Challenges were also faced by our Business to Business Product Group. Sales of fluids purification products were down internationally due to price competition, and animal health products were negatively impacted in Asia by the widespread African Swine Fever. However, Amlan products, such as Varium for poultry and NeoPrime for piglets, are being trialed and adopted to improve feed efficiency around the world. Specifically, sales momentum is increasing in Latin America. We believe this can be attributed to an increased sales presence as well as a new marketing strategy.

Sales were up in both periods for the Retail and Wholesale Product Group, led primarily by increased sales of our private label lightweight products to existing large-scale accounts. According to third-party market data from the latest 12-week period ending January 26, 2019, Oil-Dri’s branded and private label products accounted for 14.2% unit share of the overall cat litter category compared to 13.3% in the same period of 2018. However, the group’s operating income for the first six months of fiscal year 2019 was negatively impacted by the higher freight, packaging and non-fuel manufacturing costs discussed above.

We have strategically used our advertising dollars to focus more on the digital promotion of our Litter for Good program. Since the program launched in January 2018, we have promised 5 million pounds of litter to 1,211 shelters. As an on-going program, Litter for Good truly reflects many of Oil-Dri’s core values, and we are very proud of the program’s success.

We have made several changes in leadership over the past few months to support the future growth of our business. Our investment in infrastructure (ERP System) and people will allow us to capitalize on the incremental opportunities in the markets in which we participate.

Looking forward, the team and I are very confident that while fiscal 2019 may not be a record year financially, we will all look back at the organizational changes and investments that were made and realize it was one of our most strategic years in company history. We very much appreciate your support in this bumpy and somewhat painful journey towards becoming a larger, more sophisticated company.”

While Oil-Dri’s founding product was granular clay floor absorbents, it has since greatly diversified its portfolio. The Company’s mission to “Create Value from Sorbent Minerals” is supported by its wide array of consumer and business to business product offerings. In 2016, Oil-Dri celebrated its seventy-fifth year of business and looks forward to the next milestone.

The Company will host its second quarter teleconference on Monday, March 11, 2019 at 3:30pm Central Time. Participation details are available on our website’s Events page.

“Oil-Dri”, “Amlan”, “Cat’s Pride”, “Varium”, and “NeoPrime” are registered trademarks of Oil-Dri Corporation of America. “Litter for Good” is a trademark of Oil-Dri Corporation of America.

Certain statements in this press release may contain forward-looking statements that are based on our current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs, and our management’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in other press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls, and conference calls. Words such as “expect,” “outlook,” “forecast,” “would,” “could,” “should,” “project,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate,” “anticipate,” “may,” “assume,” or variations of such words and similar expressions are intended to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such statements are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially including, but not limited to, the dependence of our future growth and financial performance on successful new product introductions, intense competition in our markets, volatility of our quarterly results, risks associated with acquisitions, our dependence on a limited number of customers for a large portion of our net sales and other risks, uncertainties and assumptions that are described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K and other reports we file with the Securities and Exchange Commission. Should one or more of these or other risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, intended, expected, believed, estimated, projected or planned. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except to the extent required by law, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this press release, whether as a result of new information, future events, changes in assumptions, or otherwise.

     
     
CONSOLIDATED STATEMENTS OF INCOME    
(unaudited)Second Quarter Ended January 31
(in thousands, except per share amounts)
2019 % of Sales 2018 % of Sales
Net Sales$69,880  100.0% $68,894  100.0%
Cost of Sales (1)(54,476) (78.0)% (49,237) (71.5)%
Gross Profit15,404  22.0% 19,657  28.5%
Selling, General and Administrative Expenses (1)(12,577) (18.0)% (14,474) (21.0)%
Operating Income2,827  4.0% 5,183  7.5%
Interest Expense(142) (0.2)% (199) (0.3)%
Other Income (1)103  0.1% 87  0.1%
Income Before Income Taxes2,788  4.0% 5,071  7.4%
Income Tax Expense(506) (0.7)% (6,167) (9.0)%
Net Income (Loss)2,282  3.3% (1,096) (1.6)%
Net Loss Attributable to Noncontrolling Interest(5)      
Net Income (Loss) Attributable to Oil-Dri$2,287  3.3% $(1,096) (1.6)%
Net Income (Loss) Per Share:       
Basic Common$0.33    $(0.17)  
Basic Class B Common$0.25    $(0.12)  
Diluted Common$0.30    $(0.15)  
Average Shares Outstanding:       
Basic Common5,121    5,035   
Basic Class B Common2,068    2,104   
Diluted Common7,229    7,139   
 Six Months Ended January 31
 2019 % of Sales 2018 % of Sales
Net Sales$136,023  100.0% $135,540  100.0%
Cost of Sales (1)(104,609) (76.9)% (96,908) (71.5)%
Gross Profit31,414  23.1% 38,632  28.5%
Selling, General and Administrative Expenses (1)(27,584) (20.3)% (29,234) (21.6)%
Operating Income3,830  2.8% 9,398  6.9%
Interest Expense(293) (0.2)% (400) (0.3)%
Other Income (Expense) (1)135  0.1% (88) (0.1)%
Income Before Income Taxes3,672  2.7% 8,910  6.6%
Income Tax Expense(456) (0.3)% (6,956) (5.1)%
Net Income3,216  2.4% 1,954  1.5%
Net Income Attributable to Noncontrolling Interest23  %   %
Net Income Attributable to Oil-Dri$3,193  2.3% $1,954  1.5%
Net Income Per Share:       
Basic Common$0.46    $0.29   
Basic Class B Common$0.34    $0.22   
Diluted Common$0.42    $0.26   
Average Shares Outstanding:       
Basic Common5,099    5,030   
Basic Class B Common2,069    2,097   
Diluted Common7,242    7,215   

(1) Prior year amounts have been retrospectively adjusted to conform to the current year presentation of the non-service cost components of net periodic benefit cost required by new guidance under Accounting Standards Codification (“ASC”) 715,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.

     
     
CONSOLIDATED BALANCE SHEETS    
(in thousands, except per share amounts)    
(unaudited)    
     
  As of January 31
  2019 2018
Current Assets    
Cash and Cash Equivalents $9,375  $9,381 
Short-term Investments 480  21,894 
Accounts Receivable, Net 38,282  32,309 
Inventories 28,123  22,603 
Prepaid Expenses 6,040  7,967 
Total Current Assets 82,300  94,154 
Property, Plant and Equipment, Net 86,193  84,289 
Other Assets 24,644  27,092 
Total Assets $193,137  $205,535 
     
Current Liabilities    
Current Maturities of Notes Payable $3,083  $3,083 
Accounts Payable 7,882  8,089 
Dividends Payable 1,680  1,559 
Accrued Expenses 18,444  20,603 
Total Current Liabilities 31,089  33,334 
Noncurrent Liabilities    
Notes Payable 3,038  6,092 
Other Noncurrent Liabilities 26,246  39,847 
Total Noncurrent Liabilities 29,284  45,939 
Stockholders' Equity 132,764  126,262 
Total Liabilities and Stockholders' Equity $193,137  $205,535 
     
Book Value Per Share Outstanding $18.52  $17.72 
     
Acquisitions of:    
Property, Plant and EquipmentSecond Quarter$2,141  $2,805 
 Year To Date$6,199  $6,850 
Depreciation and Amortization ChargesSecond Quarter$3,234  $3,221 
 Year To Date$6,539  $6,413 
         
         


CONSOLIDATED STATEMENTS OF CASH FLOWS   
(in thousands)   
(unaudited)   
    
 For the Six Months Ended
 January 31
 2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES   
Net Income$3,216  $1,954 
Adjustments to reconcile net income to net cash   
provided by operating activities:   
Depreciation and Amortization6,539  6,413 
(Increase) Decrease in Accounts Receivable(4,529) 362 
(Increase) Decrease in Inventories(5,607) 75 
Increase (Decrease) in Accounts Payable2,295  (743)
(Decrease) in Accrued Expenses(1,390) (3,637)
Increase in Pension and Postretirement Benefits859  649 
Other1,309  6,556 
Total Adjustments(524) 9,675 
Net Cash Provided by Operating Activities2,692  11,629 
    
CASH FLOWS FROM INVESTING ACTIVITIES   
Capital Expenditures(6,199) (6,850)
Net Dispositions of Investment Securities6,654  1,739 
Other  11 
Net Cash Provided by (Used In) Investing Activities455  (5,100)
    
CASH FLOWS FROM FINANCING ACTIVITIES   
Principal Payments on Long-Term Debt(3,083) (3,083)
Dividends Paid(3,287) (3,112)
Purchase of Treasury Stock(135) (27)
Net Cash Used in Financing Activities(6,505) (6,222)
    
Effect of exchange rate changes on cash and cash equivalents(24) (21)
    
Net (Decrease) Increase in Cash and Cash Equivalents(3,382) 286 
Cash and Cash Equivalents, Beginning of Period12,757  9,095 
Cash and Cash Equivalents, End of Period$9,375  $9,381 
        

Reagan B. Culbertson
Investor Relations Manager
Oil-Dri Corporation of America
InvestorRelations@oildri.com 
(312) 321-1515

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Source: Oil-Dri Corporation Of America
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