Oil-Dri Corporation of America (NYSE:ODC) Q3 2023 Earnings Call Transcript June 9, 2023
Operator: Good day and thank you for standing by. Welcome to Oil-Dri Corporation of America Q3 Fiscal Year 2023 Teleconference. At this time, all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today Dan Jaffee, President and Chief Executive Officer. Please go ahead.
Dan Jaffee: Thank you and welcome everybody to our third quarter teleconference. I would like to review with you the people who are on. We are conducting this virtually, so we are not on the same room, but we are all on and available to answer questions. Susan Kreh, our CFO and CIO; Aaron Christiansen, VP of Operations; Wade Robey, VP of Ag and President of Amlan International; Chris Lamson, Group VP of Retail and Wholesale; Laura Scheland, VP of Strategic Partnerships and General Counsel; David Atkinson, VP Controller; and Leslie Garber, Manager of Investor Relations. And Leslie, please walk us through the Safe Harbor.
Leslie Garber: Thank you, Dan, and 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 in 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 for joining us. Dan?
Dan Jaffee: Great. Yes, I’d like to mention general remarks and then I’ll turn it over to Susan Kreh for some more detailed remarks. What you’re seeing is a great quarter and it’s the culmination of a team that is working very well together in every aspect of the business, both our line team and our support team are pulling together to make this happen. And so, I just want to make sure I thank and recognize our team. It was a great quarter. And we believe, even if I’m looking at the stack price is doing and it’s running up. And I’ll let you guys do your own math, but whatever kind of EPS you want to apply for a year and any kind of multiple you want to do, you can see that we should have a lot of upward pressure on the stock price.
So, the board has authorized us to be opportunistic. We’re generating a lot of cash and to restart our stock buyback program. So, we will be opportunistic with it. We will abide by all the training rules that we need to do, but we see our stock as a good buy at this level. Susan, I’ll turn it over to you for some of the details.
Susan Kreh: Sure. Thank you, Dan. So, during our last two investor calls, we’ve talked about the positive momentum we are experiencing in the business as our entire team is focused on serving our customers and working to restore pre-pandemic margins. During the third quarter, Aaron Christiansen and the entire supply chain team achieved an all-time high in on-time shipments thus providing outstanding service to our customers. Our sales teams have also been very successful in taking price to the market. And while we have not yet recovered margins to our pre-pandemic levels, we made significant progress during the quarter in growing our gross profit margin to 26.1% from 22.6% during the prior quarter, while at the same time, growing our net sales 23% over the third quarter in the prior year.
Most of that growth resulted from pricing initiatives to recover cost increases and restore our margins. However, we also had meaningful volume growth of 25% within our business-to-business segment, which on a consolidated basis, was offset by the purposeful shedding of some low profit volume within our retail and wholesale segment. During our fiscal third quarter, the Oil-Dri team achieved another major milestone. As of April 30, 2023, Oil-Dri’s fully funded defined benefit pension plan was terminated and all funds were dispersed. The accounting for this was a non-recurring non-cash charge of 4.8 million net of tax, resulting from the combination of recognizing the unrealized losses on our pension investments and the transfer of our surplus to our defined contribution 401(k) planned for the benefit of our participants.
For those of you who are interested in more details, you can find them in Note 10, pension and other postretirement benefits in our 10-Q filing. And as a reminder, the third quarter in the prior year also included a significant non-recurring non-cash charge of 4.5 million net of tax related to the impairment of goodwill associated with our retail and wholesale segment. One final metric I would like to comment on is cash generation during the third quarter. For the first nine months of fiscal 2023, net cash provided by operating activities was 36.8 million, which compares to 5.5 million in the prior fiscal year. Of the 36.8 million in the current year, 21.9 million or 60% of net cash provided by operating activities was generated during this very strong fiscal third quarter.
Our cash priorities continue to be investing and reinvesting in our business with a focus on future growth activities to opportunities to support our customers, while maintaining our existing asset base, quoting our dividend, which we’ve just increased for the twentieth straight year, maintaining enough financial strength to support strategic M&A as targets become available, followed by as Dan just discussed, opportunistically repurchasing shares of our stock when we believe the valuation justifies this, which we do now. And so with that Dan, I’ll turn it back over to you for any additional comments you might have and for Q&A.
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Q&A Session
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Dan Jaffee: Great. Thank you and thank you for your recap. Yes, what I wanted to talk about, because you talked about the – I [don’t remember] [ph] how you said it, but you said it very well. The purposeful shedding of some unprofitable business. So, I think most of the people on the call will have heard of the concept of money ball as it applied to major league baseball. So, at Oil-Dri, we play money ball, where we really try and get into the data and the details and make decisions because we do have a non-renewable resource and we always want to live up to our mission of creating value from sort of minerals. So, I thought it was interesting to – and I’ve mentioned a lot of these metrics before over the years. But in general, back around the turn of the century, from 1999 through 2004, we did over a million tons a year.
Yet our average selling price was around $155 a ton. These past years, we do a little over 800,000 ton. So, 22 years later, our volume is down 20%, but our average selling price in the quarter was $530-ish a ton. And therefore then a lot of that is inflation and so forth and so on. So, it didn’t all go to the bottom line, but we were making as low as [$30.28] [ph] a ton back in 2001 on those million tons. And in the quarter, we made $138 gross profit. So that’s that 26% that Susan talked about. So, I just – I always want the investors to be mindful. We do not grow for growth sake. And we – anytime we’re running out of capacity in a certain line, we look and see if there’s some low margin business that’s [gumming] [ph] it up that we raise prices.
If it sticks, great. That means the customer valued it. If it doesn’t, it goes away and we clear those runways for the newer faster jets that we’re selling where we’re really partnering with our customers to add real value. And part of that value is our quality and our service and huge kudos to Aaron and his team for setting our all-time record and on-time deliveries in the quarter, which is a fantastic job by the supply chain. We always talk about how our sales team gets the first order, but our supply team gets to through Infinity and support team. [We repeat] [ph] order it’s because we have met or exceeded our customer’s expectations and then they reward us with a follow-up order. And so, we try and re-earn their business every day. Leslie, I will turn it to you because we do have a number of good questions from our faithful shareholders and we would like to cover as many of them as we can.
A – Leslie Garber: Great. Thank you, Dan. I want to remind everyone to please submit your questions using the ask a question field on the webcast and then click submit. We already have a bunch of questions in the queue, so I’ll start right now. The first one is from Sarah Donnelly at Gabelli Funds and she asked approximately how much clay is needed to filter 1 gallon of renewable diesel? And I can actually answer that and it is the amount of absorbent clay is about a 0.5% to 1% of the weight of the oil being processed. The next question comes from [Ethan Star] [ph] a Private Investor, and he asks what feedback are you receiving from Amlan customers both in the United States and internationally regarding the efficacy and value of Amlan products? And I’m going to turn that over to Wade Robey to answer.
