Oil-Dri of America(ODC) - 2021 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, management's analysis of operations, and evaluation of internal controls for the quarter Item 1: Financial Statements This section presents the unaudited Condensed Consolidated Financial Statements for the quarterly period ended October 31, 2020, including the Balance Sheet, Statements of Income, Comprehensive Income, Stockholders' Equity, and Cash Flows, along with detailed notes explaining the basis of presentation and significant accounting policies Condensed Consolidated Balance Sheet The balance sheet as of October 31, 2020, shows a decrease in total assets to $227.4 million from $235.9 million at July 31, 2020, primarily due to a reduction in cash and cash equivalents, while total liabilities also decreased significantly to $77.1 million from $87.9 million, mainly from a reduction in accrued expenses, and total stockholders' equity increased slightly to $150.3 million | Balance Sheet Highlights (in thousands) | Oct 31, 2020 | July 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $102,285 | $108,420 | | Total Assets | $227,371 | $235,882 | | Total Current Liabilities | $34,470 | $46,207 | | Total Liabilities | $77,055 | $87,918 | | Total Stockholders' Equity | $150,316 | $147,964 | Condensed Consolidated Statements of Income For the three months ended October 31, 2020, the company reported a 7.0% year-over-year increase in net sales to $76.1 million, with gross profit seeing a slight increase, income from operations growing by 25.6% to $5.2 million, and net income attributable to Oil-Dri rising to $4.0 million, a 12.7% increase from the prior-year period | Income Statement (in thousands) | Q1 2021 (ended Oct 31, 2020) | Q1 2020 (ended Oct 31, 2019) | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $76,097 | $71,122 | +7.0% | | Gross Profit | $20,304 | $19,935 | +1.8% | | Income from Operations | $5,177 | $4,121 | +25.6% | | Net Income Attributable to Oil-Dri | $3,984 | $3,536 | +12.7% | | Diluted EPS (Common) | $0.56 | $0.50 | +12.0% | Condensed Consolidated Statements of Cash Flows For the first three months of fiscal 2021, the company experienced a net cash outflow from operating activities of $3.4 million, a significant shift from the $6.7 million inflow in the same period last year, primarily due to an increase in accounts receivable and a decrease in accrued expenses, with investing activities using $3.6 million and financing activities using $2.8 million, resulting in a total decrease in cash and cash equivalents of $9.6 million | Cash Flow Summary (in thousands) | For the Three Months Ended Oct 31, 2020 | For the Three Months Ended Oct 31, 2019 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(3,435) | $6,692 | | Net Cash Used in Investing Activities | $(3,565) | $(3,900) | | Net Cash Used in Financing Activities | $(2,781) | $(5,344) | | Net Decrease in Cash and Cash Equivalents | $(9,599) | $(2,602) | Notes To Condensed Consolidated Financial Statements The notes provide further detail on accounting policies, the impact of COVID-19, segment performance, and other financial matters, including the minimal impact of COVID-19 on sales, the deferral of payroll taxes under the CARES Act, and a breakdown of sales and operating income by the company's two reportable segments - Despite the COVID-19 pandemic, the company has not experienced a significant decline in customer orders and sales in the first quarter of fiscal year 2021[34] - Under the CARES Act, the company deferred approximately $1.8 million in payroll taxes as of October 31, 2020, with the full deferral for calendar 2020 expected to be around $2.5 million[51] - The company's Pension Plan was amended to freeze participation and all future benefit accruals, effective March 1, 2020[71] | Segment Performance (Q1 2021 vs Q1 2020, in thousands) | Net Sales | Operating Income | | :--- | :--- | :--- | | Business to Business Products Group | $27,522 (↑4%) | $8,196 (↓1%) | | Retail and Wholesale Products Group | $48,575 (↑9%) | $4,478 (↑33%) | Item 2: Management's Discussion and Analysis of Financial Condition and Results Of Operations Management provides an analysis of the company's financial performance for the first quarter of fiscal 2021, covering the impact of COVID-19, consolidated results, detailed performance of its two business segments (Retail and Wholesale, and Business to Business), foreign operations, and liquidity and capital resources, with overall sales increasing 7% driven by strong cat litter demand, though profitability was slightly impacted by higher freight and packaging costs Results of Operations Consolidated net sales for Q1 FY2021 increased 7% to $76.1 million, driven by growth in both segments, while gross profit margin decreased slightly to 27% from 28% due to a 6% increase in both freight and packaging costs per ton, partially offset by a 9% decrease in natural gas costs, and SG&A expenses decreased by 4%, contributing to a 17% increase in consolidated net income before taxes - Consolidated net sales rose 7% YoY to $76.1 million for the three months ended October 31, 2020[98] - Gross profit margin declined from 28% to 27% of net sales, primarily due to higher costs for freight (+6%), packaging (+6%), and materials, which were partially mitigated by lower natural gas costs (-9%)[99] - Total SG&A expenses decreased by 4% YoY to $15.1 million[100] Business to Business Products Group The Business to Business Products Group saw a 4% increase in net sales to $27.5 million, led by a 22% rise in agricultural and horticultural products and a 3% increase in fluids purification products, though sales of animal health and nutrition products declined by 17%, and despite higher sales, operating income fell by 1% to $8.2 million due to increased freight and packaging costs - Net sales increased by 4% YoY, driven by a 22% increase in agricultural products due to a shift in customer timing and new business applications[105] - Sales of animal health and nutrition products decreased by 17%, primarily due to declines in Latin America and Africa[105] - Operating income decreased by 1% to $8.2 million, as higher freight and packaging costs offset the benefits of increased sales and lower SG&A[107] Retail and Wholesale Products Group This segment reported a strong quarter with a 9% increase in net sales to $48.6 million, primarily driven by a 12% increase in cat litter sales, benefiting from new customers, promotions, e-commerce growth, and an overall increase in pet adoption, while industrial and sports product sales fell 4% due to COVID-19 related shutdowns, and operating income surged 33% to $4.5 million, thanks to higher sales and lower advertising expenses - Net sales grew 9% YoY, led by a 12% increase in total cat litter sales from both private label and branded products[108] - Sales of industrial and sports products decreased by approximately 4% due to the continued impact of business and sports field shutdowns from COVID-19[108] - Operating income increased by 33% to $4.5 million, driven by higher sales and a 9% reduction in SG&A expenses, primarily from lower advertising costs[109][110] Liquidity and Capital Resources The company's liquidity position changed, with net cash used in operating activities of $3.4 million compared to $6.7 million provided in the prior year, mainly due to working capital changes, while the company maintains a $45 million revolving credit facility and issued $10 million in senior notes in May 2020, and management believes existing cash, cash flow from operations, and available credit are sufficient to fund needs for the next 12 months - Net cash used in operating activities was $(3.4) million, a significant decrease from the $6.7 million provided in the prior-year period, driven by an increase in accounts receivable and a decrease in accrued expenses[116][117][122] - The company has a $45 million unsecured revolving credit agreement with BMO Harris, expiring in January 2024, with no borrowings during the quarter[127] - In May 2020, the company issued $10 million in 3.95% Series B Senior Notes due in 2030[128] Item 4: Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of October 31, 2020, with no material changes to internal controls over financial reporting during the quarter, despite many employees working remotely due to COVID-19 - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[134] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[136] PART II – OTHER INFORMATION This section details risk factors, equity security transactions, mine safety disclosures, and other material information and exhibits Item 1A: Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended July 31, 2020 - There have been no material changes to the company's risk factors since the Annual Report on Form 10-K for the year ended July 31, 2020[139] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds This section provides details on the company's stock repurchase activities during the first quarter of fiscal 2021, including repurchases made for both Common Stock and Class B stock, and discloses the remaining authority under its repurchase plan | Issuer Purchases of Equity Securities (Q1 2021) | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | Common Stock | 16,318 | $36.32 | | Class B Stock | 10,675 | $36.11 | - As of October 31, 2020, the company had remaining authority to repurchase 871,616 shares of Common Stock and 278,250 shares of Class B Stock[129][142] Item 4: Mine Safety Disclosures The company discloses that information concerning mine safety violations and other regulatory matters required under the Dodd-Frank Act is included in Exhibit 95 to this quarterly report - Information concerning mine safety violations as required by section 1503(a) of the Dodd-Frank Act is included in Exhibit 95 to this Form 10-Q[143] Item 5: Other Information The company reports that on December 4, 2020, it entered into a fourth amendment to its "Fresh Step"® Memorandum of Agreement with a subsidiary of The Clorox Company, which extends the initial term of the agreement - On December 4, 2020, the company amended its agreement with a subsidiary of The Clorox Company for "Fresh Step"® to extend the initial term[144] Item 6: Exhibits This section lists all exhibits filed with the Form 10-Q, including various agreements, amendments, certifications required by the SEC, mine safety disclosures, and interactive data files (XBRL) - The report lists several exhibits, including the fourth amendment to the "Fresh Step"® agreement, an Exclusive Supply Agreement with Church & Dwight Co., Inc., and certifications pursuant to Sarbanes-Oxley[145]