Oil-Dri of America(ODC) - 2024 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1: Financial Statements Presents Oil-Dri Corporation of America's unaudited Condensed Consolidated Financial Statements for the period ended April 30, 2024 Condensed Consolidated Balance Sheet Total assets increased to $319.2 million by April 30, 2024, driven by higher cash and property, with liabilities and equity also growing Condensed Consolidated Balance Sheet Highlights (in thousands of US dollars) | Metric | April 30, 2024 | July 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $46,821 | $31,754 | | Total Current Assets | $158,846 | $136,507 | | Total Property, Plant and Equipment, Net | $127,946 | $120,872 | | Total Assets | $319,152 | $286,235 | | Liabilities & Equity | | | | Total Current Liabilities | $51,918 | $58,768 | | Total Liabilities | $116,203 | $109,159 | | Total Stockholders' Equity | $202,949 | $177,076 | Condensed Consolidated Statements of Operations Nine-month net sales reached $323.9 million with net income at $30.9 million; Q3 net income decreased to $7.8 million despite sales growth Statements of Operations Highlights - Nine Months Ended April 30 (in thousands of US dollars) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net Sales | $323,885 | $305,633 | | Gross Profit | $92,070 | $72,793 | | Income from Operations | $38,753 | $28,331 | | Net Income Attributable to Oil-Dri | $30,901 | $17,632 | | Diluted EPS (Common) | $4.26 | $2.58 | Statements of Operations Highlights - Three Months Ended April 30 (in thousands of US dollars) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net Sales | $106,779 | $105,425 | | Gross Profit | $30,137 | $27,467 | | Income from Operations | $10,432 | $14,456 | | Net Income Attributable to Oil-Dri | $7,777 | $8,535 | | Diluted EPS (Common) | $1.07 | $1.24 | Condensed Consolidated Statements of Cash Flows Operating cash flow was $36.9 million, investing used $23.5 million, financing provided $1.5 million, increasing cash by $15.1 million Cash Flow Summary - Nine Months Ended April 30 (in thousands of US dollars) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $36,929 | $36,041 | | Net Cash Used in Investing Activities | ($23,536) | ($16,735) | | Net Cash Provided by (Used in) Financing Activities | $1,462 | ($5,806) | | Net Increase in Cash and Cash Equivalents | $15,067 | $13,448 | - Capital expenditures increased to $23.7 million from $16.7 million in the prior-year period, reflecting expansion of plant equipment and facility improvements[28][135] - Financing activities included $10 million in proceeds from notes payable, offset by $5.8 million in dividend payments and $2.7 million in treasury stock purchases[28][136] Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, segment performance, debt, and the $46 million Ultra Pet acquisition, including its $10 million debt financing - On May 1, 2024, the company acquired Ultra Pet Company for approximately $46 million to enter the crystal cat litter market, financed with cash, a $10 million credit advance, and $10 million in new Series D Senior Notes[91] - In Q2 FY2023, a $2.5 million reserve for landfill modification costs was recorded, increased by $0.5 million in FY2024, with work expected to complete in Q4 2024[67] - The company issued $10 million of 6.47% Series D Senior Notes due April 30, 2033, and amended its credit agreement to facilitate the Ultra Pet acquisition[70][72] Item 2: Management's Discussion and Analysis of Financial Condition and Results Of Operations (MD&A) MD&A highlights strong nine-month sales and gross profit growth, Q3 net income decline from SG&A, and robust liquidity for the Ultra Pet acquisition Results of Operations - Nine Months Ended April 30, 2024 Nine-month consolidated net sales grew 6% to $323.9 million, gross profit surged 27%, and operating income increased $10.4 million despite 20% higher SG&A Consolidated Results - Nine Months Ended April 30 (in millions of US dollars) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $323.9 | $305.6 | +6% | | Gross Profit | $92.1 | $72.8 | +27% | | Income from Operations | $38.8 | $28.3 | +37% | | Net Income | $30.9 | $17.6 | +76% | - B2B segment sales increased 7% to $111.6 million, primarily due to a 23% ($12.4 million) increase in fluids purification products from new renewable diesel customers[105] - R&W segment sales grew 5% to $212.3 million, mainly driven by a 6% ($10.5 million) increase in global cat litter sales due to higher pricing and favorable mix[108] - SG&A expenses rose 20% ($8.9 million), attributed to higher compensation costs, performance-based incentives, and acquisition-related expenses[101] Results of Operations - Three Months Ended April 30, 2024 Q3 net sales rose 1% to $106.8 million; however, a 51% SG&A surge led to operating income of $10.4 million and net income of $7.8 million Consolidated Results - Three Months Ended April 30 (in millions of US dollars) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $106.8 | $105.4 | +1% | | Gross Profit | $30.1 | $27.5 | +9% | | SG&A Expenses | $19.7 | $13.0 | +51% | | Income from Operations | $10.4 | $14.5 | -28% | | Net Income | $7.8 | $8.5 | -8% | - The 51% increase in SG&A was due to higher anticipated compensation costs, increased performance-based incentive accruals, and acquisition-related expenses for Ultra Pet[116] - B2B segment sales grew 2% to $36.2 million, led by a 26% increase in fluids purification products, offsetting declines in agricultural and animal health products[120] - R&W segment sales increased 1% to $70.6 million, driven by higher prices for cat litter, which offset softer volumes[124] Liquidity and Capital Resources Liquidity is strong with cash up $15.1 million to $46.8 million, supported by $36.9 million operating cash flow and $10 million new debt for Ultra Pet - Principal liquidity needs include capital requirements, working capital, stock repurchases, dividends, and debt service[129] - Cash provided by financing activities was $1.5 million, driven by a $10 million note issuance, offset by dividend payments and treasury stock repurchases[136] - The company expects capital expenditures in fiscal 2024 to be greater than in fiscal 2023[139] Item 4: Controls and Procedures CEO and CFO concluded disclosure controls were effective as of April 30, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of the end of the reporting period, the company's disclosure controls and procedures were effective[142] - No changes occurred during the fiscal quarter ended April 30, 2024, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[143] PART II – OTHER INFORMATION Item 1A: Risk Factors No material changes to risk factors have occurred since the January 31, 2024, quarterly report, referring to prior disclosures - There have been no material changes to the company's risk factors since the previous quarterly report for the period ending January 31, 2024[146] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds No unregistered securities were sold; 1,651 common shares were repurchased at $69.48 for tax purposes, with significant repurchase authority remaining Issuer Purchases of Equity Securities (Q3 FY2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | March 2024 | 1,651 | $69.48 | - As of April 30, 2024, 380,753 shares of Common Stock and 262,092 shares of Class B Stock remain authorized for repurchase[138][149] Item 4: Mine Safety Disclosures Mine safety disclosures, as required by the Dodd-Frank Act, are provided in Exhibit 95 of this quarterly report - Mine safety disclosures required under the Dodd-Frank Wall Street Reform and Consumer Protection Act are provided in Exhibit 95 to the Form 10-Q[150] Item 5: Other Information No officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No officers or directors adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter[151] Item 6: Exhibits Lists exhibits filed with Form 10-Q, including the Ultra Pet acquisition agreement, credit agreement amendment, and CEO/CFO certifications - Key exhibits filed include the Stock Purchase Agreement for Ultra Pet, an amendment to the credit agreement with BMO Bank, and CEO/CFO certifications[152] Signatures Report signed on June 6, 2024, by Daniel S. Jaffee, CEO, and Susan M. Kreh, CFO, for Oil-Dri Corporation of America