Oil-Dri Corporation of America (NYSE:ODC) Q1 2023 Earnings Call Transcript

Oil-Dri Corporation of America (NYSE:ODC) Q1 2023 Earnings Call Transcript December 7, 2022

Operator: Welcome to the annual meeting for Oil-Dri Corporation of America. Our host for today’s call is Leslie Garber, Manager of Investor Relations. At this time, all participants will be in a listen-only mode. I will now turn the call over to your host, Leslie Garber, you may begin.

Leslie Garber: Good morning and welcome to Oil-Dri Corporation of America’s 2022 Annual Meeting of Stockholders. My name is Leslie Garber and I am the Manager of Investor Relations at Oil-Dri. We are conducting this meeting virtually, a format utilized during the COVID-19 pandemic, which enables greater stockholder attendance and participation, improved efficiencies, increases our ability to communicate with stockholders and reduces costs. On your screen under Meeting Materials, you will find the Meeting Agenda, Rules of Conduct, List of Stockholders of Record and Oil-Dri’s Proxy Statement and Annual Report. During the meeting today, we will be covering the election of directors and one other proposal. Next will be the business presentations and financial review followed by time for Q&A.

We ask that you submit your questions online under the Ask a Question field on your screens. Only stockholders of record are able to ask questions during the meeting. Stockholders will also be able to vote online by clicking on the Vote Here button on your screens. Now it is my pleasure to introduce our General Counsel and Secretary, Laura Scheland, who will conduct the formal portion of today’s meeting.

Laura Scheland: Good morning ladies and gentlemen. I now call to order the 2022 Annual Meeting of Stockholders of Oil-Dri Corporation of America to conduct the formal business set forth in the notice of meeting and proxy statements. Commencing on October 25, 2022, a notice regarding the availability of proxy materials or a copy of the proxy materials was mailed to all Oil-Dri stockholders of record as of the close of business on October 10, 2022, which is the record date fixed by Oil-Dri’s Board of Directors for the determination of stockholders entitled to notice of and to vote at this meeting. Broadridge Financial Services has delivered an affidavit confirming the foregoing. Oil-Dri has appointed Peter Sablich of CT Hagberg to serve as the Inspector of Election for this meeting.

He is present on the webcast and has taken the oath of office. As of October 2022 the record date for this meeting, there were 5,075,302 shares of Oil-Dri’s common stock and 2,045,415 shares of Oil-Dri’s Class B stock outstanding. Holders of our common stock are entitled to one vote per share and holders of our Class B stock are entitled to 10 votes per share and generally vote together without regard to Class. A quorum is present at this meeting if holders of a majority of our common stock and Class B stock outstanding and entitled to vote are present in person or represented by proxy. Thus, the number of votes necessary to constitute a quorum at this meeting is 12,790,255 votes. Mr. Sablich has informed me that there are more than such numbers of votes represented at this meeting.

Therefore, I declare there is a quorum present for purposes of transacting business. Now, I will present the matters to be voted upon. If any stockholder would like to make a comment regarding any of the proposals, please submit your comment through the Ask a Question field in the Web portal and we will review any comments on the proposals themselves after all proposals have been presented. As described in the proxy statement, the first item of business is the election of nine Directors. The proxy statement listed Oil-Dri’s nominees for Director, each of whom currently serves as a Director of Oil-Dri. Those nominees are Daniel S. Jaffee, Ellen-Blair Chube, Paul M. Hindsley, Michael A. Nemeroff, George C. Roeth, Amy L. Ryan, Allan H. Selig, Paul E.

Suckow and Lawrence E. Washow. The second item of business is the ratification of the appointment of Grant Thornton LLP as Oil-Dri’s independent auditor for the fiscal year ended July 31, 2023. The Audit Committee of the Board of Directors of Oil-Dri has appointed Grant Thornton to serve as the company’s independent auditor for fiscal year 2023 and has directed that appointment to be submitted for ratification by the stockholders at this meeting. At this time, we’ll check for and review any comments on the proposals that have been submitted. It looks like no comments have been received, so we will proceed with opening the poll. It is 9:35 AM on December 7, 2022 and the polls are now open. Any stockholder who hasn’t yet voted or wishes to change their vote may do so by clicking on the Vote Here button on your screen.

Stockholders who have sent in proxies or voted via telephone or Internet and who do not wish to change their vote do not need to take any further action. While we allow time for stockholders who haven’t already done so to complete their voting, I’d like to remind you that the business presentation and other commentary by any of Oil-Dri’s employees today may contain forward-looking statements of expected future performance. Any such forward-looking statements are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially. We highlight a number of important risk factors that may affect our future performance in our SEC filings, including our annual report for the fiscal year ended July 31, 2022.

We urge you to review and consider those risk factors carefully in evaluating the company’s comments and evaluating any investment in Oil-Dri stock. Copies of our SEC filings are available through the company or online. All right, one last minute to finish voting. Okay. At this point, the polls are closed and I will now report the preliminary results of the voting. We will be reporting the final vote results in a Form 8-K to be filed within four business days to the SEC. As described in the proxy statement, a Director may only be elected by a plurality of votes cast. The nine nominees who receive the largest number of votes will be elected. We have been informed by the Inspector of Elections that the preliminary vote report shows that the nine candidates nominated by Oil-Dri received the largest number of votes.

Regarding the second item of business, an affirmative majority of the votes represented at the meeting is necessary for ratification of the appointment of Grant Thornton as Oil-Dri’s independent auditor for the fiscal year ending July 31, 2023. We have been informed by the Inspector of Elections that the preliminary vote report shows that such ratification received more than a majority of the votes represented at this meeting. This completes the business to be conducted at this meeting. There being no further business to come before the meeting, the 2022 Annual Meeting of Stockholders of Oil-Dri Corporation is now adjourned. I am now happy to introduce Dan Jaffee, our President and Chief Executive Officer for our business presentation and financial review.

Daniel Jaffee: Thank you, Laura and welcome to our shareholders, our Oil-Dri teammates, I know they tune in and I know we even have some parents of teammates that are tuning in today, and so welcome everyone. Thank you. Proud of the quarter, proud of how the team performed in a very dynamic environment. Those of you who have owned our shares for a long time know what I like to do at this point in the presentation is cover new promotions of existing people in new positions of importance of the company and then also Vice Presidents who have joined us during the year or people that have been promoted to the Vice Presidential level during the year, because an investment in Oil-Dri really is a twofold investment. Number one, you’re investing in our mineral and its value and our ability to understand that, but then you’re really investing in our team who is going to help communicate that value to our customers and then sharing that value with them.

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So with that being your twofold investment, you know about our mineral and you’ll hear more about our opportunities as we move forward. I’d like to cover our new Vice Presidents and senior promotions that occurred during the year. First, Chris Lamson is our Group Vice President of Retail and Wholesale. We feel very fortunate that Chris joined our team almost a year ago. He received his BS in Finance from St. Mary’s of California. He then spent 18 years with The Clorox in many positions, including VP, General Manager of the Food and Charcoal Division, and Vice President of the Walmart Customer Team. He spent four and a half years as a Senior VP at Central Garden and Pet, again, giving him knowledge not only of the consumer products arena, but the actual pet arena that we compete in and as I said, he has been here a little bit under a year.

Currently at Oil-Dri he has full oversight of our domestic and Canadian consumer product businesses, our industrial and sports turf businesses, and one of our copack relationships. And he is leading our process, which is really how we run the company now, and has had a major positive impact on our ability to supply our customers in a very dynamic environment. So welcome Chris to the team. Next, Aaron Christensen, you’ve seen him before. So this is an old face and a new job. He was promoted during the year as Vice President of Operations. He received his BS in Mechanical Engineering from Washington University in St. Louis. Before he joined us, five and a half years with Proctor & Gamble as a processing engineer, quality assurance manager, and then 10 years with Unilever and the last two as manufacturing manager at their largest consumer product plant in Jefferson City, Missouri.

He has now been with us seven years, which is amazing. It’s just he’s been a great addition to the team and his current responsibilities include oversight of all of our activities relating to mining, manufacturing, engineering, logistics, procurement, customer service and planning. And if we had any more, we’d give them to him. My dad always said, if you want to get something done, find a busy person and assign it to them. So that’s what I’ve done there. And then his promotion opened up a promotion for David Downs, who is now our VP of Manufacturing taking Aaron’s former role. David received his BS in Mechanical Engineering from VMI. His past experience includes VP and Plant Manager at United States Lime & Minerals, lots of mining experience.

He then was a Senior Engineer at Nestlé Purina’s cat litter plant in Virginia, and he’s now been with us six years as our Plant Manager, first in Ripley, and then as our Regional Manager in Georgia. His new responsibilities include oversight of all manufacturing at our eight plants in the U.S. and Canada, and we’re very fortunate to have David on our team. Next I fired myself as the Head of Amlan. I missed a plan for a month, so I terminated myself. No, I’m just kidding about that. Really what I did for a couple of years was just get the strategy, get the people in place, get the team in place. We added a lot of teammates and one of the major additions was Dr. Wade Robey, who joined us at that time as our VP of Marketing. And so now he is being promoted to President of Amlan International.

He received his BS in Ag Sciences from Auburn, his Masters in Avian Physiology from Auburn, and his PhD in Animal Nutrition from Virginia Tech. So you can see he has absolutely got the educational experience to lead our team. And then he has the work experience, which really has been stellar 30 plus year career in animal health and biotech. He’s been with such notable global multinational companies as Monsanto; Novus, where he was Director of Nutrition Research; Cargill, he was an R&D Director; Syngenta and then POET, Senior VP and Chief Technology Officer. I mentioned he’s been with us two years. He recently also began overseeing product development out at VIC and now he is got oversight of our entire global animal health business and he has an incredible team beneath him and we’re just really excited about the future and appreciative that Wade is on our team and leading our business.

So Wade, thank you very much for that. His promotion opened up room for another promotion. So Reagan Culbertson who’s been with us for 15 years, she received her BS in Media Arts and Design, Communication Studies from Northeastern and Boston. She’s been with us a long time. She was promoted to Global Marketing Director in 2020 and she led the turnaround at Amlan by clarifying our message and promoting the efficacy of our mineral as our unique selling proposition. That is our reason to be in the category and we are leveraging that heavily and a lot of that is with her help and communication. So her new role will be oversight of all of our B2B strategic marketing. So that includes our Ag division and our fluids purification division, our branding communications and product management.

Reagan, congratulations and thank you for taking on these new responsibilities.

Aldo: And then last but not least, we have a new Vice President of Human Resources, Pat Walsh. Pat received his BS in Psychology from the University of Illinois, his Masters in HR and Industrial Relations, also from the University of Illinois. He spent 14 years with PepsiCo Frito Lay. He was a Senior HR Director, HR Manager. He’s been with us a little under a year and has already had a major impact on our company, really embracing our lessons learned and our core values and leading the charge from that. And then also spearheading our talent management program which we — really is nascent and he’s been doing a great job at that. So Pat, really happy to have you on the team and investors you should be proud of the team that is every day trying to maximize your shareholder value. I’m not going to get into any of the details because that’s what Susan Kreh is for. So I’m going to turn it over to our CFO and Chief Information Officer, Susan Kreh.

Q&A Session

world: And then last but not least, we have a new Vice President of Human Resources, Pat Walsh. Pat received his BS in Psychology from the University of Illinois, his Masters in HR and Industrial Relations, also from the University of Illinois. He spent 14 years with PepsiCo Frito Lay. He was a Senior HR Director, HR Manager. He’s been with us a little under a year and has already had a major impact on our company, really embracing our lessons learned and our core values and leading the charge from that. And then also spearheading our talent management program which we — really is nascent and he’s been doing a great job at that. So Pat, really happy to have you on the team and investors you should be proud of the team that is every day trying to maximize your shareholder value. I’m not going to get into any of the details because that’s what Susan Kreh is for. So I’m going to turn it over to our CFO and Chief Information Officer, Susan Kreh.

veterinary and laboratory services: And then last but not least, we have a new Vice President of Human Resources, Pat Walsh. Pat received his BS in Psychology from the University of Illinois, his Masters in HR and Industrial Relations, also from the University of Illinois. He spent 14 years with PepsiCo Frito Lay. He was a Senior HR Director, HR Manager. He’s been with us a little under a year and has already had a major impact on our company, really embracing our lessons learned and our core values and leading the charge from that. And then also spearheading our talent management program which we — really is nascent and he’s been doing a great job at that. So Pat, really happy to have you on the team and investors you should be proud of the team that is every day trying to maximize your shareholder value.

I’m not going to get into any of the details because that’s what Susan Kreh is for. So I’m going to turn it over to our CFO and Chief Information Officer, Susan Kreh.

Susan Kreh: Thank you, Dan. So we’re going to talk a little bit about fiscal year 2022, but that’s history. It was a tough year. We’re glad to have that behind us. And we’ll look at the results here for the first quarter of 2023. If I start fiscal 2022, our net sales were up 14% over the prior year with a lot of the trajectory and momentum coming in the back half of the year. And that momentum carried forward into the first quarter of fiscal 2023 when we achieved record sales of $99 million, representing 19% growth over the first quarter in fiscal 2022. And that 19% growth is entirely attributable to pricing. Now, we did have some shift in mix in volume, meaning that we were down about 5% in volume in the quarter in our retail and wholesale business, but that was offset by the same amount of growth in our B2B business. And I think, Chris, can you give us a little color on what happened there in the first quarter?

Christopher Lamson: Yes, and I think it’s noted in the management discussion as well Susan. Primarily in our business, our partner exited really the entirety of the international piece of their business, expect we will lap that in March. So really, single biggest driver, if you look back at our consumer business and our industrial business volumes were flat slightly.

Susan Kreh: Thanks Chris. Internally, we assess our profitability on a per ton basis to ensure that we’re generating the most value out of our non-renewable resources, our mineral, as Dan mentioned earlier. The volume was up 6% in terms of tons in fiscal year 2022 with volume gains in both the retail and wholesale and business to business channels. Moving forward to the first quarter of fiscal 2023, volume was essentially flat. And again, with the shift in mix, B2B being up, retail and wholesale being down for the reason Chris just gave you color on. When we look at net sales per ton of $421, that highlights the impact of our pricing actions in fiscal 2022 and dial forward to the first quarter of fiscal 2023 and that number is a record $473 per ton.

And you can see that compares to $394 in the first quarter of 2022. As we talked about throughout all of fiscal 2022, gross profit per ton was adversely impacted by the timing of cost increases that hit us versus the timing of when we were able to get pricing into the market and into our customers. So a challenging year on a gross profit per ton basis in 2022, so we are excited about where we are sitting in 2023 with the first quarter gross profit per ton being $107 per ton, an increase of 62% over the first quarter a year ago. That flows through to net income per ton, both in the year and for the quarter. And that flows through to our basic earnings per common share, which you see in Q1 at $0.80 per share is almost equal to fiscal 2022’s full year number of $0.83 per share.

So momentum is on our side. We’re seeing the impact of our price increases and we continue to be committed to our dividends, so dividends per share at $0.28 per share here in the first quarter. So that’s one cash outlay. And if I take a look back the past couple of years at our significant cash outlays, you can see our continued investment in our plants, in our infrastructure, with our capital spending being the largest commitment of our cash outlays. We intend to invest at a similar rate here in fiscal 2023. And if anyone’s interested in some comments, I saw a question on that, we can get that a little bit later. So the challenges with this team and Dan talked about team and it really does take a team, the challenges this team faced, and you can see looking back for the last several quarters during fiscal 2022 were quite large as costs came at us, very — cost increases came at us rapidly in an unanticipated level.

So if you look at fiscal 2023 first quarter and you can see we’ve got momentum on our side, and that is what we said in the fourth quarter when we were talking to you as we were feeling that the momentum was there, that we had price increases going into the market in the first quarter and we have some more going in in the second quarter of fiscal 2023. So just to wrap it up, we know where we’ve been. We talked a little bit about cash investments in our business. There’s one further one in the first quarter if you noted in the cash flow statement, we made some investments in inventory, pretty significant to the tune of $5.1 million. So I thought I’d invite Aaron to just make a couple of comments on what we’re doing there and how we’re supporting the business with that investment.