Oil-Dri Corporation of America (NYSE:ODC) Q4 2023 Earnings Call Transcript

Oil-Dri Corporation of America (NYSE:ODC) Q4 2023 Earnings Call Transcript October 13, 2023

Operator: Thank you for standing by, and welcome to Oil-Dri Corporation of America Q4 and Fiscal Year 2023 Earnings Discussion. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. I would now like to hand the call over to Chairman, President, CEO, Dan Jaffee. Please go ahead.

Dan Jaffee: Thank you very much and welcome everybody. First, we’re in virtual mode, so I want to introduce who’s all on the various lines ready to answer your questions. Thank you for getting those into the portal. In advance, Susan Kreh, CFO and CIO; Aaron Christiansen, VP of Operations; Dr. Wade Robey, VP of Agriculture 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 Corporate Controller, and last but not least, Leslie Garber, our Manager of Investor Relations, who will walk us through our Safe Harbor provision.

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, I’m turning it back over to you.

Dan Jaffee: Sounds good. And before I turn it over to Susan, I’d like to make some general comments. We just concluded our 83rd fiscal year. And one of the things, we’re very proud of is our accumulated lessons learned and we like to carry them on from my grandfather to my dad to me and on into the next generation. And one of those is winning at Oil-Dri as a team game and that’s what you guys saw on fiscal ’23, the outstanding results, the record performance was all due to the collective effort of our nearly 900 teammates globally. And I just want to make sure I give them proper recognition. I mean, just recently, we went through a flawless ERP upgrade which is almost impossible to do. We’ve been — in the fourth quarter, we’re near perfect scores for on-time deliveries and on our customer scorecards really received plenty of kudos moving all the way to the top, which was very exciting.

And so, all of those things had to happen to deliver, the championship year we just delivered. And we’re obviously entering the new fiscal year with a lot of momentum, but mindful of the fact, what have you done for us lately, that we’re going have to lap these results as we move forward. And I think you’ll hear that we’re all very confident that we have a lot of good growth plans in place and that fiscal ‘23, while the best we’ve ever had, the best is still yet to come and we believe that. So Susan, I’ll turn it over to you and then, we will get into our Q&A. And Susan, we don’t hear you, so you may be on mute.

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Q&A Session

Operator: Susan, can you hear us?

Dan Jaffee: I wonder if Susan got disconnected. I’ll go, me, I like open mic nights. I’ll cover some of the highlights and Susan, if you get yourself back connected, I’m happy to turn the floor over to you. But the fourth quarter was a record $107 million in net sales, up 15% over the prior year and that helped us finish the year for over $400 million for the first time $413,021, up 18% all year long. And obviously, it’s really what happened at the bottom line that was very exciting. What we reported was an increase in the fourth quarter of 129% up to $11.9 million and a 421% increase up to $29.5 million. But the real story is to back out the two non-recurring events. You remember we had an impairment charge back in fiscal ‘22, which was an accounting non-cash charge.

And then, really good for our future is, we finally closed our defined benefit plan, our pension plan, and replaced it with a very generous defined contribution plan in the 401(k). So when you back out those two non-recurring events, what you’re really looking at from an apples-to-apples standpoint is an increase from $10,136 a year ago to $36,469 this year and that’s a 260% increase. Obviously, we report by segment. You’ve got our business-to-business segment and their results were very much similar to what the company saw. Sales up 18% in the quarter, 26% year to date. And then operating income up 63% and 50%. And then over on the retail and wholesale group led by Chris Lamson and his team. Sales were up 14% and 15% and 67% and a robust 478%.

Now if you put that impairment charge back in, he was up only 2 units (ph) team up only 204%. If you guys can read the news release yourself, so you don’t need me to go through any more of it. We’ve got a lot of great questions from our investors. I appreciate that. And we have the team on hand to handle those questions. So Leslie, I’m going to turn it back over to you. And let’s get into the Q&A and hear what our investors would like to hear from us about.

A – Leslie Garber: Okay. Sounds great. Susan, if you are back on the call, let us know otherwise, we’re just going to continue. Our first question comes from Robert Smith, and he is from the Center for Performance Investing. And his first question is, with respect to Amlin, you say there were timing issues that affected the fourth quarter shortfall. What would the quarter have looked like without those issues? Will the current quarter include all the shipments that missed the last quarter? What are the prospects for Amlin in fiscal ‘24? Thanks. Wade, can you please take that?

Wade Robey: Yes. Thank you, Leslie, and thank you, Robert for the question. You’ve got a number of questions in there. I’ll try to hit all of them pretty quickly. So with respect to our business in the animal nutrition space, we don’t see a lot of seasonality quarter-to-quarter. So typically, we’re pretty smooth, as we continue to grow in all the world areas where we’re participating. We do sometimes see timing issues as you’ve noted in your question. We have a logistics timing concern that comes in periodically in terms of how long it takes product to get to our Asian markets or to our Latin American markets. And that can sometimes cause us month-to-month or quarter-to-quarter to have more volatility than the business itself would typically show.

And so that generally has affected our numbers at times on an individual quarter basis. Going forward, certainly anything that we missed in the fourth quarter of the previous year, we would expect them to pick up and show in the next quarter. And we’re seeing that as our business continues to move forward. So I believe, I’ve covered all of your key questions and again, thank you for that question to us.

Leslie Garber: Perfect, Thank you. The next, we’re going to combine two questions regarding advertising. The first is from Robert Smith. What were advertising expenses in the fourth quarter? How much of an increase are you budgeting for fiscal ‘24? And then the second part is from Ethan Starr, an individual investor, and it also relates to advertising. What results are you seeing from the most recent Cat’s Pride Celebrity Endorsement Campaign with a prominent actress? Are the results meeting or exceeding your expectations for return on investment? And I’m going to turn that over to Chris Lamson to answer.

Chris Lamson: Yeah. Good morning, Robert and Ethan. Thanks for the questions. The relative advertising in this past year and the flow of our spend and what — looking ahead to next year, the consumer business spent the overwhelming majority of our advertising dollars. So that’s why I’m answering it. And yes, we did spend roughly two-thirds of our total fiscal spend in Q4. I look back at notes from previous calls, I know I’ve been signaling that for most of this past fiscal year on these calls. There were three reasons for it. One was, we really wanted to advertise the full shelves and we knew that the supply chain would be stable. Dan alluded to it, better than stable. We’re really nailing our service levels now. So we wanted to advertise to full shelves.

And we are moving our ad campaigns from our Litter for Good campaign, which we’ve been on for the last several years, to really emphasizing the benefits of lightweight. And we were basically getting that content in the can and ready to go, which is now done and is hitting the air. And the third reason for it was we launched antibacterial litter at the very end of the fiscal year, and we were wanting to support that out of the gate and obviously into fiscal ‘24. Looking forward into fiscal ‘24, we will have modest uptick and spend on the full year, but it will be spread much more evenly than it was in the past year for the very three reasons that I articulated around why it was loaded in Q4, all three of those things are now present going forward.

So I think that it’s Robert’s question. Relative to influencers and our investments and content with celebrities and influencers, I would say, overall, we like influencers. We’re looking at these ROIs constantly in real time. They’re pretty dynamic there. And it’s fun to play with the mix candidly and drive the highest ROIs. The content you’re referring to did well for us. Other category experts in terms of influencers do extremely well for us. So expect us to keep up influencers, I’d say expect us to probably lean into those category experts.

Leslie Garber: Right. Thank you. The next question comes from John Bear. There have been numerous announcements recently of poultry and swine plant shutdowns in the U.S. Since quarter end, have you seen any impact to your domestic sales effort? Backing out the timing of shipments causing softness in animal health sales in Latin America, Asia, and China regions as noted in the press release, are animal health sales trends continuing to improve? Wade?