Q2 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the second quarter 2020, We will drive Corporation of America Earnings Conference call. At this time, all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone.
And as a reminder, trees program may be recorded I would now like to introduce your host for todays program, Dan Jaffee, President and Chief Executive Officer. Please go ahead Sir.
Thank you good morning, welcome everybody to the oil Dri second quarter in six months Investor Teleconference, with me and the Chicago Conference room, and Susan Gray, our Chief Financial Officer, Tony Parker or assistant General Counsel and loves the Gerber manager of Investor Relations loves who you walk us through the Safe Harbor.
Yes, 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, an FCC filings, we highlight a number of important risk factors trends and uncertainties that may affect our future performance we ask.
Got you reviewed and consider those factors in evaluating the company's comments and in evaluating any investment in oil Dri stock. Thank you for joining us.
Great. Thank you I'm going to turn it over to Susan She's going to walk you through a bunch of the details of the uptick ordered in the six month I'm not I'll make some comments and we'll open up to Q1 night. So Susan take from yes. Thanks, Dan Good morning, everybody.
We used to be here to talk to you about our second quarter and the release those earnings yesterday overall, it was very strong quarter for us.
And that is firstly as you compare it to other second quarters on key metrics that would be a record bars net sales that income in earnings per share so feel good quarter.
That was not sales of 71 million, 30% higher than net sales in the same quarter last year.
Embedded within that growth is a tale of two cities.
On one hand, we computer experienced strong growth in our retail and wholesale group where year over year growth of 7.2% was driven by 10% growth in our cat litter business during the quarter.
The strong growth was offset by or other cities our business the business group, where we experienced a year over year decline of 7.5%.
Now there's a couple things there that I think are important to note.
The decline year over year, what's caused in part by the loss of a large customer and our agricultural business that impacted our topline unfavorably.
However, the impact on our gross profit as a result of the losses. This business was negligible because it wasn't profitable business for oil Dri and the second quarter fiscal 2019.
And well net sales in our animal health business were basically flat year over year in the quarter, we experienced a year over year decline and that sales in China that we've talked about previously where the market has been impacted by the African swine fever that was offset by growth in other regions as customers adopt our product.
Our gross profit of 19 million was 23% higher than the same quarter a year ago.
Sections in freight natural gas costs, as well as improvements or manufacturing operation, we're just slightly offset by increased packaging costs.
[laughter] arrest your name in the quarter was 13.1 million and that includes a one time 1.3 million favorable impact and as a result freezing or supplemental executive retirement plan well talk about that again, a little bit it towards the end.
Our second quarter net income attributable to oil Dri was 4.8 million compared to 2.3 million in the second quarter, a year ago, and our second quarter net income per diluted common share was 63 fronts in this quarter more than double the 30 cents per share in the second quarter fiscal 2019.
The strong operating performance in the quarter, along with a solid focus on working capital drove strong strong cash generation.
This strong performance enabled us to make a 5 million dollar contribution to our defined benefit pension plan, it's still in the quarter with 21 of the half million of cash and cash equivalent. So we're sitting strong there.
Staying on the theme of our pension.
During the second quarter, we amended both are defined benefit pension plan and our supplemental executive retirement plan.
Both of these plants were frozen as of March 1st and the financial impact of the curtailments, resulting from freezing. These plans was included in our second quarter results.
I mentioned to the 1.3 million benefit earlier, resulting from the figures of the supplemental executive executive retirement plan.
There was no impact on or net income, resulting from the freezing of our defined benefit pension plan. However for those interested I would point to our no seven.
Pension and other post retirement benefit in our 10-Q, where we discussed the impact on liabilities and stockholder.
Got holders equity of our pension curtailment, we've got some real specific information in there for you.
With that that's kind of the highlight of the quarter, Dan So turn it back overview, great things before were up you know I was getting into the analytics of our business and I just thought those have you been long time.
Holders.
Recognize a lot of these trends, but those are view were new to the company may not be able to put this quarter and perspective like these numbers will I went back and I saw that while we sold 192000 tonne. This quarter. Our all time record fourth quarter was back in old too, we actually sold 282000 times.
So our jobs right actually down 90000 tons from 18 years ago, and but here are some of the key facts or average selling price back then was $155. A time. This year was 370, yeah back then our net income per John was a penny I'm actually the EPA else was a penny.
He salaries and net income was 26 by these 26 cents a ton and we made a penny yes as you know what do we report 67 cents this quarter.
Instead of making 26 cents a time, we made $25. It's on those dramatically less tonnage. So you can see that our strategy of creating value from shore, but minerals and as Susan said, Yeah, We've lost a big edge account.
Versus last year, we were breakeven to losing money on that account when you put all the costs of having to deal with that so actually you know, losing it was a positive from a cash flow and reported income standpoint, So oh, we're going to continue to run the business I'm. These guidelines, where we're going to keep plowing money into R&D, we're going to keep trying to get closer and closer.
And closer to our customers. So that we can figure out a unmet needs they might have been where our minerals might play a role in meeting those needs. So that we can help them create value. So the delta I'm happy to share some of that value with us and everybody wins in the equation, so its work and and.
Again, we continued to be very bullish we're proud of the quarter, but we sort of thing no long term. The bus is yet to chrome so let's open it up to culinary lets a your what's on our investors minds as always the extra most important question first let me go to the end of the Q and goal. If we have time, you'll get a second question then maybe.
Even the third but let's let everyone get at least one question yeah.
And as a reminder, ladies and gentlemen, if you do have a question at this time. Please press Star then one.
First question comes from a line of Ethan Starr private Investor. Your question. Please good morning, great quarter.
Thank you.
First question is about neutral pass it sounds very exciting product as can be used to both poultry and swine.
Andrew can you just discuss the prospects for neutral pass and I'm also wondering I'd already competing products already already on the market.
Yeah, I would say too soon to talk about neutral proudly again, the you I'm a broken record I hate to signal the competition, which way what plays we're going to run before we run them because you tend not to get as many yards on them. So I'm going to I'm going to pass on that question one of the material we will certainly cover it but it's it's another unwind of <unk> new.
Products and our animal health business that we've put a lot of time and energy into and we feel real positive.
Okay can I ask <unk> not the other question then sure since I pointed on that one would give you a bonus clause.
Okay.
You mean, they tend to you said, you're going to increase spending an advertising in the back half of the year for cat litter. What is what are the plans for that if you can what's what do you what you can discuss.
You know.
Take that one as well, yes, it will be out there won't be large hugely material up over the prior year and it's gonna be a lot of what we call direct you know spending where we get actual movement for the spending so.
You're not going to be seeing a lot of oh, new TV commercials and things like that in the back half of the year it'll it'll be a direct spend working dollars that will help us continue to accelerate and since you know I'm sort of not punting on to your question I brought some information that I've talked about in the past.
That I think you'll see that are focused on trying to be.
The player and private label lightweight is working and that category is growing and then for our brand to be you know value priced popularly priced to make sure that that that you know the one that consumers getting the.
Appropriate price value relationship for there for their purchase so 52 week data shows that are ending of.
<unk> 24, and 18, we weren't 13% 2018 were 13% of all the market basket systems unit share up to 13.7.
And then jumped up to 15.4, so we're up to 15.4% of all market basket for the 52 weeks and the 12 weeks is even stronger was 13 for an 14 eight and it's actually 15 eight.
Our 12 week, a share was greater than or 52 week, which kinda tells you were on the upswing. So you don't want it almost one out of every six market basket. So in America that someone who's buying cat litter and that's that's critical mass a we're we're doing well yeah that's branded.
Well, that's branded and private label.
Okay ramping as.
Well I can tell you that the breakdown of the 15.8 as a 3.9 as branded an 11.9 as private label.
Okay any plans to emphasize the the book value price at the branded and.
Advertising.
Yeah, I mean, well, yes, I mean, that's all I've emphasized could be different things you could be in store features it could be all sorts of things that definitely.
Try and incentivize the consumer to repeat a load off and door try our product for the first time.
Great I'll get back into queue. Thank you.
Thanks.
Your next question comes from the line of John Bair from ascend wealth Advisors. Your question. Please.
Thank you Oh echo even here in say really really nice quarter.
Got it a question with regards to the.
Animal health it looks like.
No revenues are kind of flat this quarter and wondering if that's some seasonal impact if there isn't any seasonality there and.
Kind of paralleling what that is Oh, what are you seeing in your Indonesian operations are they being impacted by this current a virus.
Business, that's going on but yeah. So well this is Susan there's there's a couple of things going on inside that flat year over year performance and animal health and you know seasonal impact I'm not sure I'm seeing a seasonal impact what I am seeing when we look at that is the impact of the continue.
Decline year over year in China, where we were primarily in the swine market and that's been was heavily impacted by the African swine fever virus over there and that is still in decline year over year, but we are starting to see growth in other regions, where we've been running trials on other products with customers and we're starting to see.
Success, there so while it's looking flat, there's there's growth offsetting a decline and and so when that poultry mark or the swine market comes back in China that turns around we expect to see more momentum.
How's that if you're living.
Yeah, George <unk> are you, having any effect in your ramp up in Indonesia or.
I'm in a general like you don't forming will be available on the next call a and extra than I've loved we've talked about a little bit about our upcoming.
Investor presentations will be making is right you're going to be out talking publicly and we'll talk to you guys about that but I've talked to flemming beforehand, and he said look there's been a few delayed vessels, but all orders are placed are all scheduled for delivery our office in China's close the people are not allowed to come in but they're all working remotely in there.
Staying productive Oh, you know isn't impacting us of course, but our exposure to a slim because our supply chain isn't decimated we control our minerals. So that's the beauty of it when you see these companies like Apple.
And ER automobile companies were getting crush that's because the supply chain has been devastated and they now have to find worked rounds just at the parts or they can build the products. So they can sell them. So the good news for US is we're you know we're making we're manufacturing we're ready to go it's just been the vessels and maybe some of the a in one logistics that.
I've been a little bit challenging, but nothing devastating by any stretch of imagination.
I suppose it's helping you domestically with with the animal health products.
<unk>.
One market and so forth.
You've seen in hardwood.
Wouldn't I wouldn't say that yeah, that's helping worthwhile I try to other questions I'll get back into queue.
Okay. Thank you that's okay yep.
Thank you. Our next question comes in the line that Robert Smith from Center for performance. Your question. Please.
All right can you hear me.
Yes.
Oh yeah.
Yeah, Congratulations on a excellent corner also I'd love to see a continuation of that maybe just kind of American earnings near a bottom line.
My question is are there and with the.
The penetration of a private label lightweight how much further than there has to go as far as Oh.
Vendors I mean, what percent Yaki, you mentioned something like you had 80% of the a private labor right away.
Yeah, so with a huge fairly the goal MAU is to make the size of the pie bigger so.
And the way, we're doing that as with.
Hi, quality product offerings, introducing new private label lightweight offerings, whether it be young Thunder would baking soda in terms of formulas or different sizes, both small around larger pales and so forth and then getting the consumer to.
Try it and adopted a yes or shares currently of 75%. You were you were right. There was right around 80% I think that's what I've said.
And so its ginormous our old share was under 2% of the Scoopable private label market, because we didnt have the heavy.
Mineral so we're really couldn't compete so it's really just a matter of going in growing.
You know I'm not sure how much do tell I want to get into I can just tell you. There are both retailers and actually manufacturers, who are testing going all lightweight and so far the tough look positive and the more they do that the better lives for US Jos will then went on the private label lightweight side as we supply our partners with those.
Products. So it's it's it's all good for for the environment. It's good for the retailers. It's good for the cat owners.
And it's good broiled right. So it's a great trend.
Thank you.
Thanks.
Thank you. Our next question is a follow up them a line of job there from ascend wealth advisors. Your question. Please.
Great. Thank you really nice drop in your freight costs and I'm just wondering.
Can you quantify or a treaty.
Some of that to the new ERP system was it.
More fully a function of.
General drop in energy prices, and perhaps a greater availability for.
Lining up, but you're you're trucking fleet and so forth.
It's a couple of things. It's certainly just the overall prices were paying out in the market.
But when you look at it quarter over quarter second quarter last year, we were still moving a lot of product around more than we should have.
Because we were.
Struggling to get our your team as effective and efficient as we wanted it could be that is completely behind this at this point and in fact, our our fulfillment.
For our customers isn't an all time high now and that is probably due to the ERP had a very logistics definitely says that now that we've got a better tools and more transparency more visibility think things are going better. So our that results in our customer finds being down as well.
So kind of a three party answer.
But but the bottom line is yes, you are seeing benefits from the implementation of the new club.
We are we are seeing what I'm hearing we are seeing them in other areas as well so yeah, okay, Okay, and one the sidecar yep.
Yes.
You have a a share buyback authorization. That's open ended up having done any I mean, it didn't see any evidence that in the queue, but.
Is there any consideration thoughts to.
That's a keating on that at all.
Certainly it's it's a fair question and you know with having no debt and cash on the books in the stock price now that's below 30, well every time you buy sure you retire or dividends of 3.2% with the price for 23% is certainly a good question to ask in something that certainly we will be considering.
Very good well.
Again congratulations.
Thank you.
Thank you. Our next question is a follow up in the line of Robert Smith from Center for performance. Your question. Please.
Yeah, Yeah, I echo the.
Comments about the compelling value in the stock price here.
I don't want to just a minute then that snacks gone nowhere for the last several years I'm, a long term investor, but I'd like to see some oh more robust investor relations effort.
After it sort of speaking you mentioned that.
You might have a couple of things coming up and I'd like to hear about that as well. Thank you.
Hi, Robert its wisely Garber, we are actually planning on presenting at three different investor conferences, we have one I'm coming up June 20, Threerd, it's called the East Coast ideas conference. It's put out by three part investor and that will be in boss.
Then on June 20, Threerd, then we also have scheduled a mid west ideas conference.
In Chicago August 27.
And then in November it's the southwest ideas conference and that will be in Dallas on November 19. So all this information I will be posting on our website and as I get more details fraud.
For people, who are putting on the conference I will I followed all the information, but those are the days right now.
So we really do hope to get out there and.
Fred the message about oil drives growth to everyone.
Yes, I'm glad to hear that well. Thank you yeah, we didn't last year in Chicago, and we noticed increased interest increased activity and so no doubt we got to get our message out there and so we're gonna we're gonna do three of them <unk>.
And it'll be a thank you highlight what we're pursuing an animal health, which is what people are interested in.
Yes, I am as well thanks.
Okay.
Thank you. Our next question is a follow up on the line, though Vsan Star private Investor Your question. Please.
First let me just say I'm thrilled at you'd be doing three conferences that's wonderful.
And secondly to echo the buyback suggestion, you know even or even a 1% of the stock would be you know, we very nice to see or even half a percent. My question is how much bigger couldn't the pie gets in the private label a lightweight ER market.
As the size of the pie.
Well.
If it just mirrored what has gone on in hobby. So for instance.
How many roughly in the U.S.
It's 18% to 20% of the market is private label in the rest of branded up in Canada, 35% to 40% as private label, it's always been more like European more more private label driven.
In the U.S. and I'm, you know I'm not totally looking at these numbers at the moment, it's still a small percentage. It's it's the lightweight im sorry, the light weight as a percentage of the total category on private label I'm looking at my little sheet. If I can find it quickly I'll do it otherwise well just I'll just give you it's it's less than.
4%. So it's got a long way to go I must say, it's between two and 3%. So if we could get up to 18% to 20% you're talking they could go six times, that's gonna take time to do it but it is growing and the adoption rate is doing well and we do have customers that are starting to see the benefits of lightweight retail customers were saying why am I haven't.
During this heavy so it's the discussions are starting to happen and we believe this is a good mid to long term DRAM, that's just in our favor.
Okay. That's one part of the question I guess.
Thank you would have how big can the pie grow as far as adding more retailers.
You know I guess, if it gets to be a big enough percentage of the category you could start adding some of the club stores you know, they're not participating in the moment because they still see that the lions share of Scoopable is heavy so their private label offerings are.
Of the heavy variety.
If the market shipped.
You know they carry so few skews that Castro and Sams and be Jayson The club stores. If the market started the chip were over half. The market was lightweight then they would reconsider that and it certainly would help them because walking out of their stores with a 40 pound heavy when you could be selling a 20 pound hobby I'm convinced that there.
Their unit velocity would go up not down because I've been watching in their stores I like to do that I've seen people buy cat litter, sorry cat food products, and then not get through a cat litter at these clubs and a intercept I'm going I like to ask why because it's too well.
I'm 42 pounds I'll, just go to grocery and get my cat litter, but I'll give my food here. It cosco. So I do believe up the category starts to flip they would be heavily incentivized to switch. So I you know it's in every other major retail or pretty much you know you might say well wait a minute what about Walmart.
Do Walmart and why isn't what it why don't you doing their private label lightweight you know we do we have our cat's pride scoopable there and it is their opening price points. So you know, it's our brand and work, we're getting that shopper, who wants a real good value, but wants a lightweight offering so we'd just be cannibalizing or so.
Holds at that point. So were you know we kind of feel like we are everywhere, we can be at the moment and now it's a matter of increasing velocity, an increasing the offerings you get a greater share of shelf.
Okay sounds good. Thank you yeah. Thanks.
Your next question is a follow up from a line of John Bair from ascend wealth advisor to your question. Please.
Hi, its one thing I think going back to the share buyback aspect. This is just a comment on my part with the rather low flow.
Although as you know makes a good value buys from the company standpoint, hopefully from Investor standpoint, I think that perhaps that's one of the reasons. It's a two to address rod Robert's comments.
Yeah. So many institutions may just not.
Feel comfortable buying a.
Like shares in a in a company that doesn't trade a high amounts of volume and so that may be part of that but my up my other question actually my question was.
Are you seeing any increase in activity of online buying in the letter you know through.
As opposed to you know people picking it up and the grocery stores and so forth and he's seen any traction and getting more volume from that.
Platform, if you will.
Definitely a another you know really good question, but truly dot com is doing very well Amazon Walmart Dot Com now is trying to go directly after Amazon Prime.
And and they're selling cat litter on line you know it's.
I'd be low value items, so it's not hi, I'm there.
Profit list.
It is trending I mean, it's rolling period over period, we've started to buy some data and or it was you know it.
I think I'm not going to get into the data because I don't totally understand what I'm looking at the at the moment, but regardless it is growing rapidly we believe that lightweight is.
Going to skew better to E commerce, because again the value per pound is double what habeas so if you're selling a heavy 20 pound jog for 10 Bucks you can sell a lightweight tennenbaum jog for 10 Bucks, a parity pricing and you're paying for half the.
Wait that needs to be shipped around so it's definitely a high a area of focus for us we're putting a lot of attention on it our business is growing rapidly in E Commerce and we also feel for the most level playing field you know the if you think about it historically the major consumer product.
Please whether its PNG and Unilever in the health and beauty side or do you want to go into the pedophile Nestle Purina there there.
No its was because they control the physical reality of the shelf they have dog <unk> Cat show all the road cat litter items. So you go to launch a new item and you're getting 140 as of the shelf because they've already got 30 skews lined up there and ecommerce. It's a level playing field you know we get the same age they now they can pay for.
Being a quicker hit if you're doing a surge on cat litter and so forth and so on there's no doubt, but when you go to jewelry and you go to buy you look at Cat's pride versus tidy cat. It felt like we get squeezed behind the clip strips well off in the corner. It's it's a pretty level playing field. So we actually feel like we can do better long term in E commerce.
And we can and brick and mortar was our brand.
Well I would think also from a consumer standpoint, rather have drugs. The jugs delivered to the front door and maybe more jobs rather than what you might pick up in there you know in a in the retail setting we actually walk in and pick them up so I don't know if you're.
And any evidence of.
Say a higher order.
Number with the online stuff or whether you get to see many that are not as opposed to a.
You know one individual at the checkout line so.
Yeah, I mean, the categories growing a 3% ish and ecommerce seems to be grown at 40%. So there's no doubt ecommerce is taking share.
And I think you hit the nail and the head. It's a bulky item that doesn't go bad I mean, you you know you'd want to be buy and bill and having its sitting under doorstep on 100 degree day, but is your cat litter gets shipped while you're at work and it just sits there it's not a problem. So there's no doubt that it it has an <unk> and <unk> appeal to consumers.
And probably less likely to be a victim of porch bandits too so anyway, that's very good.
That's all right good well listen that that thing was our were out of time, we've hit our time 30, a pumped in time and appreciate everyone's focus and attention you are gonna be getting a you know better access or more access to us through these ah investor presentations, we're gonna be doing loves the you'll be getting you all the information.
But the next one will be June 20, Threerd, and Boston and we will look forward to speaking with you that.
Thank you.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
[noise].