Q4 2020 Oil-Dri Corporation of America Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2020 Investor teleconference. At this time all participants are no listen only mode I can speak or presentation. There will be a question and answer session. That's the question. During the session you will need to press star one on your telephone if you're acquiring any further assistance. Please press.
Sergio.
I'd now like to hand, the conference over to your speaker today, and Jaffe, President and CEO of oil Dri Corporation. Please go ahead Sir.
Great. Thank you and welcome everybody to our fourth quarter and fiscal year end teleconference for oil Dri Corporation of America. This is actually our completion 82 school.
Fiscal year, joining me today will be ER, our CFO, Susan Craig our Chief operating Officer, Molly band in mobile, our Vice President and General manager of our consumer products Division just like your Moscowitz. The profit I know I'm going to international Flemming months, our VP and general Counsel Laurel Hsulin you.
That's always our manager of Investor Relations.
Who will walk us through the safe Harbor provision.
Thank you Dan and welcome everyone on today's call comments may contain forward looking statements regarding the company's performance and future periods actual results in those periods may materially differ in our press release and 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. Thank.
Thank you for joining us Dan.
Thank you was there like a true Susan to go through our financial results for the quarter and fiscal year Susan.
Thank you Dan.
Just 2020 was a record year for oil Dri folks for net sales and net income.
Consolidated net sales for the year up 283 million reflect a 2% increase over the prior year.
This growth was primarily due to increased demand for our cat litter and animal health products.
Total annual cat litter sales within the U.S. in Canada increased by 9% compared to the prior year.
In addition, our co packaging coarse cat litter business, which is reported in our business to business products group also.
Also grew 6% over the prior year.
In addition to growth in cat litter, our full year sales of animal health products increased 12% versus the prior year driven.
Driven primarily by growth in Latin America, Mexico Africa, and Asia, Excluding China.
On the flipside and to a lesser extent demand and thus revenues in our agricultural fluids purification industrial and sports products were all negatively impacted by Cobank team.
And while revenue grew by 2% annual consolidated gross profit increased 16% with margins improving from 24% in the past year to 27% in fiscal 2020.
Now for those who follow us on a regular basis, yes.
Recall that in some of our businesses freight is a pre pay an AD and therefore, we use gross profit per ton is our key metric to manage the business.
And in fiscal 2020, we set a new record increasing our gross profit per ton by 15% over the prior year.
This improvement was driven by lower natural gas and freight and warehousing costs, which were offset by slightly higher packaging and non fuel manufacturing costs.
Also called out separately in our financials and included in our operating result was a pretax gain of 13 million associated with a fourth quarter potential intellectual property licensing agreements.
Our selling general and administrative costs for the last 12 months period increased 16% over the prior year.
I really do the higher advertising spending 3 million higher.
Higher compensation that was driven by higher year over year bonus cost of 6 million and higher benefit costs.
These higher expenses were partially offset by lower legal costs low.
Lower deferred compensation costs.
And a curtailment gain related to freezing our supplemental executive retirement plan.
Our full year net income attributed to oil Dri reached a record high of 19 million, reflecting a <unk> percent increase over the prior year.
We ended the.
Well 2020, with cash and cash equivalents 41 million.
We also have approximately 10 million of that.
Therefore, we are in a really strong liquidity position.
And that is after we made 8 million a voluntary contributions to our defined benefit pension plan and.
And after executing share repurchases of 5.5 million.
But now that we reviewed a record breaking year, let's shift to our fourth quarter results.
Our fourth quarter was coming off an incredibly strong third quarter that benefited from pantry loading of cat litter.
Our fourth quarter solid.
<unk> net sales declined by 8% compared to last year, while our gross margins remained relatively flat.
Weaker demand for products within all areas of our business, except for animal health products resulted in the decrease.
The 13 million, resulting from the confidential intellectual property license agreement mentioned earlier helped consolidated net income attributed to oil Dri reached a quarterly record high of 6 million, reflecting a 55% increase over the prior year.
Now during the quarter, we made specific investment decisions based on our strong cash position as well as the strong income that resulted from the confidential licensing agreement.
Well as the fact that our plants were slowing down a bit following the high levels of production that were required to support unprecedented third quarter demand.
We invested an incremental and pull forward maintenance and capital for facilities, we all.
We also invested in advertising for our consumer business to stimulate demand for fiscal year 2021.
And we invested in some technology initiatives to provide future efficiencies in our plants and our back office function.
Now, let's talk a bit about the fourth quarter results of our product groups.
Our business the business product groups fourth quarter revenues decreased decreased 5% compared to last year.
Sales for agricultural products declined by 10% versus the prior year as a result of COVID-19 relate as the man delays from a particular large customer.
As well as a shift in timing of order for a verge product.
Sales of our fluid purification products also declined this quarter by 6% compared to the fourth quarter in the prior year.
Mainly due to the improved quality.
Edible oil in North America.
The resulting in reduced need of our bleaching play.
Over 19 has adversely impacted the timing of product testing and edible oil plan.
And has also resulted in decreased demand for products that are used to process jet fuel and air travel is significantly decreased.
Built from co packaging coarse cat litter declined by 8% in the fourth quarter compared to the prior year, which can be attributed to pantry unloading by consumers.
These decreases in revenue were partially offset by year over year sales increase of 8% in animal health products.
These increases were primarily in Mexico, due to higher customer demand and the sale of animal health related equipment.
Operating income in the B to B group declined 26% in the fourth quarter versus the same period last year were low.
Were lower sales and unfavorable product mix were offset.
Partially by a reduction in S unique expenses over the previous years fourth quarter.
Now lets talk a little bit about or retail and wholesale products group, where revenues decreased by 9% in the fourth quarter compared to the same period in fiscal 2019.
While sales of our cat litter items grew significantly in the third quarter to the COVID-19, pantry loading the leveled off in the fourth quarter. As a result of decreased demand from consumers, who are already stocked up on our products but.
But when you look at the net sales for the third and fourth quarter combined that reflects an increase of 7% over the same six month of the prior year, representing representing on growing growth momentum in our cat litter business.
In the fourth quarter demand for private label Scoopable products increase.
Including lightweight litter.
When compared to the same quarter last year.
Sales of private label coarse litter decline.
Our industrial and sports product included in the products group was hit hard during the fourth quarter as these markets continue to be negatively impacted by COVID-19.
Decreased demand in the national shutdown of sports field continued to cause weak sales.
Operating income for the retail and wholesale products group was 500000.
In the fourth quarter, reflecting a 74%.
Decrease compared to last year.
This decline can be attributed to lower sale and the 3 million higher advertising spending that I mentioned earlier when discussing specific investments in our business.
Our targeted digital media campaign will continue into fiscal year 2021.
And we currently expect advertising costs for fiscal 2021 to be comparable to fiscal 2020.
In order to position ourselves well for potential opportunistic acquisition during the fourth quarter oil dri entered into an amended and restated no purchase and private shelf agreement.
The company issued 10 million of notes payable over a 10 year term that's part of the 75 million dollar private placement shelf arrangement that provides oil dri the ability to quickly issue additional note financing in the future to grow our business if needed.
And with that Dan I'll hand, the discussion back over to you.
Great. Thank you great recur soon have a great year. So a good mix of funds or before we open up the line for Q1 I would just like to remind you to police prioritize your questions and ask your most important question first and then after you do get to the end of the Q. So that you allow other investors to ask their most important question. So let's go ahead and open.
Hello.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Our first question comes from Ethan Starr Who's a private Investor Your line is now open.
Good morning.
Hi.
You've been hiring more people for Amlin and you increase your ownership in the Mexico subsidiary over last year. So I'm wondering what are the prospects for im going over the next year, particularly with regards to Varium and and has very good license in more countries in U.S. States.
Okay Flemming why don't you handle that question.
Sure. Thanks for asking this is an exciting growing for us and we are moving.
Quickly with the investment to move very and our new portfolio into markets that we have not addressed in the past and we see good opportunity for growth our children.
Okay.
Let me just with regards to Mexico, Susan I don't know that we increased our ownership during the year. It might have just gotten more transparent, but but our ownership in Mexico stayed the same in fiscal two morning, Susan said correct. No. We did move up from 61% to 78% during the show.
Right. So then I stand corrected even once again, you're ahead of me on the curve well isn't.
Well it was in the K.
Oh, I do remember that low okay, no no Ireland's forgetting the secondary moved up that's there you're right okay.
Okay any other.
Any other color on this.
For me to them I don't know if you want to add any color to it.
It was a matter of consolidating ownership and taking out some of the lesser players. So that we could have a greater influence on bulletins. Okay anyway more licenses were very evident in other countries and states.
We are continuing to add more licenses.
More countries.
Okay. Her could add more supports to really push promotion that you've seen on the marketing side, there's been a lot more activity than past and that will also continue.
Okay. Thanks, I'll get back in the queue.
Thank you.
Thank you and again, ladies and gentlemen, if you would like to ask a question at this time. Please press Star then one our next question comes from Robert Smith of the center for per phone. Your line is now open.
[laughter] alright so.
Hi, good morning.
Morning per foot.
Center for performance investing.
Longer.
So.
Alongside the Ethan.
Since query.
Query.
What are the movie that principal objective.
And animal health for.
This.
Current year I mean, do you have some targets that you're working against us as far as.
As such.
The progress you're going to make.
Very much so.
Flemington, a bullish on what I'm going to say, but as we're bringing on new people salespeople Tech service support team. We've got a metric revenue per head count that we're trying to achieve so we make sure that we are getting the bang for our Buck that we're expecting and then as we achieve those will then get a roll on.
More people and keep the snowball rolling but we're absolutely.
Measuring our progress as we go swimming anything you want to add to that.
No I mean, we used the opportunities still you know.
Material and very exciting and so we're continuing to execute and expand our presence I mean, we've seen in the past where we are present with people. We do a lot better than normally go through third party. So that's that's a key to growth that have a precedence a buildup brand.
What do you presumably have to overcome the move this along more quickly in your opinion with what were the major.
Things that you have to get older.
Probably education.
We have been a small player in the past and present in the distribution channel, primarily and now we're moving into the key accounts in the industry and getting our presence in.
Brand awareness and our scientific.
Formation in front of them. So they can make a you know they always make it very educated decision, but to get to know us and building those relationships.
Uh huh.
And in the commentary there was a reference to.
Mexico in equipment in Mexico, what is the equipment.
It's primarily swine artificial insemination.
And so.
Swine farm equipment.
Uh huh.
Okay. Thank you.
I'll get back in the queue.
Thank you Bob.
Thank you and our next question comes from Ethan Starr private Investor. Your line is now open.
Yes, it's really nice you got a $13 million onetime payment in the fourth quarter, but as an investor and no matter. How you no matter, how you sugar coat. It in the press release about a minus you lost money on an operating basis.
And I'm, just trying to understand waste, while yesterday increased so much in the fourth quarter over last year and hope is not a trend.
No like I jump in Okay. You go ahead.
Well I would say that what you said is true Ethan but what the reason I was trying to highlight the investments that we made those were significant they were about $6 million worth we wouldn't have done those had we not had that 13 million or maybe likely would not have done that it was it was opportunistic for us. The other thing we have in the fourth quarter is.
The bonus is significantly higher than it was last year.
Okay, well how much of that was the case in for investments for the future like some maintenance and advertising and how much was the bonus accrual.
They were each about.
6 million.
Oh, so $6 million investment 16000 bonus accrual.
Yeah.
Okay. So the bonus accrual loan note was the Disney was $13 million onetime payment affect the bonus accrual.
Yes, it does.
Oh, okay.
Yeah, we were double bonus before that as well I mean, we've already maxed out through the third quarter. So yes. It affected it but really ultimately went back to the shareholders because we have bonus program capsules.
Double bonus and we're a double bonus through three quarters.
No. The first recorded right go ahead.
Go ahead Jim.
And I was just can say it last year, we didnt pay a full bonus because as you recall the first two quarters of fiscal 19 were real struggle as we went live on our JD ERP.
Sure, but you know I really would appreciate it you know I don't know me, perhaps you Didnt know the full extent of the bonus accrual. When you had the last conference call, but you know you specifically mentioned in the last conference call that the searching million dollars. It already been received you didn't mention make any mention of the huge increase in SGN day, which would've been appreciated how do you know what about it then.
Duly noted.
Okay.
Back in the queue.
Thank you and the next question comes from John Bair Ascend wealth Advisors. Your line is now open.
Thank you and good morning, Hi, there.
Yeah.
Can you speak at all to the trends you're seeing right now with regards to consumer de stocking is that kind of stabilize dowdy starting to see a more.
A more normalized trend.
In that and oceans kind of interested in your press release, you said.
There was an increase.
And.
Of course.
Was it a co packaged coarse cat litter business.
And is that trend I mean that kind of goes counter to what.
You know we've been seeing over the past couple of years I'm kind of curious where that plays out or how that plays out.
Sure I'll, let Joe to go take the de stocking and restocking question and then I'll close with the co pack answer.
Yes. Thank you for the question. So we have seen things start to normalize again as it relates to the loading and then de loading from coal bed. Obviously, you know can't predict don't have a crystal ball predicts that we do expect to see potentially some additional loading again around the holidays as well, but I would say.
Say in general we have seen things start to stabilize in terms of the you know the the big swings up and down from an inventory loading perspective.
Okay.
Yes on the co pack business you know our major partner there has done a good job of getting offsetting the U.S. decline in coarse cat litter is scoopable cat litter has become the calendar of choice for consumers they've done a good job of offsetting that with international business.
So we benefited from that so that that really was the key driver there.
So are you shipping that internationally or is that internationally sourced.
The bolt ons, all coming out we make 100% of it it's all coming out of our Georgia facility.
Okay, and then may ship in it I mean, how how do you how do you.
But do bear any of those costs or <unk> or how does that look.
We make the product available to them on an fob basis, and they handle all shipping whether its domestic or international.
Okay.
Okay, well I've got another question, but I'll pop back you can ask your you're gonna guidance already gotten a couple and ask your question Bob level right. It's a fairly quick one.
Just kind of curious on on what you're seeing trend wise with order eight orders for product coming through.
Sources, such as they Amazon online or Chile, or or that kind of.
Demand to be can you can you tell us anything about that.
Sure I'm going to let Joe you can't do that but I'm first going to give you my 50000 foot view on on ecommerce as it relates to cat litter. If you think about E. Commerce. It makes the most sense for things where freight is a very small percentage of the delivered cost of goods. There's a reason why a big box stores and grocery stores up.
Been able to be very competitive and bulky low priced items, because they can buy in full truck load them and their distribution model allows the consumer to benefit from that when you decide to buy one bad your cat litter and haven't stuck in a box and you know overnight it to you the call.
The cost of that is greater per unit than putting it in the truck load sending it through distribution center and putting it on a store shelf. So ultimately somebody has to bear that cost in the equation that either has to be the manufacturer. The quote unquote E. Tailer. The Amazon are true, we or the consumer the consumer of them all.
The pay an extra 30, 40% for my literally because I don't want to be carrying at home. So just recognize that while E. Commerce is helping a major impact and it's currently offering a major and drought in cat litter is well, it's because someone in that equation is making the decision to participate.
Right.
To that extent, so I'm just going to leave it there just doesn't it will never be as competitive from a cost per unit standpoint, as the full truck load a brick and mortar now having said that especially during cold. It. It's been it's been going crazy and I'll turn it over to Jessica.
Yes.
Yeah, just to Echo Dan's comments, we have continued to see an increase in E. Commerce and you know again, driven partially by co that and partially by kind of a long term consumer trends airing towards you know.
Going towards buying online.
Well I would I would think certainly within urban areas, you would be seeing and I don't know, if you're able to determine that or not but.
Within urban areas.
I would imagine.
Home delivery through one of those E Tailers would make a lot more sense than outside just you know.
So anyway.
Okay very good thanks, I'll get back in the queue. Thank.
Thank you.
Thank you and our next question is just follow up question from Robert Smith Center for performance. Your line is now open.
Yeah. So.
Maybe you could say something about the opportunities for animal health here in this country.
All right Flemming I'll, let you feel better.
Yes, I mean, it's it's an untapped market for for him when an oil dri.
And to the products fits well, we know there's a lot of emphasis in the Ma.
Market for antibiotic alternatives.
Antibiotic free production no antibiotics ever is something I think.
Tyson the season, something saying there are 60% of their production is no antibiotics ever.
So our product.
Disagreeing is well fits we just needing the feet on the ground to really.
Our.
Positioning and placement.
You US 80% of what your production is probably 10 there.
And their counsel less so we are just getting the people in place to move forward and it's a it's a great opportunity.
So it is there.
Is there any particular regulatory matters that has to be overcome.
No.
Okay. Thank.
Thank you.
Thank you and our next question comes from Joseph the belly of Kimco investors. Your line is now open.
Hi, guys. Thanks for taking the question could you just discuss what drove you to buy back some stock in July and maybe update us on your thinking and strategy around share repurchases going forward.
Sure Susan.
Sure.
Our thinking around the share repurchases in July were to start our cash position and honestly, we're not making anything on our cash it basically sitting in the bank. So we did an evaluation around what could buyback share price points, where and.
Because the stock price was under what the evaluation said, we decided to go ahead and buy some back.
Yes.
A big part of that I could argue action is.
According the dividend or retiring, but not paying the dividend on their shares and when you're paying almost a 3% dividend and earning nothing on your money.
You can definitely.
Benefit from share buyback and it benefits the shareholders, what's your perspective on share repurchase.
Joel that was a question for you.
Yes.
Well, obviously, it's another tool for capital allocation, depending on where you can get returns.
And what do you think the stock is worth relative to where its trading.
Yeah. We tried you rather do a special dividend when we got that big influx of the one time licensing we said lets the waves sort of returning some value to the shareholders.
And.
Through a share repurchase so that was part of the overall equation.
Great. Thank you.
Thank you and our final question comes from Ethan Starr, a private Investor. Your line is now open.
Yes, you go what's the potential for growth in both branded and private label Cat litter.
Mark It's you know what would you still adding more accounts, there and how does that work going more S.K. you.
SK using various accounts and new accounts.
Yes, Justin I mean, why do you can certainly talk about because it's out there and its public the blue drug at Walmart, which we're seeing some good results from and any private label lightweight that we you know, though is that that business.
That that business is continuing to grow.
Yeah. So Ethan I would just say, we do continue to see both growth organically of our existing skews as well as kind of creation and expansion of newer skews and new customer acquisition. So we you know as we have successes with customers and key customers you know obviously.
It would become great data points to go out and expand the business and private label lightweight as Ben you know very successful both you know I'm right on the private label side as well as the branded side and really leveraging the trend that we're seeing in lightweight so excited to continue to see growth and again, both through organic growth as well.
Customer acquisition.
Anything I'll, let Jim.
To expand the question.
To wrap up into all of North America, we're seeing even more rapid growth on private label lightweight north of the border in Canada for two major.
For two major reasons number one.
The labels always been about 20% of the category in the United States with 80% being branded sales Campbell being more like Europe, it's more like 40% private label and 60% brand. So you've got a more developed.
Market you have a consumer more attuned to profit.
True to private label and buying their cat litter that way. So that's been good for US and then about a year ago and I've mentioned this before you know our largest competitor Nestle Purina went all lightweight in Canada.
So they sell only lightweight offerings. They have 17 lightweight skews in Loblaws, Walmart, Canada, No heavyweight skews zero.
And so they clearly educated the consumer on the benefits of lightweight and they can buy a brand or they can get a national brand equivalent made by us.
Private label and the own brand. So we're seeing great results north of the border. We obviously hope that trend is.
We'll make its way down to the United States and that will be all good for oil dri. So.
Thank you all for your your focus and attention and your loyalty.
You had a great fiscal 20 I want to thank our frontline workers for making that possible you know they came in every day.
And Mike.
Molly and Aaron Christiansen and their team kept them safe and healthy.
So you can really strict social distancing wearing masks, a three times daily cleaning everything we do keep called it out of our facilities as far as we know no cobot emanated from office buildings. We did have a few teammates and not many who did contract cobot, but all the tracing pointed to us.
Bob outside oil Dri and because of their work, we were able to deliver a record year and we look forward to convey.
Continued momentum into fiscal 21, so we'll be back to you in 90 days or so thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.