Q2 2021 Oil-Dri Corporation of America Earnings Call
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Thank you for calling me of your name please.
Hi, its Rachel Smith.
And the confidence of joining today.
Yeah.
Oil drill corporation.
Would you open up the phone number I'm sorry in the past quarter of the idea from the conference.
One woman.
3349, and seven seven and eight.
Oh, I said the wrong name.
Six of weeds on nutritious Smiths, all 3349, and seven seven and eat.
The idea from the confidence you have this 334 and 97 and seven eight.
Hello.
And still there.
Hello.
Yes.
And so the use of the IV you have this 334 97 and seven eight.
And I'm, sorry, I was checking into that my apologies for the salads and it should be 490 79669.
And your company name.
Ah here he I E R E.
And your business flow number area code first.
Too long too.
960, 369 and seven.
And of cleaner.
Any investment and oil dry stack. Thank you for joining us Dan.
Yes, Thanks, Leslie and before I turn it over to Susan and for a play by play I'd like to add some color to what's been going on and we really add a lot of positives on both sides of our major business opportunities both the retail and the beat of B.
As you guys know I took over as general manager of Amylin International of right around November 1st and we have made some really really good changes together, it's been a complete team effort cross functionally and we brought in some new players I can distill it to people poultry clay and target markets and let me.
Start with the people I mean, Fred and I fragile, who is our global VP of sales of work really hard and building our team and you know Fred joining oil dry was and initial.
A badge of validation for the incredible opportunity we have because he's on a 20 plus year very successful career. He's made great contacts and people took notice when he joined the company and so we've been and the enviable position of being able to attract a lot of challenge quickly as these people first got to know oil dry through Fred.
But then spent a lot of time with Mali and on you and are Jim out of day Research center getting to get comfortable with our data that they knew and do have existed because of new Fred was joining us for a reason and it's because of this this global vacuum and that's been created or buy out of the elimination of antibiotics and the food chain has created.
And incredible market opportunity for oil dry so just and this short period of time since November 1st we've been able to onboard he's whilst all of who is covering all North America for US Jews, who was our Americas Tech service and Harold Zhao of Who's covering APAC and then Doctor weighed Roby, who is our vice president.
Rather than of marketing and product development or was that of a stellar career and the animal health, we put out news releases on there. So I encourage our investors if you've missed them to track them down.
And again, just search Amlin and Youll find out of latest news releases, but we really have created a dream team in general but in particular they of incredible poultry experience. So in no means are we walking away from dairy or swine, but we don't get of lean heavily into poultry poultry represents about 40% of of three bill.
Dollar global opportunity that's been created by the elimination of antibiotics and the human food chain and so you're talking of 1.2 billion dollar opportunity, where we're from Fred to that team that I just mentioned and you know there was a quick phone call and they can get to every level at all of the major decision makers around the world.
And we are getting interest like never before so it's very very exciting. So I mentioned people poetry, why did I imagine clay because clay is our unique entree into this market. We are the only player that has a quality to the source that we have as you well know of your longtime oil.
Dry investor wheel hundreds of millions of tonnes. We are 100 million proven by way of the equal that of about inferred, meaning we don't even bother doing of drilling because we're not going to need it and any of our lifetimes, but it's mother nature and put it there. So we have of hundreds of millions of tons of play to choose from and we of specifically identified.
On a particular reserve that is give us the highest quality and quantity of of these animal health products and we're actually discovering new applications for as we speak because the more we understand our mineral the more beneficial things we realize it's doing in the animals got and to the animals.
And well being and so we selectively mined. These we of you know always a minimum of 40 years reserves and every product line and so you have no worries.
As of this product explodes, we have the capacity to mine and supply of this industry and you look we may have to spend some capital along the way, but we have the reserves and that's very exciting so our people our poultry and our clay and then finally, our target markets were going to fish, where the fish are and we 11 you know market.
It's really on where we think we have a unique position to to go after a large percentage of that 1.2 billion dollar opportunity. My math is it's between seven and $800 million of that one point to so maybe two thirds don't hold me to it but it's obviously large enough to dramatically change the financial landscape of oil drop.
And the best part is one of our most exciting markets is kristine because we have stayed away from it and I'm not really sure why honestly, but all of our prior management had decided that that the South America and Asia.
Was more important than North America, but our current team realizes we have a great right to win and America and we are getting a lot of a lot of interest are right in our backyard and it's a language I speak of currency, we trusted contracts that are honored and so and we don't have to open up on.
You know new.
Business entities to do business here, so I'm very excited about the opportunity and the United States and we are hitting the ground running but as I mentioned, you know things financially, we're going to get worse before they get better we put on a lot of S. G and a lot of infrastructure and while these guys are getting a lot of interest you know, we're not getting a lot of orders we've actually.
And some orders, but not enough to cover the investment were making and people so you're going to see our SG&A continue to trickle up on the short run but these are all long term investments for oil dry none of them will impact.
It is expected I don't think I have to qualify Laura will definitely want me to do that so I will qualify that as expected that none of these will impact our ability to continue our dividend policy. These are all just using cash flow and a very wise investment.
Pattern for the beat of beside you'll be hearing from Jessica on the retail side and we are continuing to to really gain share of both without brand and our private label lightweight is very exciting you did see and our news release that short term, we got hit with a lot of cost pressures all at once.
And what you know she's been able to do to offset those going forward, but you know none of that was was none of that pricing was able to impact of second quarter, but the costs certainly did so that's my color you're getting on a lot of play by play from Susan and then obviously use your question to zero and on anything that maybe we have and clarify.
And well enough for you, so Susan and I'd like to turn it over to you for the second quarter and six month results.
Hey, Thanks, and and today I'm going to recap the second quarter for you, so and our second quarter of fiscal 2021 well try and delivered another salad court southern Florida of topline growth with net sales of $74 5 million growing 5% over net sales day.
And the same quarter and the prior year.
Both of our business to business products group, which grew 7% and our retail and wholesale products group, which grew 4% contributed to this growth demonstrating that as Dan said, we are achieving success in two of the key areas of our strategic focus and those are mineral based animal feed additives and.
Lightweight cat litter.
Additionally, it was a very strong quarter within our business to business products group as all product lines experienced year over year growth and net sales.
We are seeing evidence of the focus on our mineral based strategy and animal health and nutrition products is paying off with 20% net sales growth during the quarter over the second quarter of the prior year.
Fred and his team many of whom are new to oil dry and who Dan mentioned during his opening remarks and have done an excellent job of focusing on the strategy and are beginning to deliver on the opportunities.
Having just delivered.
And and all time high net sales for any second quarter for Amarin International our animal health business.
During the quarter and we saw the benefit of enhanced distribution of barium and natural alternative antibiotic growth promoters for poultry.
We also experienced strong growth and China, Latin America and Mexico.
So and all around good story for Amlin and the investments that we're making there.
Now switching to other business to business products agricultural and horticultural products also had a strong quarter, achieving 10% growth over the same quarter and the prior year.
Given primarily by increased sales with existing customers.
And in our fluids purification products.
The decrease in sales of our jet fuel of purification products that have been adversely impacted by the reductions and air travel due to the global pandemic were more than offset by the growth of our other products as our overall smoothed purification products grew 3% in the quarter over the prior year.
This growth was favorably impacted by increased sales to our foreign customers during the quarter.
And finally on co packaged cat litter product, which sits within our business to business products portfolio grew 5% during the second quarter of fiscal 2020 one.
And then similarly within our consumer products group Cat litter sales grew 6% over the prior year.
We believe that our continued strategic focus on growing our lightweight litter products contributed to this growth and both the U S and Canada.
We also experienced increases and private label and branded superbowl litter sales as well as growth through ecommerce sales.
Switching gears, our second quarter gross profit of $18 2 million was down 800000 from the same quarter and the prior year, representing a 4% year over year decrease.
During the quarter, we experienced some significant cost challenges, which Dan alluded to in his opening remarks.
Despite the favorable growth and net sales for the quarter was unfavorably impacted by cost increases, particularly in the categories of freight which was up 13% per manufactured ton over the same quarter and the prior year.
Due to domestic trucking supply constraints that resulted in significant increases and transportation costs.
Our packaging costs were also up 13% per manufacturing ton as increased resin pricing resulted in increased costs, particularly and our jensen pale.
And natural gas costs were up 8% per manufactured 10, which we used to operate kilns to dry out of play.
Overall, our cost of goods sold from manufactured time was up 8% over the same quarter and the prior year.
Driven in large part by these market based on factors that were partially offset by operating cost reductions and efficiencies during the quarter.
We've responded to the significant cost challenges posed by these economic headwinds.
Through implementing mid fiscal year price increases.
So all of our products are impacted to various extent and.
And Sumer catheter has particularly impacted due to the amount of freight and resin based packaging costs that are included in those products.
Switching to our total selling general and administrative expenses for the second quarter of nine of $13 9 million.
843000 higher than the prior year GAAP.
Presenting of 6% increase.
However, the second quarter of the prior fiscal year included a one time curtailment gain of one 3 million.
Related to the freeze of the Companys supplemental executive retirement plan, which has since been terminated.
Excluding that $1 3 million onetime gain and the prior year SG&A was down 3% during the quarter.
However, there was also and underlying shift and Chi.
And corporate expenses, including the impact of the fiscal 2020, one time gain or excluding the impact of the one time gain of $1 3 million decrease from the prior year.
And SG&A costs to support our business to business products, particularly the investments that we're talking about and our animal health and nutrition products grew 26% or approximately 600000 over the same quarter of the prior year.
This incremental expenses consistent with our commitment to invest and this high value add product line to drive growth for our future and Dan did share some of those highlights at the beginning of the call.
Our second.
And quarter other income of $1 1 million included an $800000 gain upon the annual actuarial valuation of our pension plan.
So as a reminder, during the fourth quarter of fiscal 2020. The company executed a lump sum buyout for the terminated vested participants and our defined benefit pension plan, who had elected to take this buyout payment option.
A majority of the participants that were eligible for this lump sum buyout opted to take it which contributed to the favorable annual actuarial valuation of this obligation.
And finally net income attributed to oil price and the second quarter of fiscal 2020, one with $4 3 million, which represents an 11% decrease from the prior year for the debt cost and investment reasons, we just reviewed.
Our financial position remains strong as is reflected in our balance sheet. We ended the quarter with cash and cash equivalents of $31 million and have very little debt.
Waiting two of debt to total capital ratio of only 6%.
One of the primary uses of our cash flow and defend our trade working capital.
The first six months of fiscal 2021 and.
Accounts receivable increased $3 8 million, reflecting our sales growth and a shift and our customer mix, including an increase of sales to foreign customers, who tend to have longer payment terms.
We also used our cash to fund capital investments and our business, including those required for growth and those required to drive cost reductions and addition to normal repair and replacement capital.
Because of our strong position during the quarter. We also repurchase 33594 shares of oil dry common stock for $1 2 million and and average price of $36 nine per share.
So based on our strong financial position, we often get asked if we were interested in pursuing acquisitions and the answer is yes for the right opportunity because of our low leverage we are well positioned to capitalize on strategic investment opportunities that may become available.
So that's my summary for the second quarter, and with that and I'm going to turn it back over to use them for and so people can ask questions.
Perfect. Thank you very much great great summary.
So yes at this time I'd like to open up to Q&A and as always I'd like to encourage you to ask your most important question first ask one and then go to the back of the line, which will allow everybody a chance to at least get one question and and then if we have time for extra questions. We'll just keep cycling through.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then one and once again, we do like to encourage you to just ask one question and then get back into the queue. As time allows our first question comes from the line of Ethan Star Private Investor Your question. Please.
Yes, hi, good morning, I know, you're and trials with some of the top poultry integrators and America and I'm wondering how are those trials going and how long and Mike might it take to convert those trials into sales.
Sure well I.
And if you know about the and you know more than I do so.
And so we have not disclosed nor am I going to confirm nor deny or on any trials with large poultry integrators and America and even if we were I went and tell you because honestly until it and as you know me well enough on door and the zone, where don't celebrate so we have nothing material to report at this time on that front, but I'll. Let you answer of asked another question because I didn't really answer your question.
Thank you once again if you of question. Please press Star then one.
Your line is open again.
Do you see the sales cycle decreasing in terms of length of time to set to sales.
And I'll, let Fred talk about the sales cycle from.
Can you repeat that sales cycle and decrease I'd be honest and.
Yeah, I mean, and I don't think it's really going to a degree so I'll leave you and the right direction. Just generally talk about the sales cycle I mean, what do you think it takes to go from the first time, we contact on account to potentially getting a real order and not a trial on the sort of.
Reorder.
Okay understood and good question. So it really depends on the species right and you know if we have of chicken poultry company that contacted us net sales cycle will likely be anywhere from three to six months, because usually or the customers because they would like to add a couple of childhood and place. So that's of no more time for force fly.
This is going to be much longer depending on the usage and if they're using on a greedy song of the south that and that cycle is sort of dragging out more and more than half viable use of using on the peak loads. So the shorter or sort of looking at a year of cycle.
Talk to us of course cycled on it.
So, it's clearly and lengthy cycle, but then on the flip if and when they adopt they're very slow to change. So then you're in there for a while and hopefully will forever. Obviously the goal, but they don't make quick decisions, there's too much at stake and.
And they're going to be very methodical and their decision making process, but great question ex.
Our next question comes from line of Robert Smith from the center footprint.
Your question please.
Yes. Good morning, Thanks for taking my question.
So congratulations on.
And what is the for a long time, so that and win was going to be the failed and wagged. The cats, so to speak and I am glad to see and the initiatives that are being taken.
My first question.
And would revolve around the.
You mentioned 11 markets can you name the market's Rooney.
I mean, we could but again it would only heard of your investments. So no other than America, we're not going on you know.
And we're not gonna name on exactly which markets, we're going to not just chips off the competition too.
Well I assume I assume there's a lot of their countries and the countries that have been named on the passing of them well I mean, I just wouldn't make any assumptions other than the opportunity is what you need to focus on it and so that's two thirds of all of the $1.2 billion of opportunity. So it's large it's and I'll get to 11 countries of together only were buying $50 million worth of antibody.
So it's a great opportunity.
So you mentioned and the.
Prepared remarks that China and.
And this big increase I assume it's off of very very low.
Number of so to speak to that.
And I'll, let Fred talk about China.
Yeah.
Hi, Bob and I'll.
And really I won't say is based on very low number out of zone, So and I'll ask Dan.
And as and as I mentioned earlier, we were able to close on our existing customers one of the biggest company in China.
And based on that you know he was given to us.
A huge boost on our existing business and on top of that we're able to bring back some of the oldest shippers that you know that we have relationship with where we kind of lost commission because of the previous cheat right and we were able to get and all of that and so you know that the hunter from its 40% growth that we're seeing and quarter. Two is really has lots of it.
And what not because of the small numbers, we had before speak but really because of the potential building on us right. So you'll be able to see that in upcoming quarters. So I guess, that's quite especially ex glad that.
Thank you. Our next question comes from the line of junk of from ascend wealth of Apache and your question. Please.
Morning.
First off I wonder, what damn what brand coffee of drink and and I don't think I've ever heard me quite as animated and your opening comments as well so dissatisfied and you can get back from you on that.
So it sounds like there's a shifting your emphasis is shifting from maybe from the international.
Let's say from from your focus on on China.
And.
Previously and and now more of a focus domestically.
And and also I guess that would mean going from focusing on on our own on the swine market versus the poultry.
But I've read a lot about the how of the swine market is it kind of be rebuilt and in China, and so forth. So I'm just wondering how that aspect of Amazon's businesses is proceeding.
And while I'm going to let Fred answer the question about China I'll answer the question about my coffee of Peppermint bark iced coffee and yes, I am but I'm really excited of the policy opportunity I'm not I drink that every morning. So what are your sort of thing outside of it.
And as I'm excited but Fred.
And I talked about China, and what species, where C and business from and where we see may be the future.
Yeah. Thank you, so so or for China right of species of Ashford with working on multiple right now.
Biggest opportunity like and Michelle and he is smiling because you know I think that's where with African swine fever and people on top of the companies are coming out of African swine fever, and focus on making sure that the population of hold of pages are actually healthy. So we're seeing a huge boost to the bad field at the same time, we're seeing a really nice increase in net.
Remnants of market as well right. So I think it's not just on the supply market of both but just and I haven't lived on the swine market also with African swine fever, that's that that may increase risk of.
All of the vulnerability of that market right. Because you know, we don't really have a way of.
Making sure that takes our our state of you know.
Not harmful way from the virus. So so that's a challenge on base with but at the same type of I should give us opportunities because people are willing to invest more on making sure of the help me flock is maintained and I saw that gave us of had been opportunity and getting to the market as well.
Great.
Thank you.
Thank you. Our next question is a follow up from Ethan Starr. Your question. Please yes, I'm just wondering so what what kind of type of feedback do you get from your existing customers of AMT for Amlin, you know the near Prime and our and <unk>.
And what what what feedback you get into the results and Theres. There were turned on investment and that kind of thing and when does it does it helps you get new additional customers.
Yeah, I can think of that right that or yeah.
Okay well on.
I'm very very positive and so what we're seeing right now as EVP of the customers and now you are asking about of turnaround kind of a circle right.
We have customers using very on the only thing we've seen that increasing the number of tonnage that already you know we have.
Nothing of customer that you started using very of and started reducing the Thomas and order. Since you know since I've joined the company. So it was a very very nice and positive trend for Neil climate is the same you know we've seen the same trend as you know and it takes time to convince customers I shouldn't yourself part of but once they start using it and seeing that the rite aid has on us.
And our bodies of alternative we only seem to trend going on and that's really encouraging.
That's the key.
And message that I think I can't give you here.
Hey, and you know I'm gonna add onto this just anecdotally are generally because fred and and Julia and Heath and and way to really and Harold are really able to understand the data in the test and turn it because they've got so much experience on those industry put it in terms of the decision makers.
And our motivated to keep moving forward. So for instance, we we've been my own quickly focusing historically on feed conversion ratio, which is you know what's the cause of the and putting on what is the what do you get out of it in terms of weight gain or whatever it is you're trying to get out of the reason why you're raising the animals. So, let's just call it and poultry weight gain well, we recently did a study.
On a test with a big player and a big country and I'm not going to get into the details, but we need to get into is why it's Dan. So excited it's two volt I've always believed on our products and I've always believed on it but we out of test with them one of the feed conversion ratio of us against the control was about identical so still.
So we're members of our team that were first perceiving. This is of failed trial, because why would you buy a product of youre not going to increase the feed conversion ratio. Fortunately fraud was on the call was 11 o'clock at night is time and you works 24 hours a day and he's like look at the mortality rate, meaning so I'm on.
Salary rate with so much of lower with our product that we could've actually had a lower feed conversion ratio and still haven't been of positive spend for the customer but to be able to achieve and equal F. C. R and decrease your mortality rate. For example, let's say you put a thousand birds and and and I'm, just making up numbers we degrees of mortality.
Right.
10%, So we got out of a thousand birds, but the control only got about 900 birds. Yeah. So you have see ours of the same but by using our product day of 100 more birds to sell which is on 11% of inquiries over the 900 and so it's it's an unbelievable economic windfall and once the customer.
Looked at the data and that way they were very excited and so it went from where we were thinking we have failed the trials because we didn't really understand and I don't look of the data to someone with fred's experience being able to say not always it's not a bad does this and this is these.
These are from the best results ease off of it pretty much has ever seen and I'll, let him speak for himself and it was a glowing success. So yes, I'm very excited about this opportunity.
Did I reach out that pretty well.
Yeah, and I just wanted to add thanks, Dan and I know as of as really the thing with Hogan of Bowers. The total number of ultra dry and so you know if we are able to have more birds and the chicken houses on music all of part of the output I mean, right and that means that you don't you don't really see it in terms of on the honest statistical sheets, but you need to calculate.
Asia based on all of the Mt. That's a huge advantage all of part of it and that's that's that's what Dan said interpretation of the data on right and you should be done properly and we need to educate the customer as Ed and I understand that that's where we come in and when it may not we know one thing but at the bottom line. That's the most important number right from when a dollar of my.
All of that and we actually a big winner.
Excellent and.
And we're out of time, but you know it's fine we've covered honestly as an investor and you know on the biggest investor here and we've covered what you need to know to be hopefully.
As of Tuesday, as think about the long term prospects, it's kind of take time, but the ship and starting to turn and it starts with the people and the strategy and then we've got the support team by the way. Thank God, we invested and the ERP system a few years ago. Thank God, we dramatically improve the talent level of the company from Susan Tamale to Lora adjusted goes.
Fred and I could go on and on and all of our used to eliminate and anybody but the fact of the matter is oil dry is well positioned and well poised at this point and time to take advantage of this opportunity. How this opportunity here three years ago. It would've killed us and now we're ready for it and I'm not telling you we're not gonna of problems and then we won't feel.
From stress fractures and those would be nice problems day out because it would mean the business is booming, but we are in great shape to take advantage of this and so thank you for your interest we'll be back out to you again after the third quarter and nine months and I'll stay on my coffee, because it's work and take care.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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