Q4 2021 Oil-Dri Corporation of America Earnings Call
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Okay.
Good day and thank you for standing by welcome to the Q4, 2021 investor teleconference for oil <unk>.
All dry Corporation of America.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
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I would now like to hand, the conference over to your Speaker today, Mr. Dan Jaffee, President and CEO. Thank you. Please go ahead.
Thank you, Kevin and welcome everyone to our fourth quarter and fiscal year ending teleconference. As we completed our 81st fiscal year in business very exciting joining me on the call today is Susan Grey CFO, Molly Vandenheuvel C O O Jessica Moskowitz, VP and general manager of our consumer products Division fraud.
Cao Vice President of global sales for Amylin International Laura Sheelen, Vice President and General Counsel and Leslie Garber manager of Investor Relations Leslie will you walk us through our Safe Harbor Yeah. Thank you 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 dry stack. Thank you for joining us Dan great. Thank you and before I turn it over to Susan.
Or what I call a play by play I'll give a little color.
On the year and I'll try not to steal too much of her thunder, but obviously very happy with the top line growth overall, 8% growth all organic no no acquisitions during the year and then 20% in the fourth quarter. So you can imagine what that did especially what everyone knows about global supply chains, where the great job our team did of getting all.
All of that out however costs were in a whole new cost environment. I mean, you know whatever we thought we were saying it's way worse and so we were in a constant game of catch up.
We just put out a news release this week about it so we're still playing catch up but.
The good news is the strategies are working the supply chains.
My father used to always joke.
When people would ask them, how does your wife and he'd say compared to who.
So you know how is their supply chain compared to who's I mean, when you go to the shelf certainly in the consumer area you see out of stocks everywhere and generally youll see the competition more out of stock that we are which is why I think we were up so much in the fourth quarter. So it is tough on a challenging times hud's or down trying to execute on price increases.
And cost control as we are also in the midst of really some very exciting growth opportunities in many of our businesses.
Very challenging times, but very proud of the team they've done a phenomenal job. We've certainly stressed one of our core values, which is b W. Which is work life balance we've definitely been.
Leaning too much towards work and not enough towards life. These last 90 to 120 days, but the team has stepped up and I'm very appreciative of what they've done so Susan I'm going to turn it over to us for some details.
And then you can kick it back to me for Q&A.
Sounds good thanks, Dan.
2021 was the year of momentum of challenges.
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We experienced momentum Dan was just describing in our sales growth full year consolidated net sales reached an all time record high of $305 million.
8% growth over the prior year.
This was primarily due to higher demand of our cat litter and agricultural products, which increased by 9% and 19% respectively over the prior year.
Revenues from our fluids purification products were 3% higher than last year.
Sales of animal health and nutrition products were essentially flat industrial.
Industrial and sports products revenues grew 9% year over year, and we experienced steady sales growth of 2% from our co packaging coarse cat litter business.
Annual consolidated gross profit was a different story as Dan mentioned and it decreased by $8.0 million year over year.
As we experienced the significant challenges of market based inflation.
Commodity based cost increases caused our cost of goods sold per manufactured on our key financial metrics for oil dry.
Approximately 8% compared to the prior year with a very significant portion of those cost increases occurring in the back half of the year.
Packaging costs, which include resident base Judson panels as well as palates experienced the most dramatic increase at 19% year over year, followed by natural gas, which increased 15% year over year.
Domestic freight which has been under pressure due both to rates and availability increased 13%.
These increases were only partially offset by operating cost reductions and efficiencies.
Molly and the entire supply chain team worked hard to achieve during fiscal 2021.
Selling general and administrative expenses for the year decreased 8% from the prior year.
Primarily due to lower advertising spending a lower annual incentive bonus accrual and lower pension expense.
As for opportunities, we increased our investment in SG&A in our Amlin animal health and nutrition products business by $1 million year over year, and we are excited about the new customers and the activity with those customers that this enhanced team has been able to generate.
While we were disappointed with our ability to maintain our margins during a rising cost environment that we experienced in fiscal 2021.
I would like to point out that our prior year fiscal 2020 results included a one time pretax gain of $13 million related to a confidential licensing agreement.
Excluding that prior year, one time gain our operating income of $13 million in fiscal 2021 equates to 10% growth over the prior year.
Full year net income for fiscal 2021 attributed to oil dry it was $12.0 million net income per diluted common share was $1.57.
That compares to $2.65 per diluted common share in the prior year.
That amount included $13 million pretax one time gain I mentioned earlier.
Excluding the impact of that onetime gain which equated to $1.26 per share.
Last year's net income per diluted common share would have been $40.0
Meaning that this year's result is 13% higher than fiscal 2020, excluding the onetime gain.
Now switching gears to some fourth quarter highlights.
Dan mentioned, our fourth quarter consolidated net sales grew 20% and reached an all time quarterly high of $78 million.
Sales from our cat litter industrial and sports and agricultural businesses drove the majority of this growth.
Demand for fluids purification products and co packaged coarse cat litter also increased in the fourth quarter compared to the prior year.
While revenues from our animal health and nutrition products were essentially flat.
As a result of commodity prices that continued to rise rapidly during the fourth quarter. Our consolidated gross profit decreased by approximately one 5 million.
Even after the price increases that we implemented during the quarter.
Due to extreme inflation on resin in lumber prices.
Our packaging costs per manufactured tons increased 40% in the quarter compared to the same quarter in the prior year.
Further contributing to the reduction in margin was higher natural gas for manufactured ton, which increased 67% in the fourth quarter over the same quarter in the prior year.
The macroeconomic environment remains challenging and we are working with our customers to implement additional price increases to help cover is rapidly increasing input costs.
Yeah.
Now, let me talk a little bit about our product groups.
The business to business products group fourth quarter revenues reached a record $30 million, a 13% increase over the same quarter in the prior prior year.
That was primarily driven by strong revenue growth from agricultural and fluids purification businesses.
Sales of agricultural products increased by 37% over the prior year.
The demand from one of our largest customers rose in the quarter.
The beta being products group also benefited benefited from a 7% increase in revenues within the fluids purification business.
Our sales of bleaching clay products were strong in North America, and Latin America.
Our co packaging coarse cat litter products experienced increased sales of 16% in the fourth quarter compared to the prior year primed.
Primarily due to increased pricing.
And while fourth quarter revenues of animal health and nutrition products remained flat compared to the same period last year. We were encouraged by strong year over year sales growth of 66% in the quarter in China.
Operating income for the B to B products group was $11.0 million in the fourth quarter compared to $6 three in the fourth quarter of fiscal 2020.
As the favorable impact of strong revenue growth was more than offset by the rapidly rising input costs, we've been discussing.
The retail and wholesale product groups fourth quarter revenues were 48 million a 26% increase over the same quarter in the prior year.
Driven by our branded and private label Cat litter products.
We continued to benefit from our strategic focus on lightweight litter.
Sales were up 43% in the fourth quarter over the prior year.
Our E Commerce business also experienced double digit revenue gains for the fourth quarter.
Our financial position remains strong as reflected in our balance sheet. We ended the year with cash and cash equivalents of $25 million and we carry very little debt equating to a debt to total capital ratio of about 5%.
One of the primary uses of our cash is to fund our trade working capital.
During fiscal 2021, our accounts receivable increased $6 million, reflecting our strong sales growth.
The decrease in our current liabilities of $4 million for the fiscal year was primarily driven by a reduction in the annual incentive bonuses.
We also use our cash to fund capital investments in our business, including those required for growth and those required to drive cost reductions in addition to normal repair and replacement capital.
At times, we use cash to opportunistically repurchase stock to help offset dilution as chairs of our restricted stock vest and.
And for fiscal 2021, we repurchased approximately 88000 shares of our common stock for $4.0 million.
Okay.
I opened by saying that 2021 was a year of momentum of challenges and opportunities and we have momentum and sales growth across many of our product groups. We're experiencing significant inflationary challenges that require us to increase our pricing to our customers and.
And we are capitalizing on our strategic opportunities and our lightweight cat litter products and positioning ourselves for future growth in our animal health and nutrition products.
Oil dry remains in a strong financial position with low leverage and we are well positioned to fund our future strategic growth opportunities.
With that Dan I'll turn it back over to you.
Alright, Thank you Susan.
And Kevin at this time, we'd like to open up the lines and as he mentioned and as always.
Ask your most important question first and then go back into the queue. So that everybody has a chance to ask at least one question.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
<unk> withdraw your question you May press the pound key.
Once again Thats star one to ask a question and to cancel it you may press the pound key.
Please limit yourself to one question.
That's another question you May press Star one.
Standby, while we compile the Q&A roster.
Okay.
Our first question comes from the line of Ethan Starr a private investor.
You May ask your question.
Good morning, what progress are you, making in marketing and selling very them in near Prime what feedback are you getting from the trials and when do you think we might see increased sales of these products.
Well I think I mentioned in the fourth or the third quarter that were in third quarter that were hoping for some activity in the second quarter, which is coming up so I'll stick with that for now.
No I'm not going to get into too many details, but it is still very positive, but I will tell you that we're in such a dynamic cost environment that yes, we are still doing a lot of things for the future, but our heads are down.
Just trying to execute trying to get product out the door trying to get trucks to show up trying to get pallets to put our products on top of trying to get all the additives that we need everything is under just unbelievable pressure and Im sure Youre seeing it in all the articles you read so I will say still long term very bullish on animal health.
We did hire a couple more people to help fill out the team during the quarter. So it continues to validate that they're seeing what those who joined US before them saw that we really do have one of the best.
Solutions I don't know if you saw in the most recent month or two but the EU now has mandated that all imported meat be antibiotic free and therefore that causes repercussions throughout their supply chain. They are a major importer from Brazil, and so then that ripples into Brazil. So.
Anyway, all good news for us on the call, but I really I don't want to get into too. Many details because it's just it's just not.
Reductive, but but.
It's all happening and it's all good.
Okay at the back in the queue. Thank you.
Thank you Ethan.
The next question comes from the line of Robert Smith.
Of the center.
Robert You May ask your question.
The center for performance investing.
Yes, so good morning, everyone.
Hi, Bob Dan.
You know that I've been.
A member of the oil dry family for a long time more than 25 years.
So I just wanted to share with you.
Yes.
And the greater part of the last decade, we've been.
Missing in action so to speak from the radio.
One of the greatest bull markets in history.
And then Colin I feel like that.
Because we're in Michigan accident from.
Investor.
Investor Relations.
And sharing the.
Story with the investment community or you are a small cap stock.
There are numerous ways and means of getting your story out how it's transforming a story to tell about animal health.
And the future of the company.
Great story, but you've got to tell it.
And I hope that youll give them much greater consideration to doing them.
Well Bob.
The base is all you want and it's just going to make me look worse, but.
The facts are the facts I mean, we're trading at $16 five times earnings what do you think our multiple should be if I had been out in the street Hawking stock what are you.
Do you think we should trade at 'twenty, we're not a growth.
Hope to be but were a value stock we pay a good dividend yield. So what do you think our multiple should be.
The multiple is not that important it's the future earnings power of the company and the transformative business. So whenever the multiples reflective of that.
To use that then if the street new about your animal health potential the stock would be closer to 60 and 35.
But I mean, given what they can see the area, but we're going to keep agreeing to disagree and for better for worse <unk>, who took us public back in 1971, who has served on our board for years and was revered in the investment world. The managing partner of William Blair, Absolutely hammered to me.
Hawking your stock and getting expectations out in front of your performance all youre going to end up doing is disappointing somebody put your head down and run the business and they will find you and I would think our multiple is very is very relevant I think where we are.
We are well priced when we start to deliver on animal health It will move but to get it going in front of that performance to me I don't see the value of that so then the stock market.
That market is the discounting mechanism no one's buying stock when present value they want to see the future you've got a story to tell about your future talent.
Well, then I'm going to ask you again, what do you think our multiple should be.
If it was it was there eight I'd be agreeing with you it's at 16 and a half.
Yes.
The multiple average multiple in the market is in the mid Twenty's now so what I'm, suggesting is for small cap. If you talk if you told the story in the stock would be close to the $60 30, that's my theory.
Alright, so on Bud light.
Have you ever request.
Did you have a class gender comp.
Well I do have a question here.
<unk>.
So my question is can you tell us anything.
President about the trials, where August several trials being held and the timelines for when they might be.
Come to greater fruition.
Yeah.
Well Unfortunately.
Fortunately we're out of time, so I would have dropped into that no I'm just kidding, Bob No I will not be telling you where the trials are being held we go through those every single quarter you guys push me to have longer teleconference, but the questions seem to be the same.
Have to keep giving you the same answer in football is my analogy it doesn't seem to help the yield of the competition what plays you're going to run so no. It will not be telling you where our trials are.
But.
So thank you for your question.
Okay. Thank you.
[laughter].
The next question comes from the line of John Bair Ascend wealth, John you May ask your question.
Thank you.
Interesting bantered, there I guess, if I was disappointed there is a option.
As to what he can do with his holdings, but.
Congratulations on actually.
Having a profitable quarter not as well as you would like or any of us would like but given the backdrop of commodities I was frankly concerned that perhaps that wouldn't be the case. So kudos in that regards my question is first question is.
Read recently that the swine in pork prices and consumption in China has decreased due to the Asian flu impact and a shift by consumers.
To consume more poultry and so my question is have you seen an increase in demand for your poultry related product versus swine products in China.
Or has.
The swine product sales remained consistent or actually increasing in other words have they been cannibalized by an increase in interest in poultry consumption.
Sure Hey, John Great question, and a friend you take it but start with the swine because you and I have got a lot of conversations about that what's going on with swine in Asia in general and China in particular, and then talk about the other areas that we may be able to see some some benefit of our products going into.
Okay sure.
John Thats very very quick question on right, so as I'm in China right now.
Well, maybe start with this slide I've been swine fever has taken its toll on the Chinese swine market. The reason I'm, saying that is not because of there is not enough.
And the market is actually the reverse is too much floating around because they were able to get the populations back from where it was back in 2018 before ASR now they actually had the same population with the peak population back three years ago.
Now the reason the prices sulfide is exactly what you've mentioned John is swine poultry and meat or either meet tambien as a substitute for the last three years people got used to accreditation of healthier products and <unk>.
Most of that is swine market is not going to rebound back to what it was.
Like.
One of the things that's hurting our passes when you get used to the taste is not going to get back to the same.
The orange.
And Thats eight Gigawatts, a China U.
And then your board.
For example on that is the price cost of production or channel of pork meat, it's roughly three or let's say close to $4.
Selling at $4 <unk> Alpha at farm Gate. So all the big producers are losing money because of that so to answer your second part of your question poultry market is definitely being very stable.
That'd be the price that <unk> made on the profitable.
Level not until maybe about two weeks ago, you kind of dropped below it but that being said, obviously a forward basis come back up again to what breakeven price needs to be and that shows how important the poultry sector is gonna be NK cell club swine market not doing so well.
So give us a great confidence now that that strategy proposal quarters ago that we're going to focus on the poultry market funds and then the loss and you want to add to what is the daily market in China may be the only.
Animal products produced in China, that's had.
A stable price ever since the pandemic, so people eating less needs because of a lesser nios eating outside but very consumption and table eight consumption.
We've made pretty steady throughout the last year.
As I said this last 18 months.
To your question.
Yeah. So so.
I guess, so you are seeing an increase in demand for your poultry related animal health products is that is that what I'm hearing.
That's correct, yes, we do have we do see an increase because of course, the market is being pretty stabilized and they know stabilize maybe the prices will remain stabilized flashy. The population of the poultry has increased tremendously in the last three years, so that's what you're saying.
Is that something is that a trend that the trash.
Translates into other geographical areas as well.
What are we seeing some of that is in Asia.
Definitely seeing some of that trend in Asia, but it's quite difficult to project that just because if you look at Asia. The predominantly ports are poor consumption countries that China, Vietnam, Philippines, Japan, and Thailand. So in these countries definitely we're seeing some of that but the difficulties that the difficult thing to see it they don't have to send it back.
As ASF is tore through China in the last three years. So we are not quite seeing that just yet if that makes sense.
The next question comes from the line of Ethan Starr, a private Investor Ethan you May ask your question.
Yes, I prefer to avoid its open ended discussions on Investor Relations on these calls my question is could you. Please could you. Please give more detail on the increase in sales of both your branded and private label Cat litter and also I'm wondering to what extent was revenue growth in the last year.
This increases versus increase in tons sold.
Jessica you take the first one and then I'm not sure I have the data for the second one, but a Susan does thats great Jonathan.
I do it okay. Good.
Jessica you go first.
Thank you.
Jessica.
Jessica you might be on mute.
Thank you.
And the growth in cat litter has been driven equally by both organic growth driven by overall growth in people, having having passed in past overall, Additionally, reflecting new customer acquisition, so bringing on new.
You know new private label lightweight customers and new customers and then also by you know overall building.
The branded business and the launch of new items of 15 pounds under our 15 pounds, which is our backup on the line.
Great. Thank you.
And Susan.
Yes.
How much was pricing and how much was volume.
Right, Hey, Jessica I think you need to mute.
[laughter] yeah, the volume accounted for half of the growth and then the rest was pricing and improved mix volume was half of the revenue growth.
That's all the time, we have for the Q&A session I will now turn the conference over to Mr. Dan Jaffee. Thank you.
Well. Thank you everybody again, we're very happy with the demand again validating.
Not only our successful strategies, but also our ability to get stuff out the door.
I'm sure you do retail check do you see a lot of empty shelves out there very dynamic times.
We're going to continue to do.
Prices up control, our costs and get as much out the doors. We can in the next 90 days and no one has a crystal ball, but no one.
I'm sure I can do thinks this is going to end anytime in the next 90 days I mean, this is going to be the new reality for at least a year, maybe even into two years. So I appreciate your support and patience and we will be back with you in.
90 days ish for the next teleconference. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
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