Q4 2022 Oil-Dri Corporation of America Earnings Call
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The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Okay.
Hello, everyone and welcome to oil drives fourth quarter and fiscal 'twenty two at year end teleconference.
We are doing this virtually so I want to introduce the group to you.
Susan Craig is on hand today, she is our CFO Aaron Christiansen, Vice President of operation cause Lamson group VP of retail and wholesale Jessica Moskowitz VP and general manager of our consumer products Division weighted Robby VP of agriculture, and Amlin marketing Laura Sheila.
Vice President of strategic partnerships, and General Counsel, Dave Atkinson, Vice President controller, and last but not least Leslie Garber, our manager of Investor Relations and Leslie If you would walk us through our safe Harbor.
Thank you Dan and welcome everyone on today's call comments may contain forward looking statements regarding the company's performance in future periods actual results in those periods may materially differ in our press release and in our SEC filings, we highlight a number of important risk factors trends and uncertainties that may affect our future perf.
<unk>, we ask that you review and consider those factors in evaluating the company's comments and in evaluating any investment in oil dry stock. Thank you for joining us.
Yes, Thank you and before I turn it over to Susan.
For a financial review of the highlights of the quarter.
Just like to say.
Youre seeing.
We delivered a good quarter, we are happy with it we still have a long way to go given the pandemic the war supply chain disruption high inflation.
Anything else that's going on in the World. We felt good that we finally got our price is not where they need to be but at least strong enough to return us to profitability and earnings as I see our gross profit trend going back four or five years.
We're making 29 28 27 points well, we only made just under 19 points in the quarter so well.
We clearly feel good about the income we've made trust me we are not done we still have to get the business back to where it was and its really in everyones best interest not just our shareholders and our teammates, but our customers because we need to have.
The financial health to continue to invest in our business you can see almost every segment is growing rapidly and that growth not only requires more working capital, but also a greater our capital expenditure focus on our plan. So.
Sort of a long winded way to say, we're happy that we've made a lot of progress, but we clearly recognize we're not done yet and as I mentioned in the release.
Hopeful cautiously optimistic that the momentum will carry over into the first quarter of what is fiscal 2003, So I will turn it over to Susan for our financial results.
Thanks, Dan.
You'll note that we put out a pretty detailed press release, so and responding to some of your prior feedback I'm going to keep my comments really brief and leave more time for Q&A.
As we exited the third quarter, we started talking about momentum that we were seeing and we continue to see that in the during the fourth quarter and into the first.
You'll note our fourth quarter results revenue of $93 million or 19% year over year. So the momentum continued and if I dive into that just a little bit to give you an idea about 75% of that was based on pricing the other 25% on volume.
If we talk about that a little bit by segment in retail and wholesale.
87% of their growth during the fourth quarter on the <unk>.
Revenue line was based on pricing, 13% on volume, whereas in <unk>. It was it was more balanced it was 51% price 49% volume.
So we continued to achieve improved gross profit during the fourth quarter.
Moving that back up to 18, 8% still below our pre pandemic levels, but definitely with the momentum moving in the right direction and we will continue to focus on restoring those margins.
We continue to seek price increases to cover the inflation, we are experiencing on multiple fronts like many others in raw materials and energy transportation labor and even other areas.
So those are kind of the key highlights and the momentum we don't focus on.
There was a note in there about a subsequent event. So prior to year end, we announced that we are terminating our defined benefit pension plan.
There are many details on the planned contained in note eight to our financial statements.
At a high level basically our most recent actuarial value indicates that our plan is essentially fully funded so as they move to terminate we expect that there'll be no material cash draws on the company and that will be able to pay most of the.
[noise] liabilities settle most of that with.
Assets that are in our pension we've actually shifted those assets onto a preservation mode to make sure that as we're trying to wind this pension down.
Get hit with equity market losses.
We expect that this will be terminated within the next 12 months. So just a little highlight there on what's going on.
And with that Dan I'll pass it back to you.
Great. Thank you Susan I appreciate it and appreciate those of you who got questions in advance it's allowed us to sort through them and prepare our answers you can also submit questions. If you werent using the ask your question field on the web cast.
Click submit.
Luckily what is our first question.
Okay last question comes from Bob <unk>.
From center for performance investing.
And his question is during the last call you referenced budgeting $40 million in revenues for fiscal 'twenty. Three for Amarin are you currently able to reaffirm that number if not what has changed.
Dan do you want to take that one yes, great question and look as I said, even last quarter, it's very much a startup mode and it's hit or Miss.
We are still cautiously optimistic that that's our number for the fiscal year. We're only two months into the fiscal year. We have a lot of trials, we have repeat business. So I would say.
I'm not ready to change that number.
But I'm not seeing anything that's saying, we're going to blow through the number either so I don't know if that helps you Bob but.
Still cautiously optimistic we've got a bunch of trials going on and the initial results are very positive.
So that's how I feel about them.
Okay.
Great.
The next question comes from John Bair from ascend wealth advisors.
Congrats on a solid quarter and record revenues are you seeing any relief or flattening of raw material costs, such as resins and packaging that may help improve overall margins in the next few quarters has there been any meaningful improvement in shipping and logistics bottlenecks.
So Aaron Christiansen, our VP of operations will answer that but there is a second part of his question and the second part was what is the status of share buybacks and Susan Cray will take over after Aaron's done.
John Thanks for your question and thank you for the acknowledgment of the quarter we had.
The first element of your question, we are seeing flattening of input costs.
And even some signs of margin compression, notably in a number of areas of our packaging costs.
Similarly in the area of utilities natural gas and diesel which are key cost drivers for us. So it's fantastic to be in a place we absolutely have seen flattening and theres, some hope and expectation that we continue to see mild compression.
To your question about freight availability and cost I need to really split my answer up into two parts.
Domestic freight and cost has absolutely improved more in the area of availability.
Domestic freight has become far more readily available as it was pre pandemic.
Export and international freight is a different story export freight continues to be.
Extraordinarily expensive on available.
Not unique to oil dry that's anticipated to continue throughout much of the year, we are trying to adapt and overcome in ways, where we carry more local domestic freight to ensure we can be ready to ship and equipment available and the same on the other end.
I hope my feedback has been beneficial.
Thanks, Darren this is Susan and I will jump in on the second part of the question on share repurchases.
In order of our cash priorities, that's one of the lower ones. Our first priority is to fund our business and fund our growth opportunities.
And you'll see our commitment to capital spending.
That's eating up a little bit year over year as we can from some of these growth opportunities for emlen and other growth initiatives.
And we will have to probably fund some working capital to support those and in order to support some of our foreign businesses Aaron mentioned, the logistics for some of those are longer and longer.
And that requires more working capital we also fund our dividend and after all of those priorities are taken care of then Tom share repurchases. So I'd say at this point in time, we don't have any plan to do any but that's always just something we evaluate on an ongoing basis.
Okay great.
Thank you. The next question comes from Ethan Starr, a private investor.
The 10-K, you noted there was a reduced need for trade spending because of higher demand for your cat litter is that reflecting consumers switching to cat's pride for more expensive brands or what other factors are causing the higher demand.
Chris Lamson will you answer that please.
Yes, good morning, and thanks for the question.
So really the reduction in trade that we noted in the 10-K year over year as a function of both strong demand and.
Yes.
Demand is strong, especially across the more strategic segments of our business to include lightweight litter.
But also the supply chain malaise that was certainly not unique to us right.
You were up against what everybody else was up against.
Strong demand has continued.
As you see in the results of course volumes been tempered a little bit.
Hi.
<unk> marketplace, the category, showing a little bit of elasticity models.
So as we as we think about that going forward, we are starting to reinvest in trade.
And do it in a rational way that drives good payout for us and candidly, we're able to see that across our competition as well. So when we look into Nielsen we see the other players in the cat litter category doing the same getting back into trade promotions as.
As the supply malaise is lifted.
Specifically for us Aaron and his team.
Got it surpassed the crop getting us back.
And to a position where we can fully meet demand.
Yes.
Great. Thank you.
The next question comes from Bob Smith as it relates to Amarin do you feel that fiscal 'twenty three.
Okay.
Yes.
Hello, Brian .
Sure.
2012.
Alright.
Your audio is really rough I'll read the question.
The Amlin do you feel that F. 'twenty three will be the true inflection point, leading to continued accelerated growth in absolute terms, if not percentage wise.
We are still very very very bullish I mean, we believe we have the best non antibiotic natural solution.
God help for animals.
Wait I would love to have you embellish on my sort of 50000 foot comments, but when we look around our key markets for our key products and what they can do.
Wade why don't you handle some of that.
Thank you Dan and thank you for the question.
Absolutely as we look around the world as Dan said.
See in spite of the pandemic and other.
Things that have been going on obviously over the over the last year.
We see a continued growth in the consumption of protein by folks by people and that means that the animal production industry is needed to keep pace. Our products are very well positioned for those markets, we not only pursue the poultry industry in swine industry.
As our first targets of interest we also sell into dairy and then to Aqua as well. So we have a broad spectrum portfolio that can that can service all of those industries.
This year will be very important for us as we roll our products out internationally. As you know we've also launched portfolio in the U S. As well, which is one of the largest markets in the world. Obviously in a number of those species and we're seeing great receptivity from our customers and great uptake as they see positive trial results. So we're excited.
About the growth prospects of the market is a very large opportunity for amgen not only in the traditional markets of grain preservation or preventing mycotoxicosis, but also an antibiotic replacement as more and more customers more and more regions of the world removed drugs other pharmaceuticals like antibiotics and.
To pursue natural solutions. So we're very bullish about the opportunity for Amazon and for the industry itself as a whole.
Got it great and we've got some specific questions and I'm going to read so stay on the line.
Jon Bear geographically widespread avian flu outbreak in the U S. This year has resulted in the calling of large numbers of poultry flocks, but has not been widely publicized has this situation had a slowing or negative impact on the uptake of aniline products within the U S market as blocks are reestablished.
Or Conversely is this situation helped.
<unk> sales as those flocks are reestablished yes. Thank you. Thank you John Yes, it's part of the reason is not as widely publicized is that this is not an infrequent thing that happens every few years.
We tend to have outbreaks of avian influenza.
And specifically for H five N one which is the comment when we have here it's been very severe this past year or two as you know.
About a little over 47 million birds impacted and with avian influenza when that happens D. Population is really the only thing you can do and then re population as you know.
Not directly impacted our sales here in the United States, but it does cause some difficulty in travel.
When these sorts of situations are occurring there is corn teams that exist.
We limit travel to farms to customers and so that has made it a little bit more challenging but I don't believe has.
Really significantly impeded our ability to penetrate the market it doesn't increase our opportunity either our products are really not designed around a treatment or mitigation for avian influenza. So it doesn't drive our growth in that way, but the repopulation is very rapid.
Added states and frankly other regions of the world have very strong.
Ability very quick ability to repopulate their flocks theyre Hertz and so we're seeing that happen as the depopulation occurs so market's pretty stable, we're actually going to see hopefully some growth in the U S. In the coming year. So no it really hasnt impacted our business in a negative way.
Great. Thank you way, we've got a couple of questions all sort of aiming at the same things. So I'll just synthesize them one of them.
<unk>, what a recession, if and when it comes in the United States have on your business. As you know we are very domestically focused.
90% ish of our business occurs in the.
United States.
Maybe I'm a little high on that but it's definitely in the high eighties.
And so but the good news is that our products are primarily focused on pet food.
Food and renewables, all which are fairly recession proof.
Have been in the past, we've navigated past recession, very well if you zero in on the pet segment, which is our largest.
Business.
The market really bifurcated.
People, who are going to trade down to try and save money and then you actually if the people who go for Super premium innovation, because they're just afraid to make a mistake, but on the value side. Our brands are popularly priced a lot of them are OBP. The opening price point, where they are we are definite.
Ali.
Weighted heavily towards.
Retailers, who focus on value like Walmart and the dollar stores and so forth.
Then we absolutely have been leaning heavily into private label really our whole existence in cat litter, but lately with the advent of lightweight litter, we have a large share of the lightweight private label business in the United States, and Canada and as people trade down that will accrue to our benefit so not to.
Let's say that we are.
Im mindful.
A possible recession, but we don't feel it would have a real negative impact on our business and could possibly even create some additional opportunities. So good questions.
That covers that.
Let's see how about.
I'm just looking at the questions because we've got a bunch of we've got to pick one.
Alright.
Sure.
Can you give me a number for the total addressable market.
And.
On a more narrow.
Relating to am one by the way and a more narrow realistic manner than the broad numbers that have been bandied about and what our market.
Market share figure you were looking for the capture of that.
In the next few years way you feel comfortable covering that one yes, absolutely. So when we talked about the market opportunity.
Animal nutrition and health business, we've tried to.
Be clear in that it's very very broad the opportunity is very large across the world. There are there are different levels of market opportunity in the various world areas, but as we look at a market like grain preservation, which is kind of in the core technology.
Technology area that.
That amgen has pursued with or without <unk> minerals.
That's well over a $1 billion opportunity now we obviously don't we don't focus on the front end crops in the field are in storage.
Our products really are utilized in animal feeds to preserve the quality and flow ability of that suite, but there is a fairly significant segment. There we can target when we look at the replacement of antibiotics for the removal of other pharmaceuticals, whether it would be again antibiotics or even at our Cox videos.
It's a very large market around the world, it's been bandied about but that's closer to $5 6 billion now that has come down a bit as people have removed antibiotics, but it's still at an enormous market. That's the market that are formulated products can target, whether that's our our various product or our new product, we've launched neutral path and then here.
Recently.
<unk> space, our <unk> product. So there is a multibillion dollar opportunity now are we pursuing all of that we're focusing in world areas like the United States Latin America Asia right now we're not in Europe . So some of that is not available to us, but it's still a multibillion dollar opportunity as we look at <unk>.
Sure there is a lot of players in this space.
So if we conservative conservatively look at.
A 10% market share in time, obviously that would be a substantial business for Amazon and for oil dry we hope we can grow larger than that but that will take more additions to our portfolio and broader participation in some of these other markets were not focusing on today, but a lot of head space huge opportunity for the company.
As we grow our portfolio and demonstrate the efficacy of our products.
Great. Thank you Wade.
I'm going to ask you one more and then I have one for Chris Lambson.
Hi.
Second part of <unk> question, we already covered the first part is primarily but how is the <unk> participation in recent industry conventions, Tradeshows helped drive interest and awareness of its products.
Yes, Thank you for that Dan and I. Appreciate the question Ethan we had tremendous receptivity to this point you all are familiar with with what we did it at the international poultry Exposition last year.
Had a great showing and great interest in our products in our portfolio coming out of that you recently, we were part of the World Dairy Expo last week in Madison, Wisconsin, It's another industry sector, we're targeting on the dairy side.
Again tremendous interest we did I think a dozen interviews with the media.
A lot of engagement with customers, we're seeing are dairy market opportunity grow much faster than even we expected. So it's just demonstrating the support across species for our portfolio as we look out into the future. We will be again, having a prominent exposition at the international poultry show in January .
In Atlanta.
Worldwide show for Us.
And then again via IV in Asia in Bangkok in March which will really.
Supplement what we do at ICP and really gives us a global impact in the coming year, so great job by our marketing team and really raising the brand awareness of bandwidth.
Great. Thank you as a consumer question, Jessica maybe you'll take it first and Chris you can you can add some color to it a couple of questions around the same thing which is basically.
What can we do to grow the private label lightweight share in the United States and I'll add using Canada as a beta site, we kind of know how high is up there. So just maybe you talked a little bit about what's going on in Canada, and then what the share is in the U S. And then what things we can do to help.
Close the gap.
Thanks, Dan Yes, so we've seen a great case study in Canada, where our lightweight has significantly taken over the Mark and continues to gain share of the overall Canadian market.
We view that as a significant opportunity where our share within the U S is closer to 18% to 20% on.
The lightweight overall share of the market and we do a couple of things in terms of being able to really close that gap to Dan's point as Dan likes to say, who wouldn't switch to lightweight is priced where it's priced value were equal and quality were equal what consumer wouldn't want to switch to lately.
Right.
Cat litter, just given that key pain point of having to lift a heavy jug of cat litter to and from the store as well as in <unk>.
Your in your home and upstairs. So we view the key opportunity here is really being able to lessen that quality gap, which we continue to work on and continue to improve the quality of our lightweight cat litter as.
As well as to continue to offer our lightweight litter at a value.
What's being done at vertically integrated allows us to do so we see.
<unk> opportunity not only to increase the overall.
Penetration of lightweight cat litter, but also to continue to improve quality and improve that price value relationship. So that we can continue to bring even more consumers into the franchise.
Fantastic, Chris anything to add.
Okay.
I think its great answer just on Jessica as part of the only thing I would add maybe a little bit more tactically and near in and I won't name names. We have a case study recently, where we had a retailer that from a per use perspective is pricing their private label lightweight higher than their private label heavyweight.
Our sales team did a fantastic job analytically showing that customer that the economics of lightweight were so much stronger when you take into account. The fact that you can get significantly more products on the trucks.
We showed them that story kind of crawled into their financials as best we could.
<unk> hold there they've now align price them on a per use basis and the lightweight business. There is private label lightweight business is growing faster than ever so I think.
Jessica referred to value. It all comes down to value right you talked about product.
This guy on the shelf and we're looking to while we don't control that influences in that case study is a good example of that.
Great and then I would add sometimes it's better to be lucky than good and were both on this one because you know the global the global trend and then the specific joined in the United States towards ESG is only growing and that Genie is not going back in the bottle and if the whole United States converted the lightweight.
Can reduce the carbon footprint by about 40%, which is huge and I know using the liquid detergent switch to concentrate.
I've referenced before in the past that's what gave US the idea for lightweight they took water out of the formula So that they werent shipping water all over the place when the consumers have plenty of water in their house and they were able to reduce the carbon footprint by about two thirds and once Walmart saw that it was here to stay and working they actually.
<unk> force the retailers to convert they basically just said we're going concentrated a new either you have 12 months to reformulate or youre going to be off our shelves.
And because we're going to we're just behind us.
And I would love, a Wal Mart or somebody else jump in.
With lightweight they look it's clearly here to stay there is no excuse for shipping all this weight.
And by the way the heavyweight all comes out of the northwest So youre talking about the primary market for cat litter of the northeast southeast.
There is no sodium bentonite.
Eastern Wyoming pretty much.
So our plants are strategically located and I think if you factored in the freight.
Probably even get a greater than 40% carbon footprint reduction.
The reduction so anyway, we're very bullish on lightweight we believe it's a perfect alignment of what's good for oil. Brian is also good for the retailer. It's also good for the consumer and it's also good for the environment, So everybody wins.
Time I wanted to thank everybody I do like this format, we are able to answer more questions stay more focused.
And we will be back.
For the first quarter of fiscal 'twenty three.
Let's all keep our fingers and toes crossed but the momentum we showed you in the fourth quarter carries over into the new year.
Thank you very much be safe take care.
Okay.
The conference will begin shortly.
As Johan during Q&A, you can dial one one.
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