Oil-Dri Corporation of America (ODC) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen. And, welcome to the Oil-Dri Corporation Second Quarter EarningsTeleconference. My name is Maria and I'll be your coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn today's presentation over to Mr. Dan Jaffee, President and CEO. Please proceed, sir.

Thank you, Maria, and welcome everyone. Let's turn it over to Ronda for our Safe Harbor.

Thank you, Dan. And I would also like to welcome everyone to the second quarter conference call. On today's call comments will 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 our SEC filings we highlighted a number of important factors, trends, and uncertainties that may affect our future performance. We urge you to review and consider those factors in evaluating the Company's comments and in evaluating any investment in Oil-Dri stock. Thank you, and again with that I'll turn the call over to Dan.

Thank you, Ronda, and joining me today along with Ronda, is Andy Peterson, our CFO and Charles Brissman, our General Counsel. So if and when you have questions for them, they'll be here to field those as they arise. Before I turn it over to Andy for our usual quarterly and six month play-by-play, I'd like to put a little color to the quarter and the six months.

Frankly, we're very pleased with how things turned out both in the quarter and then at the halfway point. When you put into perspective all of the turmoil that was - - the world - - well really the domestic fuel markets were thrown into with Hurricanes Katrina and Rita, right as our fiscal year started, you know our fiscal year begins August 1. And that's right sort of straddled the two hurricanes. It was anybody's guess as to how the first six months would turn out. A year ago we made $0.57 in the first six months. And we spent incrementally just on processing fuel, this does not count the fuel to haul our clay to our plants or to then ship it to our customers. Just to process it through our dryers, we spent and incremental $0.54 a share in the first half.

So you just do some quick math, say okay, you made $0.57 last year. You get hit with two hurricanes right at the beginning of the year, you're going to spend an extra $0.54 in the first six months to process your clay. How much money will you make? You'd pretty much start at $0.03 and then do some math from there. Well okay, I've got some positives, I've got some negatives like freight and so forth, but I'll tell you, this was really a testimony to the team - - the senior management team on all fronts. On the manufacturing side, on the accounting and finance side, and then most importantly on the general management business unit side for being able to embrace the information, get that information into a coherent format,get it out into the salespeople's hands, get price increases out into the street in such a way that we didn't overreach. We're in this for the long haul, so we didn't want to put any of our business in cardiac arrest. But we didn't stick our hands in the sand either. So to pull in at six months at $0.50 a share and feel like we have a lot of momentum in the back half as price increases are still coming, we are real happy with the six months, and are still real confident about our prospects for the balance of the year.

A lot of this speaks to what we have been striving for for many years, and have at least historically been able to achieve the last three to four years, which is some sort of predictable earnings pattern. And I went back and looked, we just completed our 17th consecutive quarter of year-over-year increases and our net sales price per ton. That means we have been able to, either through mix, or through price increases, or really a combination of both, been able to get more for each pound of clay that we ship out for over four years now. And the quarter we missed we only missed by $0.05 a ton. And every quarter we've hit since then, we've hit by at least $5 a ton, roughly, and some as big as 8 and even $10 a ton.

So that really speaks to our ability to have a sustainable place in the markets in which we serve. nd the somewhat in-elastic demand that has occurred because our sales have stayed flat from a volume standpoint. Pretty much 1 million tons a year. But now if you go back to the beginning of that run - - of that streak of 17 consecutive quarters, our average selling price was $158 a ton. We're now up to just a shade under 200. So we've added 41, 50-ish a ton on a million tons. It's a big deal.

It compounds out at 6% a year of improved selling price/mix or just simply in that four-year period, we have grown the average selling price by 26%. Which is, again, I think a real positive. Again it speaks to the long-term sustainability of Oil-Dri that if there is value in sorbent minerals, then Oil-Dri is certainly a company that is best positioned to benefit from those in the public market. So it feels good at the six month point. We're still very confident for the back half.

I'd like it turn it over Andy. I hope I didn't steal too much of his thunder. I tried to avoid his thunder because he's got a lot of good things to share with you.

Thanks, Dan. I view our second quarter results as very strong in light of the continued difficult environment brought about by the dramatically higher fuel costs. We had record sales for the quarter of 53.963 million, up 9% from last year's 49.481 million Gross profit as a percentage of net sales for the quarter was 19.6%, down 3.8 percentage points from 23.4% in fiscal 2005's second quarter.

The trend is positive, however, as the gross profit percentage was 2 percentage points higher than the first quarter of fiscal 2006, reflecting higher average selling prices. The lower gross profit percentage was largely offset by a 730,000 reduction in second quarter operating expenses in comparison with last year. 500 of this was - - 500,000 of this was due to Sarbanes-Oxley Section 404 Readiness Efforts in last year's second quarter.

Net income in the quarter was 1.867 million with EPS of $0.32, down from last year's $0.36. Last year's EPS would have been $0.02 lower if stock option expense had been recorded like it was this year.

Looking at the balance sheet and cash flow, in the first six months of fiscal 2006, the company bought back $1.826 million of common stock and paid out 1.165 million in dividends. As a result of the company's continued efforts to buyback stock, fully diluted average shares outstanding for the second quarter were 188,000 shares lower than in the prior year. This positively impacted EPS in the second quarter by $0.01a share. Only 455,000 of cash was provided by operating activities in the six-month period ended January 31, '06, because of the $7.469 million increase in our accounts receivable and inventory from 7/31/05. This was due to the 17% increase in sales in the second quarter, compared with the fourth quarter of 2005. This comparison of quarterly sales is relevant because the six-month statement of cash flow reflects the changes in balance sheet items at January 31, '06 and 7/31/05.

Capital expenditure additions in the six-month period of 4.624 million were 1.017 million in excess of depreciation and amortization. The excess approximates the amount which was incurred in the first quarter on a land acquisition, which expanded the company's mineral resources.

We took advantage of favorable market conditions to close on $15 million of senior unsecured notes in the second quarter. The notes have a final maturity and ten years and bear interest at 5.89%. Proceeds maybe used to fund future principle payments of the company's debt, acquisitions, stock repurchases, capital expenditures, and for working capital purposes. Cash in investments at January 31, '06, were 29.485 million up from last year's 20.071 million

Back to you, Dan.

Great. Thank you, Andy. And as always, we like to spend the majority of our time responding to the things that are most important to you. So Maria, at this time, I'd like to open it up to Q&A. I would like to encourage everybody to prioritize your questions. Ask your most important question first and then get back into the end of the queue so we get to everybody at least once. And hopefully we'll have a change to get to people two and three times.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Blaine Marder with [Lowe] Partners Corporation. Please proceed.

Hi, guys. Question on the pricing. You say you have more pricing increases coming in the back half of your fiscal year. Now how sticky are these price increases here with natural gas coming off sharply?

When you say natural gas is coming off, but the way we look at it it's still significantly higher then it was a year ago. And when we went into our forward-buy program a year ago, we were buying around 770, I want to say, in MMBTU and right now if you play it out exactly as the markets are today, you'd be at round 9-ish. So it's still almost 20% higher than it was a year ago. And the point that we're making to our accounts is that, we didn't price you to the highest points of Katrina and Rita and now we're having to back down. We took a very long-term approach.

So, I expect the price increases to be very sticky because they're still, as you can see in our margins, our margins are still lower than they were a year ago. That would then speak to the fact that our costs have gone up faster than our prices through six months.

However, we do have a function of fuel surcharges where we charge people an incremental fuel cost depending on the diesel. And to the extent that starts to come back down and level off, those fuel surcharges will go away. But so will the cost of freight. So from my perspective, until the margins get back to where they were, we have a pretty strong story to tell saying that costs are still out in front of the price increases.

Okay. But as we get further and further into your fiscal year, that will certainly abate on a year-over-year basis?

That would be great. That would mean we're back to the 23% gross margin level. Which is sort of where we ought to be.

Okay. And then as we look into fiscal '07, things would stabilize. Where if natural gas stays low, your price increases stick. We kind of start to stabilize on a gross margin? Is that fair?

Well that's certainly what we're shooting for.

Okay. And then finally, with the debt that you took on, you have $30 million of cash sitting on your balance sheet. I know you put some boiler plate language in there. But your thoughts as to what you're going to do with that. I mean is it acquisition-focus, share repurchase, or pay down other debt?

It's really all of the above. Certainly we're going to continue to remain disciplined. We're always looking at strategic acquisitions if they come up. We'll be ready for them. Obviously, there's nothing pending or we'd be making a statement about it. But its just sort of the generic, we're always looking.

And I think as we either pointed out or should point out, if we end up doing nothing, I think we pay off about $7 million of our remaining note of the 6.55% and so have replaced some 6.5% short-term maturity stuff with some 5.9% longer term maturity, which over the life of that, there will be plenty of opportunities to invest in. So, we're remaining disciplined. Just because we have it in our pocket, it's not burning a hole. We're not going to stretch.

Okay. And then on the share repurchase, I've always been curious as to why, given the limited float of your stock, you choose to repurchase stock in the open market. So maybe you can expand on - - is that just going to be an on-going program, kind of $1 million a quarter, will you be more aggressive or less aggressive and your thoughts around that.

Okay. I'll answer it, but then you've got to get to the end of queue and let other people ask questions. I appreciate you have a lot of good, and interesting questions. But let's let everyone have a chance.

We will continue as - - I don't know what our current authorization is. I don't know if anybody - - about 500? 500,000?

600,000.

600,000 shares. Certainly we're going to continue to try and fulfil that authorization. If and when we're able to do that, we'll assess that at the Board level as to what our next move is.

Thanks.

Thank you.

Your next question comes from the line of Jack Ripstein with Potrero, please proceed.

Hi, good morning. I don't know you touched on this at all in the balance sheet review. But it looked like cash flow was down. And it looked like mostly from working capital changes. Could you tell us what was different this quarter than say past years, at sort of the mid-way point and was it timing, or just kind of what's going on there. It looked a little bit different than historical trends.

I think as I commented in my comments is the - - basically our receivables and inventory were up 7.469 million from - - in terms of a deduction from cash flow. And that was the increase from where they were at 7/31/05. What's different this time is in our second quarter just ended, our revenues are 17% higher than our revenues were in the fourth quarter.

So when you're comparing inventory and receivables in the fourth quarter of '05 with where they are today, our sales are 17% higher. So, therefore, your receivables and inventory are going to be approximately 17% higher. So again, we have not had a sales increase in a comparison like that of that magnitude. As we're rapidly ratcheting up of our selling prices to get ahead of our cost increases, the same thing is going to be happening in our receivables and the same thing is occurring in our inventory in terms of the cost of our product.

Yes. A big chunk of the inventory is fuel. The fact that the same amount of MMBTU's to dry the clay goes into it as went into it a year ago. But the cost of that - - of each MMBTU is up significantly.

Mm-hmm. And on the receivable front , was it that a lot of the orders were sort of end of - - so the collection cycle, is it longer, slower?

No, no.

Just timing?

Yes, again our sales are 17% higher.

No, I understand. But you still have the same sort of level of - - it's a ratio, right? So, I'm just trying to figure out the - -

What ratio were you looking at?

Well, I'm just thinking of the timing. It seems to me like that has always been more of a timing cycle that produced the cash at a different point in the six-month cycle.

Well, again, in terms of our receivables come from the quarter. So in the second quarter that's the driver. And if you compare that with the fourth quarter, that was the - - the fourth quarter sales were the driver in the 7/31/05 balance.

Mm-hmm.

Our sales are up 17%. You would expect our receivables to be up and our inventory to be up 17% versus where they were at 7/31/05.

Okay, okay.

We've seen maybe a day slippage.

Yes, it could - -

But it hasn't been anything. That has not been the driving factor. It's been increased sales.

Right. Okay. Thanks.

Your next question comes from the line of Ethan Starr, Private Investor. Please proceed.

Good morning, Dan.

Hi, Ethan.

How much of the sales growth in the Q2 was organic and how much due to price increases to cover energy costs?

You know, it's hard always to break it out because the other thing you get is you get mixed changes. Where we sell some of the higher priced stuff and some of the lower priced stuff. So it isn't a perfect science to try and nail it down. But - - I'm just going to run a quick number here and then I'll - - I would say that about 4.5 to 5% of the 7% increase we showed in our per unit price increase came from price increases. And that certainly the contractual stuff that went into place right away. And the - - where we had the ability to get price increases right away, we did. We have a lot of price increases coming online February 1, so you're going to see another jump again. But, year-over-year now we are - - our average selling price a year was about 187. We're up to almost 200 now. So that's a $13 a ton increase. And certainly more than half of that is due to price increases.

Okay. How is the new Precision Products group doing? Are sales of the products that were shifted to that group from other groups doing better now that the products are getting more attention?

Yes, I mean it hasn't been, "Oh, now that we formed the group, all of a sudden they're rocking and rolling." But I'm getting a lot of feedback from all the team. They love the focus. They were sort of a stepchild for years. Sort of buried in the numbers of other divisions. And now they're putting together strategic plans, three-year forward focus. They've got quarterly goals, they've got - - and they never had them for these businesses before because it was just too small as a percentage of what their managers were focusing on.

So I would say the benefit is really going to pay out over a longer period of time than just this first six months. However, we have seen and I'm sure it will come up in the call, so I might as well break into jail here. On the BA-1000 our ceramic - - our porous ceramic additive for the brick-making industry, we have seen real improvement in terms of getting trials, putting on accounts, and momentum building. So much so that our team there, the Precision Products group, are having now to work with the planning and forecasting folks to make sure that all of the volume is there going forward.

It's no longer just sort of a nebulous pipe dream. Now they're able to put accounts, names, usage, weekly usage things like that together. And a likely adoption rate against it. And so we're putting actual forecasts. Having said all that, from an investors point of view, not real material for '06.

I would hope that by the fourth quarter, I'm able to give you a run-rate that would be material for a Company our size for '07. That would be a great thing to be. If it happens to be a little later, I'll fall back on my usual disclaimer that this industry moves very slowly. Which is both frustrating on the adoption side, but we're hoping is very encouraging that once they adopt they would move equally slowly to move away from the technology. So,again I've got to put disclaimers around anything. But I'm hopeful that by the end of this fiscal year, we're going to be able to give you some feel for what it could mean to '07.

Okay. That sounds good. But it's nice you're getting trials, but how about actual sales?

Well, the good news is we've never lost an account. We still have our existing account. In the quarter we put on our second account, and this account is buying repeats, every week we ship them truckloads.

We have tests in the third quarter with all the big guys. And, we're not even dreaming in color to think we'll convert all three of them by the end of the year. But certainly we would like to convert one of them. And that would then kick into a real material usage.

So the good news is, we have two ongoing, buying customers who are very happy with the product, they're increasing their usage into more of their product line. And so the momentum is certainly forward, but, maybe not at a glacial pace, but fairly close to a glacial.

Okay, thank you.

Thank you, Ethan.

[OPERATOR INSTRUCTIONS] Your next question comes from the line of Robert Smith with Center For Performance Investing. Please proceed.

Good morning.

Hi, Bob.

Could you give me a little more color on the financing. What kind of a time horizon are you looking to put that money to use? And what lead to the decision to move now?

You know, it was opportunistic. I think we all felt that rate, and nobody has a crystal ball, but that rates had more room to go up than they did to go down. So, under the old bear's, bulls, pigs theory, we decided not to be piggy. And the good news is because you have sort of this inverted yield curve, or maybe it's flat now, I'm not an economist by any stretch of the imagination, the - - our ability to invest the unused funds on a short-term basis is giving us a very small negative spread. Which is very interesting and sort of a hidden benefit and certainly takes away some of the pressure to feel like you got to immediately put this cash into use if you haven't yet found the right use for it.

So, it was opportunistic. It was a chance - - our old debt is at 6.5%, 655, this is at 589. And it - - that pretty much was it. Does that make sense?

Yes. It's a very interesting move on your part. et me - - if the so-called yellow brick road really begins to move strongly, how much of a capital addition would you need, or infuse, to really have a meaningful number for production?

You know, the best way I can answer that, is the more capital there, is the happier I'm going to be. Because at the moment I'm thinking there's none. Because what I'm doing is - - we can make this in our existing facilities. And because it's a higher margin product, it is displacing, and will displace, lower margin products. However, before we - - we're not going to walk away from business. What we're going to do is go to the customers and give them a new price. And If they still want the goods, that means then we'll put in capital to support the old stuff.

But we can make all of the BA-1000 we need to make out of our existing facility. So, it's sort of a round about way of saying if we actually come to you with some sort of big capital expansion at these plants, that will be a good news story. Because it will show that there was more price elasticity in the old products then we knew about.

And if I'm not mistaken, I think you said on the last conference call that you were - - had contact or were working with a - - something with about a dozen producers, is that accurate?

I - - a dozen plants. I mean you have got three major guys in the industry. And they all have multiple plants. So we've got about, yes, a dozen plants in what we would call our blue zone, the zone closest to around our plants that make the product. bAnd figure let's start there, because freight will be the least, and shipping times will be the quickest. And so let 's start there and then move out, sort of - - in concentric circles, just keep moving out and out and out.

Okay. I'll get back in the queue.

Okay. Thank you.

Your next question comes from the line a follow-up from Ethan Starr, Private Investor. Please proceed.

Yes. I'm just wondering if you've gained any additional retail distribution for the automotive and industrial products recently?

Sounds like you've spotted something in your retail audits. We are - - we continue to do well with Wal-Mart in our industrial and automotive, and in fact, we're working on some new SKU's with them. They've taken on some some of our light sorbents, and that's good. So our Wal-Mart partnership is continuing to do well for us. Is there anything in particular that you were focusing on?

No. Just wondering. I know there's certainly effort there. And just, it would be nice to see more get out in the retail shelves.

You know, the big thing to look for because we've mentioned it on other conference calls, we did roll out during the quarter, the new Odor Eaters Cat Litter. At PetSmart, right now, they're in displays. I encourage any investors to, if you see a PetSmart, pull over and look, and get a feel for how they're displaying it, how do the prices compare. I'd be happy to have you e-mail me or Ronda with any kind of a retail data you can feed back. Because what we're saying is the initial sell-through is good. They're happy with it through the register at the moment. But it's really at the beginning of that process.

Okay. Any progress in second quarter and further reducing your manufacturing costs for cat litter or just generally?

You know, we're doing pretty well. When you back out fuel, the manufacturing guys are really controlling things. We've got our tons per man hour is moving up. We have less people packaging more tons. We use automation, robotics where we can. But unfortunately, or fortunately, all of that gets dwarfed by fuel. I mean, that is the single largest piece.

There's almost nothing they can do to offset that. They can certainly defray it, and they are. And I'd say if anything, I was very encouraged that we were able to respond and take these fuel increases, which are undeniable and easily supportable, and use those to justify incremental price increases. And were able to get them. So things from on the manufacturing side are good. But nothing - - we're not seeing costs go down or anything.

Okay. So throwing more money at it would not necessarily make - - help you lower your costs?

We do it where it makes sense, and we have been doing it. Certainly the lines that can run two, hopefully three shifts, you can automate. If you're not really at that level, then automation doesn't pay. nd so we've been able to use automation at some of our high-speed areas, and it's been very beneficial.

Okay. So it sounds like there's not much more to cut your costs there.

Oh, there is. But it's not - -

Right.

- - it's just opportunistic stuff. It's certainly not going to be where the $15 million is going to go or anything like that.

Okay. What rates of interest are you earning on your cash on investments?

About 4.2%, 4.3. Primarily investing in short-term treasury bills.

Wonderful. Okay. Glad to hear that. Another question. I was looking at your consumer packaged goods recently in the grocery store and I notice that Oil-Dri's status as a public company is never mentioned on your packaging. Have you ever considered putting like NYSE:ODC, in small print, next to the Oil-Dri name on your packaged goods?

I don't think we have. But I think it's probably a good idea. I'll pass it along to the group. I'm sure what the bag runs come up, that's easy enough to do so.

Okay. It doesn't say big letters, just small letters.

Right.

But just - - I guess it's the Peter Lynch theory of investing. If you like the product, you might love the company and the stock.

Right. I like it, good.

Okay, thank you very much.

Thanks, Ethan.

Your next question comes from the line, a follow-up, from Blaine Marder with Lowe Partners Corporation. Please proceed.

Hi, guys. Dan, I guess in the two years I've been invested in your Company, I for the life of me, have been trying to figure out why your stock trades where it trades. I mean as cheaply as it trades. And I think what it comes down to is the ROE.

And I'm just looking at your 10-K here going back to '96. And the ROE has never really been above 10%. And your focusing using on the E, which is good. You're buying back your stock which will help the ROE. ut the other side, I think, stems to your operating margin, which another caller had hit on.

Now as we normalize natural gas here coming into '07, I mean, do you think the operating margin can expand? I don't know that it's been beyond 6%, correct me if I'm wrong please. But do you think we have a chance at the 6-ish% in '07? Do you hear what I'm getting at?

I definitely hear what your'e getting at. I think - - who knows. We've got to put our qualifiers over everything. But I think another thing that I thought you were going to touch on the ROE because you talked about the E in terms of reducing the equity. But it's also increasing your leverage, which is what this debt was all about. To the extend we can find value-added opportunities to employ that debt, then you should see the ROE go up.

I mean if your R is going up and your E is going down, then the ROE ought to be moving in the right direction. Where it's going to be specifically, I don't know. I think - - you could actually look back if you wanted to in' 90, 91, when the stock hit its all-time peak, and that certainly was the high water mark. And it was well north of 10%. But you're right, since '96, it hasn't been. Andy, you've got - -

Yes, I mean, I think the more important maybe than the absolute number is go back to 2000 and compute the ROE for 2000, 2001, 2002 through 2005, and what you will see is a continued upward progression in ROE. And so if we can - - if you draw that line and you continue that line into the future, it's going to look pretty good. So I think we just have to keep doing what we're doing year after year over the last five years.

And Blaine, your comments are right on. I mean whether or not this correlation is what's causing this, who knows. But I'm looking back at our year-end news release, showed the five-year trend on ROE. And it blipped down a little bit from '01 to '02, as did the stock price at July 31. Went from 8 to 7.50. Then it went up to 4.5% in '03, and the stock price closed at 11.95. Weekend up to 7.1% in '04 and the stock price closed at 16.39. And it went up to 9% in '05 and the stock price closed at 18.03. So clearly there's a correlation between the ROE and the stock price and - - so, your points are well taken.

Okay. And just finally the way you break out your business segments now. Is there something structurally - - or what is it structurally about retail and wholesale that it has a lower margin? Is that the industrial side of the business and what can you do there, if anything?

Yes, I think what's structurally - - we've come to the conclusion on, and it's - - I can't say it was a huge Epiphany, but it certainly took us awhile to figure was out, was that where we have to rely on consumer marketing, where we not only have to have not a only a good product with good features benefits at a good price, but we also have to try and communicate to more than a handful of buyers, i.e. -- potentially hundreds of thousands, or millions of buyers, we just don't do very well. I mean, we just don't. They either don't get the message because we can't afford to bombard them with it enough. Or,the message isn't clear enough, and frankly they don't care. And so we just don't do as well.

On the B-to-B side, where we have the same quality products as on the retail side, we've got the same good competitive pricing, unique points of difference, but now you only have to communicate to maybe five or ten people to make a difference. I mean, ou're calling on ADM and Cargill and the Bleaching Earth. Or you're calling on any of the big guys for the bricks or you want to go - - any of our divisions, Monsanto and Bayer for the ad carriers. You convince one person, they see the data, they test it in their labs, they're all happy. They give you an order for 10 or 20,000 tons. I mean that's - - we do a lot better.

We're not a drip drip business, we're a glug, glug business. And we just want to be able to ship rail cars of stuff to people, and not 10-pound bags. And so it's really that segmented. It's -- we need the cat litter business. There's no question the highest volume area helps support the light bills and everything else we do. But we do a lot better as a company when it's on the B-to-B side.

All right. Thanks a lot, guys.

Blaine, thank you.

There are no more questions at this time. Ladies and gentlemen stand by for your next question.

Maria, we're confused. You said no more questions, but then stand by for your next question.

Yes, I was giving others a chance to queue back up.

Oh, got you, got you.

All right. Your next question is a follow-up from the line of Robert Smith with Center for Performance Investing. Please proceed.

Yes. I believe in the last conference call, although you didn't give a number or range for the year, you did say that you felt a cha - - you had a good shot at making up the difference of the shortfall in the first quarter. Looking at the second half, do you still feel that way, that you have a good shot of having an up year?

Oh, I mean, we really want to get out of the earnings guidance business. I think we've given you enough information. I've certainly conveyed my optimism for the second half. I'm - - you're just going to have to draw your own conclusions. I'm going to to duck that question, because it's going to look too much like earnings guidance.

Okay. Well I thought you spoke to that at the end of the first quarter. That's why I brought tup. Anything happening in Camturder?

Nope. No new news in Camturder So are they in need of additional funds or are they okay as a going concern? They're certainly okay as a going concern. They take whatever money as an operating company they make and make healthy margins. But then they plow it right back into R&D, because that's always been John's love in finding new applications and new opportunities. And so they're treading water and, just to remind newcomers to the call, our investment in Camturder on our books at zero. We wrote that off years ago. So, even if they weren't doing well as a going concern, it's not a big concern to us. I mean it can only really be upside at this point.

Are there any areas that you're wary of for the second half that might have negative implications?

You know, just the usual paranoia. Because, you just don't you know. But our volume is coming in stronger. Our tons were up 3.6% in the first quarter over a year ago. They were up 2% over the second quarter from a year ago. So that's the first time in almost two years we've had back-to-back quarters of increased tonnage. We're actually budgeting to do better in the third and fourth. So that could be another record I'll be talking to you about, but that could be four consecutive quarters of increased volume if we do it. So if the volume comes in, that means - - and the prices are there, so that means the pricing held, then, barring another crazy run-up in fuel that's completely out of our control obviously, the second half ought to be pretty good.

Mm-hmm. And you'll - - is it fair to say that you'll be active in the buyback in the second half as well?

Yes. I mean to reaffirm what I said, yes, until that authorization is used up, we're not taking the pedal off the metal. We are restricted by all of the rules that you can - - over average trading volume, can't be like the first trade, the last trade, and all this kind of stuff. So obviously the more stock you guys go out there and buy and get that average trading volume up, the more we can buy as well. So that would be a good thing.

And a dividend increase. You continue to think along the lines that we have been thinking about.

Yes. We look at that pretty much every October. I don't think we'll look at it before then. I don't expect that we will. But I would be surprised if we didn't look at it again in October. So I think you can kind of look for that.

Okay. Thank you.

Great. Thanks, Rob.

Currently, there are no more questions. I will now turn the call back over for Mr. Daniel Jaffee.

Great. Thank you. Thanks, everyone. I appreciate your questions. I think this format is excellent because it makes sure that we're responding to what's top most in your radar screens. And really what we all want to be seeing is the volume come in, the pricing hold, the margins get back, and it's going to be a good year.

Once again, this is the ultimately tortoise company, and the tortoise won the race. So we never apologize for being the tortoise. But we look in very large chunks of time. And we measure progress in large chunks of time. I'll tell you, it's part of the reason why the first half was down a little bit over last year as we said, look, we're not going to over react to Katrina and Rita.

Yes, if gas stays at 15 or 18 or I think it even traded as high as $20 in MMBTU at one point for one day, or something. Sure, we're going to have to price our products accordingly. But let's just all take a deep breath, let some time go by and see where it settles out. Well I'm glad we did that because we didn't shock our customers. We didn't lose volume, our volume was up in the first half.

And so, we're always going to take a long-term perspective of things. We believe it's sort of - - I think it was Andy who told me this - - he attributed it to, I think Warren Buffet, which is the idea you buy the stock, you throw in a drawer, and you look at it again in three or five years. And that's sort of the company we are. And fortunately the last three to four years that strategy has worked. And our goal is to make that strategy work in the next three to four years. So we look forward to talking to you again at the end of third quarter. Until then, stay healthy and thanks very much.

Thank you for your participation in today's conference ladies and gentlemen. You may now all disconnect your lines. Enjoy your day.