Oil-Dri Corporation of America (ODC) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Oil-Dri Corporation of America third quarter 2007 earnings conference call. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of today's conference. If at any time during the call (OPERATOR INSTRUCTIONS).

I would now like to turn the call over to your host, Mr. Daniel Jaffe, President and CEO. Please proceed.

Thank you, and welcome, everybody, to our third quarter teleconference. I will introduce who's all in the conference room with me and then, as always, Ronda will do our safe Harbor. So we have Andy Peterson, our CFO; Charlie Brissman, our Vice President and General Counsel; and Ronda Williams, who does all of our Investor Relations work. So, Ronda, will you --?

I'll take it away from there. Comments on today's call 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 our SEC filings, we highlight a number of important risk 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 Dan, back to you.

Great, thanks, Ronda. And as always, we will have some introductory comments and then we really want to spend most of the time responding to any questions and concerns you have, so we will open it up to a Q&A. I do encourage you to prioritize your questions, put your most important ones at top. And then after you ask your question, go to the back of the queue, just to allow other people to ask their questions and then they can get on their way if they don't want to stay for the whole call.

So I would like to turn it over to Andy, who will give you a play-by-play of the quarter. Andy?

Thanks, Dan. Sales of $53 million for the quarter were up 2% from last year's $51.8 million; higher average selling prices offset lower volume. The higher selling prices in combination with our cost reduction efforts led to a gross profit margin of 21.8%, which was up 2.4 points from 19.4% in last year's third quarter. High margin in the quarter was still considerably less than the 23.3% we achieved in fiscal 2004.

Operating expenses in the quarter increased by $1.1 million in comparison with the prior year, to 16.1% of sales. This was due to an increase in the incentive bonus accrual, higher audit costs due to SOX 404, and stock based compensation expense.

EPS in the quarter was $0.28, up 65% from last year's $0.17. Through the first nine months of fiscal 2007, operating cash flow was $10.1 million, up from $3.4 million in 2006 comparable period. We finished the quarter with cash and investments of $24.9 million compared with $26.8 million at 4/30/06. Notes payable was reduced by $4.1 million in comparison with the prior year. Dan?

Other than that, did we have any positive news in the quarter? Very good quarter, very positive. I will add a little color to Andy's play-by-play.

You know, we point out in the release that while our gross profit margins did come back the kind of way we predicted they would, they're still lower than they were a couple of years ago. And so we are still fighting our way through the ripple effect of the increase in natural gas and oil and diesel costs that affect not only the drying of our clay but a lot of our packaging material, which is, in many cases, petroleum-based. Our freight, which is the single largest cost of goods sold for our product -- a delivered cost of goods sold, the freight is. We sell a high-density, relatively low value product, but that is also, as those of you who are long-term holders of the Company know also a benefit, not just a curse in that it helps you define pretty clearly who can and cannot compete with you because of the geography involved.

You've get some great moats around our business, specifically the Pacific and Atlantic Ocean, for about 90% of our volume. Those are pretty good-sized moats, and definitely is why we have been so effective on our strategy of strategic pricing, of trying to understand where we have relative if not absolute advantages against competition, and then trying to communicate that value to our customers and then sharing that value. And obviously, that's playing out in the bottom line, which feels good.

We had some questions e-mailed into us and, as always, we're very cognizant of Reg FD. So I do not talk to investors in between teleconferences. I do hold an investor lunch in New York, one in Boston and one in Chicago each year, and you're welcome to ask Ronda when those are if you live in those particular areas. But every so often we get investors who e-mail in some questions. And so I have some viewer mail, as it were, and I'd like to go and try and answer a couple of those questions.

The first one was about biodiesel and how our products could be used in the biodiesel process. I'd mentioned on the last teleconference -- I'd sort of cryptically referred to the front end and back end of the process. And one of our investors asked could you expand on that a little bit and educate them. It was a good opportunity for me then to go to our guys and figure it out as well, because frankly, I didn't know what the difference was either. And it's pretty simple.

Biodiesel process basically uses a feedstock or feedstocks and then you have a reaction. And then they will have some input type products, some additive products, including products that we might sell, into the process. So that's your biodiesel process. The front end means before the reaction. The back end means after the reaction, and it's that simple. So, the front end of the process prior to the reaction, our products would be used in the purification of a feedstock to take something out -- metal, soap, something that our product has a natural affinity for.

On the back end of the process, our product would be used after the reaction, so it would be used in the actual purification of one or more of the reaction products. One of the finished products have something else in them that they want to remove, and they have various ways of doing it. And our products actually help them eliminate a waterwash process and simplify their process for many of the biodiesel manufacturers.

So, so far we are getting a lot of receptivity at the biodiesel plants. It's a good trend for our business. We get to sell our higher margin, higher value products and share in that value. So, it's been a good thing.

The other question that came in was regarding SOX, Sarbanes Oxley, and specifically could we break out the extent of what these incremental SOX costs are likely to be, especially since we are now what's known as an accelerated filer because our market cap went above the $75 million threshold.

So, Andy, you want to field the SOX question?

Yes. In terms of -- I mentioned in my comments that our audit costs have gone up because of SOX 404 this year. On a year-to-date basis that was approximately 400,000, and that included about 200,000 in the third quarter.

Great, so we've done our introduction, our color, our play-by-play, and now our viewer mail. That's where the parallels with Letterman end. We will have no stupid pet tricks on today's quarterly news conference so -- but [Tonya], we will have a Q&A session. So if you wouldn't mind opening it up and we can answer any questions our investors have.

(OPERATOR INSTRUCTIONS)

We may have no questions. This would be great. I mean, we answered it all in our news release.

There are no questions at this time.

Well, great. I think coinciding this with a holiday weekend probably has something to do with it; which was coincidental again. I know everyone thinks we try and do this and we really don't. But I hope it also is an indication of a couple of things. Number one, the results are very good. And you tend to get a lot more scrutiny and questions when things aren't going so well. And number two, we tried to put as much meat as we could in the press release without giving away our trade secrets and so forth.

So, great, we're looking forward to our fourth quarter, which ends on July 31. That will be our year-end. And we'll be back with you in September, in three months -- or that's a little more than three months -- four months, 3.5 months. So, thank you very much, everybody, and have a happy and safe Memorial Day weekend.

Thank you for your participation in today's conference. This now concludes the presentation. You may disconnect. Have a great day.