Oil-Dri Corp of America Q3 FY2024 earnings call

• Dan Jaffee noted net income through nine months was $30.901 million, more than any prior fiscal year. - Susan Kreh walked through financial results, including net sales, gross profit, and discussed the acquisition of Ultra Pet Company, Inc. for $46 million on May 1, 2024, financed with cash, notes, and credit facility. - Chris Lamson discussed Ultra Pet's fit into the crystal cat litter market, its strategic and cultural fit with Oil-Dri, and how it complements the existing litter business. - Wade Robey talked about animal health products, noting challenges with avian and African swine fever but also the general benefits of Oil-Dri's products for animal productivity. - Bruce Patsey highlighted continued growth in the renewable diesel market due to new plants being built. - Laura Scheland, Chris Lamson, etc., contributed to various aspects of the business operations and acquisitions.

Consolidated net sales for the third fiscal quarter of 2024 reached $106.8 million, a 1% increase year-over-year. Higher prices and improved product mix partially offset lower volumes. Consolidated gross profit was $30.1 million, a 10% increase year-over-year, with gross margins expanding to 28% from 26% in the prior year's same quarter. The Ultra Pet acquisition strengthens Oil-Dri's position in the crystal cat litter segment, which is experiencing rapid growth.

• Confident in continued growth in renewable diesel market over next 2-4 years with new plants. - Expect Ultra Pet acquisition to be accretive from day one. - Dividend increased by $0.02 per quarter and $0.08 annually, showing confidence in future. - Still has dry powder for potential future acquisitions if the right deal comes along.

• Actual results may materially differ from forward-looking statements. - Risk factors from SEC filings that may affect future performance. - Geopolitical risks in supply chain for co-manufactured products in Ultra Pet's crystal litter business.

Q: Given the inflation of the last couple of years, is there any evidence that more consumers are switching to private label cat litter?

A: Chris Lamson answered yes, private label is showing the greatest share gains in the litter category.

Q: Are you experiencing any headwinds of sales or adoption of your animal health products due to the ongoing outbreaks of avian flu domestically or elsewhere?

A: Wade Robey said avian flu has restricted access to customer locations but sales cycle challenges have been overcome by different calling methods.

Q: Do you see continued growth for your products in the renewable diesel market?

A: Bruce Patsey said there are several plants being built and expected growth over next 2-4 years will drive sales of bleaching clay products.

Q: How did the Ultra Pet deal unfold? What was the catalyst for them to join the Oil-Dri family versus any of your larger competitors?

A: Chris Lamson discussed strategic planning leading to identifying Ultra Pet as the best acquisition route, with cultural fit and market potential being key factors.

Q: Can management please discuss the cash flow ROI or ROIC expected from the recent acquisition?

A: Dan Jaffee said weighted average cost of capital is just under 9% and they target IRR in excess of 15%, and this acquisition meets that criteria.

Q: How much goodwill or intangibles were added to the Oil-Dri balance sheet with the Ultra Pet acquisition?

A: Susan Kreh said they just acquired Ultra Pet and will go through acquisition accounting, expecting a good amount of goodwill but definitive number not available yet.

Q: How much of management's bonuses could be based on meeting Ultra Pet's financial expectations?

A: Dan Jaffee said bonuses will be tied to meeting or exceeding financial expectations, with the major benefit expected from market side growth.