Oil-Dri Co. of America Q1 2024 & AGM 2023 Earnings Call Transcript

Quartr
Provided by Quartr
December 13, 2023

There are 9 speakers on the call.

Operator

Good morning, and welcome to Oil Dri Corporation of America's 2023 Annual Meeting of Stockholders. My name is Leslie Garber, and I am the Director of Investor Relations at Oil Dri. We are conducting this meeting virtually, a format which enables greater stockholder attendance and participation, improved efficiency and increases our ability to communicate with stockholders and reduces costs. On your screen under Meeting Materials, you will find the meeting agenda, rules of contact, list of stockholders of record and Oil Dri's proxy statement and annual report. During the meeting today, we will be covering the election of directors and 4 other proposals.

Operator

Next will be the business presentations and financial review, followed by time for Q and A. We ask that you submit your questions online under the Ask a Question field on your screen. Only stockholders Of record, are able to ask questions during the meeting. Stockholders will also be able to vote online by clicking the Vote Here button on your screen. Now it is my pleasure to introduce Laura Sheeland, our Chief Legal Officer and the Vice President and General Manager of the Consumer Products Division.

Operator

She will conduct a formal portion of today's meeting.

Speaker 1

Good morning, ladies and gentlemen. I now call to order the 2023 Annual Meeting of stockholders of Oil Dri Corporation of America to conduct the formal business set forth in the notice of meaning and proxy statement. Commencing on October 30, 2023, a notice regarding the availability of proxy materials or a copy of the proxy materials was mailed to all Oil Dri stockholders of record as of the closest business on October 16, 2023, which is the record date fixed by Oil Dri's Board of Directors for the determination of stockholders entitled to notice of and to vote at this meeting. Broadridge Financial Solutions, Inc. Has delivered an affidavit confirming the foregoing.

Speaker 1

Oil Dri has appointed Peter Sablick of CT Hamburg LLC to serve as the Inspector of Elections for this meeting. He is present on the webcast and has taken the oath of office. As of October 16, 2023, the record date for this meeting, There were 5,008,734 shares of Oil Dri common stock and 2,170,415 shares of Oil Dri Class B Stock Outstanding. Holders of our common stock are entitled to vote 1 vote per share and holders of our Class B stock are entitled to 10 votes for Cher and generally vote together without regard to class. A quorum is present at this meeting if holders of a majority of our common stock and Class B stock outstanding are present in person or represented by proxy.

Speaker 1

Thus, the number of votes necessary to constitute a quorum at this meeting It's 13,416,505 votes. Mr. Sabilek has informed me that there are more than such number of votes Therefore, I declare there the quorum present for purposes of transacting business. Now I will present the matters to be voted upon. If any stockholder would like to make a comment during any of the proposals, Please submit your comments through the Ask a Question field in the web portal, and we will review any comments on the proposals themselves after all proposals have been presented.

Speaker 1

As described in the proxy statement, the first item of business is the election of 9 directors. The proxy statement listed Oil Dri's nominees for directors, each of whom currently serves as the Director of Oil Dri. Those nominees are Daniel S. Jaffe, Ellen Blair Chew, Paul M. Hinsley, Michael A.

Speaker 1

Nemeroff, George C. Rose Amy L. Ryan Patricia J. Schmitta Alan H. Sealy and Lauren C.

Speaker 1

Wauschau. The second item of business is the ratification of the appointment of Grant Thornton, LLP as Oil Dri's independent auditor for the fiscal year ending July 31, 2024. The Audit Committee of the Board of Directors of Oil Dri has appointed Grant Thornton to serve as the company's independent auditor for fiscal year 2024 and has directed that the appointment be submitted for ratification by the stockholders at this meeting. The 3rd item of business is the approval on an advisory basis of the compensation of the named executive officers as described in the proxy statement. The 4th item of business is to select on an advisory basis the frequency for which future advisory votes will be held on the compensation of the named executive officers described in the proxy statement.

Speaker 1

Stockholders may choose whether they prefer we seek a vote every 1, for 2 or 3 years or they may abstain from voting. The 5th item of business is the approval of the amended and restated Oil Dri Corporation of America 2006 Long Term Incentive Plan, which increases the number of shares of stock authorized for issuance thereunder and increases the maximum individual grant size, among other modifications. At this time, we will check for and review any comments on the proposals that have been submitted. It looks like no comments have been received. So we will proceed with opening the polls.

Speaker 1

It is 9:35 a. M. On December 13, 2023, and the pools are now open. Any stockholder who hasn't yet voted or wishes to change their vote may do so by clicking on the Vote Here button on your screen. Stockholders who have sent in proxies or voted via telephone or Internet and who do not wish to change their vote do not need to take any further action.

Speaker 1

While we allow some time for stockholders who haven't already done so to complete their voting, I'd like to remind you that the business presentations and any other Commentary by any of Oil Dri's employees today may contain forward looking statements of expected future performance. Any such forward looking statements are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially. We highlight a number of important risk factors that may affect our future performance in our SEC filings, including our annual report for the fiscal year ended July 31, for 2023. We urge you to review and consider those risk factors carefully in evaluating the company's comments in evaluating any investment in Oil Dri stock. Copies of our SEC filings are available through the company or online.

Speaker 1

All right. One last minute to finish voting. Okay. At this point, the polls are closed, and I will now report the preliminary results of the voting. We will be reporting the final vote results in a Form 8 ks to be filed within 4 business days.

Speaker 1

As described in the proxy statement, a director may only be elected by the plurality of votes cast. The 9 nominees who received the largest number of votes will be elected. We have been informed by the Inspector of Elections that the preliminary vote report shows that the 9 candidates nominated by Oildry received the largest number of votes. Regarding the second item of business, an affirmative majority of Post represented this meeting is necessary for ratification of the appointment of Grant Thornton as Billator's independent auditor for the fiscal year ending July 31, 2024. We have been informed by the Inspector of Elections that the preliminary vote report shows that such radical vacation received more than a majority of the votes represented at this meeting.

Speaker 1

Regarding the 3rd item of business, an affirmative majority of votes represented at this meeting is needed to improve on an advisory and non binding basis, and the Executive Compensation of the named executive officers as disclosed in the proxy statement. We have been informed by the inspection of election that Preliminary vote report shows that such approval received more than a majority of the votes represented at this meeting. On the 4th item of business, which is the non advisory non binding advisory vote on the frequency of future advisory votes on executive compensation, The frequency every 1, 2 or 3 years receiving the greatest number of votes passed will be considered to be the recommendation of the stockholders. We have been informed by the Inspector of Elections that the preliminary vote report shows that 3 years received the greatest number of votes capped at this meeting. Regarding the 5th and final item of business, an affirmative majority of votes represented at this meeting is needed to approve the amended and restated Oil Dri Corporation of America's 2006 Long Term Incentive Plan.

Speaker 1

We have been informed by the Inspector of Election that the preliminary vote shows that such approval This completes the business to be conducted at this meeting. There being no further business to come before the meeting, the 2023 Annual Meeting of Stockholders of Oil Dri Corporation of America is now adjourned. I am now happy to introduce Dan Jaffe, our President and Chief Executive Officer, for our business presentations and financial review.

Speaker 2

Thank you, Laura, and welcome, everyone, to the business section. We've got a great line of presentations for you today. Fiscal 'twenty three was our 80 and it was our best. And fiscal 'twenty four will be our 84th, and we're off to a great start, and you'll hear all about that coming up. An investment in Oil Dri is truly an investment in our people, and I cannot overemphasize how great our team is and how appreciative I am for their work.

Speaker 2

I mean, with the most talented, most cohesive, most positive team I've ever seen in business. And I think most of our teammates feel the exact same way. And that's a direct Relation to the results you're seeing. It's not a coincidence. So I would like to highlight a few of the teammates who made the biggest contribution.

Speaker 2

No, I'm kidding. It's really people that were promoted during the year. Everybody made a big contribution, which is why we call everyone a teammate because we're all on Same team, but this just highlights some of the people that during the year were promoted, took on new challenges and are adding value in a new area. 1st and foremost, Laura Scheelen, who as you saw has the longest title in Corporate America, Chief Legal Officer, Vice President and General Manager of the Consumer Products division, an all around great person. Currently at Oil Dri, she oversees our legal affairs, but also is grabbing the reins of the our largest division, which is the cat litter business, the consumer products division.

Speaker 2

You can see she comes to us with a wealth of background and experience. But aside from being a lawyer, she was actually an accounting major back at Notre Dame. And so it clearly has a strong business background. She's been with us now 10 years, has continued to get promoted. And as Michael Nemeroff, one of our Board of Directors, says, when she was at better price, she was absolutely one All time best associate.

Speaker 2

So Laura, congratulations on your promotion and thank you for taking on new challenges. Her move up created room for Tony Parker to jump up into the role of Vice President of Legal. He will oversee the entire legal well, most of the legal department, I think, but including advising on corporate matters, intellectual property, litigation and employment issues. I received his J. D.

Speaker 2

From Northern Illinois. You can see he's been with us 5 years and was a Chick Evans Scholar Back in college, I think it was very impressive. And in fact, it's gotten me to where I now support them every year because it's really a cool thing. And Congratulations to Tony for the great career he's put together, and thank him for taking on new challenges going forward. We're in great shape in the legal area.

Speaker 2

And last but not least, Jacob Smith rejoined the team, and he is our Vice President of Finance and Treasury. He has oversight over all of our treasury, corporate and divisional finance and accounts receivable. He went to he's a double Indiana double Hoosier Undergrad Finance and Accounting with an MBA also from Indiana. Total experience with us is 5 years. Before that, he was with Pepsi.

Speaker 2

So please recognize and congratulate Jacob Smith on his new role. I don't want to steal any of Susan Kray's thunder, especially Last time I had to cover her entire presentation. So I'm going to turn it over to Susan for a financial review of the Fiscal year and the Q1.

Speaker 3

Thank you, Dan. It's not open mic night to us.

Speaker 4

I'm not a bum.

Speaker 3

It's truly a privilege to be here today to share some highlights of our fiscal year 'twenty three, which was an all time record year for Oil Dri as well as to share some highlights for the Q1 of fiscal 24, where we continue to see momentum as the team, and Dan mentioned it's a really strong team, delivers double digit net sales growth across the board and doubled net income over the Q1 of fiscal 2023. As I proceed through the slides, I will be sharing a look back at the past 5 years of performance trends as well as focusing on our Q1 results. As you're reviewing the trends, you will note that the global pandemic had a significant impact not on our top line or on our sales, but on oil drives earnings as the costs associated with the disruptions in the global But we emerged stronger than ever spurred by a tailwind of growth in high value products such as lightweight cat litter, specialty products, which include edible oils and renewable diesel and animal health and nutrition products. That recovery and growth resulted from our keen focus on our growth strategies even during tough economic times that were incurred during the pandemic.

Speaker 3

Under Dan's guidance, our team stayed focused on our long term goals while successfully navigating the short term challenges presented by the supply chain and we are benefiting from that long term focus

Speaker 5

today. Now I don't want

Speaker 3

to steal their thunder, even though I'm going to just a little, but I will share their highlights. In a few minutes, Chris Lampson will discuss the successful launch of our cast pride antibacterial clumping litter. Doctor. Wade Roby will share some of the highlights that drove the double digit growth in our Amlan Animal Health products. And Bruce Pateze joins us this morning to brief us on the renewable diesel market and that presents to Oil Dri.

Speaker 3

Next, I'll move through the financial section of this morning's presentation quickly, highlighting some key events and performance metrics, primarily focusing on the Q1 of fiscal 2024. But first, let's dive a little deeper and look at where the growth is coming from. You will note that all 5 of our Product Groups have turned in double digit compound annual growth rates over the past 3 years. Inside the Retail and Wholesale segment, We achieved cat litter growth of over 13% and industrial and sports growth of over 17%. And within our higher margin Since the business segment, we achieved compound annual growth rates of 24% for our agricultural and horticultural products, Growth of over 21% for our Bleaching Clay and Fluid Purification products and 15.5% growth for our Animal Health and Nutrition products.

Speaker 3

In other words, we are firing on all cylinders and growing significantly in all product Group. We've experienced 5 years of sales growth even throughout the pandemic as people adopted animals as they were working from home and that continues to grow into fiscal 2024. And you see the nice growth to $111,000,000 a record for sales in our Q1 of 2024. When we look at tons sold, we see the impact in fiscal 2023 of a specific decision we made to shed some low to no margin business inside our consumer division and that actually helps with profitability. And as we look at Q1 here in fiscal 'twenty four, You'll see that we are actually below the prior year in terms of tons sold.

Speaker 3

And we were impacted there by a very large customer that had an outage as a result of a ransomware attack. That customer is back online in the second quarter and pretty much back to business as usual. If I look at net sales per ton, you can see the impact of the pricing initiatives that were obviously very significant and are help driving our profitability today. And we continue to see the benefit of that into sales teams. If I go to gross profit per ton, you see what I said in my opening comments coming through the pandemic, the impact of the increasing to supply, but that we've recouped a lot of that and today find ourselves at $156 per tonne, and all time record.

Speaker 3

We still have a little more work to do as our gross margin percent is timing back up to at 27.8 percent, but not quite at the levels it was prior to 2019. Those teams are focused on profitability, focused on serving the right business and we see continue to see the benefit of that focus. If I look at net income per ton, I would just point out that in fiscal 2023, We had a non recurring charge related to the termination of our pension. It's a defined benefit pension plan And that was $4,600,000 net of taxes. That actually positions us nicely because we no longer have the volatility of a defined benefit plan with respect to either the pension liability or actually the related assets that go along with that.

Speaker 3

That actually makes our debt capacity even better as we look forward and think about what we might want to do in the area of acquisitions. Again, that net income per ton in Q1 rising to $54 more than double what we saw in the same quarter last year. Earnings per basic common share. You see the Strong benefit of the Q1 here, again, more than double what we posted in the Q1 of last year at 1 point $0.61 per share and you see our continued commitment to our dividend at $0.29 per share here in Q1 versus 28 last year and 20 years of continuously increasing the dividends of Oil Dri and returning to our shareholders. We look at our significant cash outlays and we'll be hearing from Aaron Christensen pretty soon, our VP of Operations.

Speaker 3

We are making some very specific investments both in growth and in replacing aged assets inside our manufacturing and mining facilities. You see that's the biggest piece of the pie and it's a priority for us as we are performing well and reinvesting in the business. We also see a significant investment in working capital in fiscal 2023 as the business Growing and actually growing outside the U. S, we see the need to build our working capital and specifically inventories and receivables in order to support our customers. Net debt has a really nice position to be As far as net debt, meaning we have a lot of dry capacity and a lot of debt capacity available to us moving forward to And here's the one that's I think making everybody smile these days and that is our share price.

Speaker 3

And the stock obviously after we released earnings the other day was received favorably and we saw a bump at that point in time as well. Free cash flow is continues to be Good. And we will focus on cash and move on from there. And then I'll just conclude with a couple of highlights here. We are going to hear about our innovative products.

Speaker 3

You're going to hear our commitment to grow the business using the cash that we are generating in order to Not only invest in growth assets, but also it potentially has some dry powder for any potential strategic acquisitions that may come along. There's also been a significant investment in alternative energy in our past California plant that I'm really excited about. It's up, it's operational. Early indications are that it will be even more Beneficial from a financial standpoint than we originally thought when we made the investment. I'm booking it, Erin.

Speaker 3

And with that, that's a good segue to turn this over to Aaron Christensen, our VP of Operations.

Speaker 5

Thank you, Susan. I'm really excited to have a chance again this year to talk to our shareholders A brief minute. Much like last year, I'm going to speak exclusively to the multiyear continued commitment in capital reinvestment in our business. Reminder and I shared a similar message a year ago. Oil Dri is continually looking for ways to invest in business continuity through the reestablishment of our aging asset base, looking for savings opportunities and growth opportunities.

Speaker 5

We also are continually looking for unique ways to invest in working conditions for our teammates, our mineral reserves, which is the lifeblood of our business and our facilities themselves. Shown here is the past 5 year trend for capital reinvestment. Susan alluded to this earlier. Fiscal 2023 was the highest year of capital expenditure in Oil Dri's history, investing approximately $24,000,000 in capital. Fiscal 'twenty four and beyond are anticipated being at or above at these levels.

Speaker 5

Welldry is committed in the years ahead, as Susan alluded to, to reinvesting in our business for our consumers, and our shareholders. I'm going to talk through 3 specific investments that have been made and completed will be made in the year ahead to give our shareholders some insight into the array of things Oil Dri is spending capital into. Susan just alluded to this one. We have invested in a series of alternative energy technologies in our PATH California plant. I've had a chance to talk with this multiple times over the past quarterly and annual meetings.

Speaker 5

It has been a long journey to get to the point we are now. It is now fully operational. It's a combination of LED lighting, some power monitoring technology and the 2 primary solutions, which are a combination of PV Solar and Natural Gas Fire Turbine Generators that use natural gas to generate our own electricity. These technologies do not make us energy independent, but do deliver a very large percentage of both instantaneous demand and monthly usage. We are really excited to bring them to life.

Speaker 5

And as Susan alluded to, early indications just in the past months are extraordinarily encouraging. We will continue to look for places that we can reapply similar technology in our other facilities as it makes good business sense. The next investment I'd like to talk about is an investment in our agricultural products and Capacity. Over the last number of years, Oil Dri has made capacity investments in our spherical, more premium verge products. This is an investment being made in our more traditional angular AgXor products.

Speaker 5

The capital has been appropriated, detailed engineering is underway And sometime in late fiscal 2024 or early fiscal 2025, capacity will come online. The uniqueness in this investment is that the bottlenecks and I'm the Director of Investor Relations. Constrained production operations in one of our plants that finds a unique way to add capacity for growth, Deliver some cost compression and rehabilitate old technology in an aging part of 1 of our producing plants. We are very excited to be adding capacity to support this piece of business. The last series of investments I'll talk to, which is a preview of what Bruce will be speaking to later today, is a series of investments being made in our fluids purification business, largely to support renewable diesel.

Speaker 5

Also appropriated and well along the way, We're making investments to debottleneck the core part of our milling operation, but also add rail infrastructure to be able to move product more effectively and efficiently in and out of the plan. Rail infrastructure investments come online this coming February soon and sometime likely no later than Q4 of this year, Relations. Capacity will come online to support more sales for top and bottom line growth. We are very excited to deliver growth opportunities for our and Weiching Earth and Fluid Suppurification Business. With that being said, I'd like to hand the baton to our Group Vice President of Retail and Wholesale, Chris Lamson.

Speaker 5

Thanks, Aaron, and

Speaker 4

good morning, everyone. Good to be Back with you again this year and talking about exactly what we talked about last year relative to the lightweight business and hopefully you feel good about that. Hopefully that demonstrates Strategic consistency. Last year, I think we were talking it was more of a tell than a show. We were really talking to you about some shifts and strategic plans to further accelerate our growth in Lightweight.

Speaker 4

This year will be more show than tell. We've activated and we're excited to give you a better feel for today by showing them. We started, I think, over the last several years with a few slides and just ground you in what's been very solid growth across our litter business. So this gives you a picture of our domestic cat litter business as a whole, with strong growth, just Just over 10% approaching 11%.

Speaker 6

And I

Speaker 4

think the consistency of the growth is

Speaker 7

worth calling your attention to.

Speaker 4

Then shifting to our lightweight litter business, you saw an 11% compounded growth on the previous slide. Here you see 17% growth and if you pay particular attention to this last year, First, I'm wondering why some of our long term shareholders didn't go out and buy $100,000 more in litter, so we could have could have hit triple digits there and gotten to 100,000,000 Help a guy out, but in all seriousness, about 30% growth year over year on the Lightweight business, which speaks to I think some of that strategic consistency. Now It should come as no surprise given that kind of growth, given that 30% growth that we're growing share within The Lightweight segment, we actually grew share overall within cat litter over the past year. So the first two bars really Relations. Growth in private label lightweight approaching about 80%.

Speaker 8

But we always need something to work on,

Speaker 4

which is we really do believe and in fact these are dollar shares, but we're the unit share leader In lightweight litter, it's incumbent upon us to grow the lightweight segment, really what most of the presentation is about. And I know my boss is pretty passionate about this topic.

Speaker 2

Dan, do you want to Yes, because what the market is Saying is that 15% of the category has moved ish to lightweight. Now we know that over half the category in Canada has moved Delightweight and we actually don't believe the Canadian cats or Canadian consumers are that much different from their U. S. Counterparts. So there's some disconnect there and we can Talk about that and Chris has talked about it.

Speaker 2

But if you just look mathematically and say, okay, so 15% like lightweight, does that mean that 85% of consumers, All things being equal, and we know the consumer in cat litter tends to be women 25 to 54 years of age. So you're saying women in general prefer a product that's 2 to 3 times heavier. And I think the operative word is all things being equal. The fact is it's not equal. They're either able to get a better value.

Speaker 2

We have competitors that have decided to charge 30% to 40% more for Lightweight. Well, that's a big hit on an annual budget. So there are consumers that says for that delta, I'm taking home the heavier product. We have competitors Consumer doesn't have that. And so we have launched Project Utopia and that's our goal.

Speaker 2

Our goal is to give the consumer what they want, with the efficacy they At a price point that they believe there's real value at. And at that point, we believe they'll choose Lightweight. So I'll turn it back to you, Chris. We can tell I'm very passionate about this because I don't believe that all things being equal, consumers prefer 3 times the weight. And by the way, the carbon footprint Is 3 times worse because we weigh out trucks.

Speaker 2

So if we can get the consumer what they want, it will actually help the environment in a big way. So really, perfect setup. The rest of the presentation is really how do we Further stimulate growth and at 8.50, it's like 60 plus up in Canada. In Canada.

Speaker 4

Good. So how do we transform the U. S.

Speaker 2

Make me look bad. This is

Speaker 4

an outline of your investment.

Speaker 2

There you go.

Speaker 4

I should have told you. The so how do we get there? And it is clearly a journey. It's one that I think really the top box there is the top for a reason it's going to speak. Significant innovation, Dan gave you our internal project name, which is Project Utopia and It is sort of what it implies.

Speaker 4

It is all about removing the barriers that Dan spoke to, be them value barriers as a smaller player in the category can bring breakthrough innovation. We did it in 2011 with lightweight litter. We believe this year we launched just within the last quarter, very end of last fiscal year, significant bacterial cat litter, we'll talk more about that. The second piece of the platform, if you will, is really making sure Lightweight And the benefits of Lightweight are at the center of our consumer message. We'll show you some of that here in a minute.

Speaker 4

And then finally, and with I think a lot of A lot of the same benefits that Dan just spoke of around the carbon footprint, the ability to handle, the ability to fill Trucks in a more effective way and growing consumer need for lightweight are all at the center of our message with our retailers, And they're listening and candidly driving the Lightweight business with us. So Those are really the 3 platforms. All three of those we talked about last year. What we're going to show you on the next couple of slides is we'll bring them back. So first, going a little bit deeper on the new antibacterial clumping litter.

Speaker 4

So it's the Environmental Protection Agency that actually approves or gives you the right to say that your product, Your surface cleaner, for instance, is either antibacterial or disinfectant. They put you through appropriately a rigorous process to be able That process takes a year to 2 years with the federal government and then another year to 2 years with the state government. So one takeaway there is, scrutiny has got to work, right? The other takeaway is we've got a heck of a moat for whom I'm with. Is there consumer need?

Speaker 4

You bet. I mean, there's 2 real key consumer drivers in this category, in the Scoop category in particular. It's clump strength, But really odor control and they go 1, 2 depending on when you run the consumer study, right?

Speaker 8

So talk about odor control for

Speaker 4

a long time and controlling odor causing bacteria. This is the first and only product that can say that we actually kill Those odor causing bacteria. And I'll tell you the response from customers has been fantastic. Really what you're looking at A good look at the customers that brought this in as immediately as they could. There are a couple of really large customers on this page that brought the product in even off their shelf change cycle, because they were that enthused about it.

Speaker 4

The really the prevailing Word we got on this back from consumers is thanks for bringing real innovation. Thanks for bringing real product innovation and not just consumer noise, right. Next piece and this is Again,

Speaker 6

a bit of

Speaker 4

a shift for us. We've had a and continue to have a fantastic social good campaign called Letter for Good, where we donate, let's just say, a ton of product to shelters that are very much in need and very much appreciated. And so we've been talking about as it relates to our Cat's Pride brand litter for some time. We have shifted now to really talk about the benefits of lightweight litter. And we're doing it across, as you would expect, A variety of media channels in a 303 way.

Speaker 4

Some traditional television, I'd tell you not much Candidly. Digital TV, I'm going to give you a couple of examples here in a minute and share some media from that digital TV. Banner ads like you see pictured here And really this is a we're very active here in terms of measuring our ROIs and shifting media around. But the real key is The messaging that we're driving in terms of lightweight litter is again, we are the share leader within from a unit perspective, from a volume We're not driving this message through it. So Nick, if you wouldn't mind sharing the couple shots of media.

Speaker 4

You're going to see our base media And then our, some of the media supporting our new antibacterial innovation.

Speaker 8

Cats lighten our lives. We lighten yours. Cat's Pride naturally lightweight litter performs just like heavyweight litter, but is up to 40% lighter. Hey, cats love us and we love them right back. Cat's Pride, lighten your life.

Speaker 8

Some cats just have that killer instinct. And now, so does their litter.

Speaker 6

Back to you, Chris.

Speaker 5

Thanks, Nick.

Speaker 4

Finally, we'll wrap up and A little bit difficult to depict for you, our sales folks in selling with buyers, but did think we talked about What has been really extraordinary results here, in terms of distribution in particular. So as you look across our lightweight business and that On the private label side, we can now say that over 50% of all outlets, individual doors that sell cat litter So oil dry private label lightweight cabinet, which is fairly remarkable. Some of the doors Probably the majority of the doors that don't are actually doors that just don't sell private or at least lightweight catheter, period. We've also really experienced over the last couple of years, I think as we've heard me talk before on calls about great progress relative to getting our price value relationship right. We've done that particularly well in ecom.

Speaker 4

And you can see that since 2021, we've actually just a little more than doubled our share on Amazon. And then finally, really solid new distribution gains, particularly around private label, new doors. So brand new outlet. And then, as it relates to the brand, what we've seen and actually saw this question pop up and go ahead Proactively address it. Really on the branded side, it's been a story more of expanded distribution Where we already have distribution, particularly behind the antibacterial innovation, where almost all of those new doors were incremental distribution.

Speaker 4

We didn't lose anything. So really just to wrap it up, this story begins with us Innovating in this category back in 2011. Retailers responded to gain distribution. We level up on consumer messaging that hits the mark and is driving strong ROIs. That drives further distribution, fuels, further innovation that Dan alluded to, where, yes, We did drive true innovation around antibacterial, but we're focused over the long term on removing any and all barriers to Lightwave So with that, I will turn it over to Bruce Patey, We love to call Bruce all night.

Speaker 6

Yes. Very funny. Chris, thanks very much. I appreciate it. It's exciting to see all the growth in your market.

Speaker 6

I'm Bruce Patey, the Vice President of Fluid Purification Group. And one of the items I'll be talking about a new market opportunity as you heard Relations. Our filtration We sell the 3 main categories of business. So we sell into vegetable oil business and we sell into jet fuel processing where we're adding a small granule to clean up jet fuel before it goes to the yard to be put in the plane. And then lastly, we sell in the biofuels market, To both renewable and biodiesel market and we sell a couple of new absorbents, Metal X and Metal Z into this marketplace And it's where we're seeing a

Speaker 4

lot of growth in our business.

Speaker 6

If you take a look over the last 5 years of our business, You'll find that in fiscal 2022 and 2023, we've seen significant growth in our business and a lot of that is tied to the renewable diesel business. And also we picked up some new vegetable oil customers in that timeline as well, which has been very exciting for our business. What is renewable diesel? Well, renewable diesel is an advanced biofuel that's derived from vegetable oils, natural fats and greases. It burns cleaner than diesel, regular oil diesel fuel from the ground and emits less carbon dioxide than petroleum diesel, which The big driver and why this industry is really starting to grow so fast.

Speaker 6

How is it different from biodiesel? Foundiesel has been around for a while. Our renewable diesel is chemically the same as petroleum diesel, And you can blend it in at 100% right into diesel fuel. So that's driving a lot of oil companies that make mineral oil, they're putting in renewable diesel plants next to these facilities and they're just bringing the oil and then mixing it together. Biodiesel is chemically different than petroleum diesel and you can only blend that in at a 10% or 15%, which you've seen at the pumps and that for trucks and that.

Speaker 6

So it's a different type of fuel. Metal X and Metal Z are the 2 products I mentioned for this market that we brought in, and it's a powder mineral. And They put it into the oil and they slurry it to make contact with these contaminants that they're trying to remove. And again, the main things that's trying to take out are Trace metals, calcium, magnesium, sodium, things like that that are in the oil as well as pull out organic and inorganic phosphorus. And why are they pulling these out of the oil and why do they need this in their processes because downstream when they convert the fat Into diesel fuel or renewable diesel fuel.

Speaker 6

The catalyst is very expensive and these Trace Metals and Phosphorus can actually reduce the life of the catalyst. So they try to remove these before the oil gets to that part of the process. Optimized production efficiency. So our products really do help in the production capacity of these plants because They allow the oil to go through the mineral very fast and much faster than a lot of our competitors. And what does that mean When the clay is slurry as a powder, they take it out in a filter press.

Speaker 6

As the clay builds on the screens of the filter press, the oil is Push through that clay. If the clay doesn't let the oil go through very easy, it slows production. Our clay allows the oil to go through fast, Which helps these big companies to produce

Speaker 4

a lot of oil.

Speaker 6

Here's the driver growth that you can see in this market. So By 2,030 approximately, they're trying to get to 7,400,000,000 gallons of renewable diesel in the marketplace. And today, there are right around 4,100,000,000 gallons in this market. So you can see there's a lot of growth happening There are going to have to happen in order to get to these volumes in this industry. Benefits of renewable fuels.

Speaker 6

First, there's government incentives. Just for an example, in January 1, 2025, it's going to be approximately a $1 tax credit for every gallon of non aviation fuel produced. I mean, that's very significant. The amount of money that are going to these plants really help these companies to actually build the facilities. So The government behind this industry, which is key.

Speaker 6

Reduction in CO2 gas. So up to 80 The percent is reduced in greenhouse gas emissions when you drop this fuel into the marketplace. So again, that's There's big drivers. Everyone knows that CO2 is a concern with the warning of the planet. So anything we can do in that area will help, and this is A big driver for this industry.

Speaker 6

Repurposing of the existing refineries. So some of the refineries in the past Shut down or reduced because of environmental reasons. These big oil companies can now actually put in these facilities that will Be able to use the same land and some shared equipment to produce the renewable diesel. And then overall Cleaner burning fuel. There's not any sulfur or oxygen and different aromatics that are in this oil so that when it burns, it burns cleaner when you're talking about renewable diesel.

Speaker 6

As we look forward, the new renewable diesel plants are going to be coming on in 'twenty four to 'thirty. There are some already in the marketplace producing and that you can see that in the growth of our business. There's more coming on in the next 6 years. Continued growth in the vegetable oil market, 1, to meet the needs of this renewable diesel industry, but also as we there's more and more people on the planet, people have to eat and there's Growth and the need for vegetable oil processing. Increased growth in our core market.

Speaker 6

And what is our core market? Well, North America is our core market. That's where our plant is located. So this is really positive for the profitability of our business that we can sell competitively and make to maximize our profits in our core market. And then experienced sales team, I've been General Manager for 20 years in this business and Most of the sales people that are out there today are still the same people that were with me back in 2004.

Speaker 6

And we bring a lot of value to these Refineries, we know how to process the oil. We can help them reduce the amount of consumption of clay and improve their economics of their plants. And then improvement of manufacturing, Aaron talked about the infrastructure with the improved for railcar movement at our plant, We've got railcars on order to meet the demand of this market and then increase capacity for milling. So I think the future is very bright for our business, and we really look forward to the rest of fiscal 'twenty four and beyond. With that, I'm going to turn it over to Wade Roby, who is the current Vice President of our Agricultural Division and the President of Amlan International.

Speaker 6

So, Wade, take it away.

Speaker 7

Yes. Thank you, Bruce, and good morning, everyone. It's my privilege this morning to talk to you about for Amlan International Business. Amlan is the animal nutrition and health business of Oil Dri Corporation of America. I'm going to start this morning with an overview of our portfolio just to level set everyone and help everyone understand how we go to market around the world.

Speaker 7

We have a unique set of branded items that we sell in North America. We launched these just a couple of years ago, which I'll show you on with Graf. But we address this market with a number of different products that are designed to improve the Productivity of animals to help them reach their potential and really help the economics of production. When we look internationally, we have an to target very specific segments of the market. So we organize our products a little bit differently and we brand them differently and promote them differently in the market.

Speaker 7

So under our disease prevention sector, we have a couple of new products we've launched, a product called NutraPath that we'll discuss a little bit later in a product spotlight and also a product called Filox or Filox Fusion, which is a natural anti coccidial product that can work either individually or synergistically in a bio shuttle program with other anticoccidials, whether they be chemicals or antibiotics or even anti coccidial vaccines. We also have products that target just general productivity or feed efficiency in animals So Verium and our NeoPrime products and then lastly, our Cadillac products for Biotoxin Control, Calibrin Z and Calibrin A. As you look at our performance over the last 5 years from 2019, obviously moving through the pandemic, we've seen nice growth in the Amlan business with a compounded annual growth rate of 11.3%. Coming out of the pandemic, as we started to return to more normal business in 20 22, we saw very sharp growth of 18% year over year and then 17% last year with the fiscal year ending at the end of July. Now this was in spite of not only the pandemic and interruptions in the logistics that we saw around the world and the ability to serve markets, but also pretty significant disease outbreaks with African swine fever and avian influenza, which is still persistent, especially in the United States.

Speaker 7

So We've seen very nice growth through that period and we expect to accelerate that into the future. You can see on this chart, sorbium listed at the bottom of the x We launched that North American portfolio as we started into 2022. So really our North American sales started in significant measure there and we're seeing the reflection of that now in fiscal year 'twenty three and we expect to see that accelerate even more into the future. If you look at our sales by region, this again is FY 'twenty three versus FY 'twenty two. You See again my mention of a launch in North America and the very rapid growth of the North American market.

Speaker 7

We expect the North American market to be our largest market in just a couple of years, which is consistent with other feed additive markets we see with other suppliers to this industry. Latin America grew very strongly as well, driven especially by Brazil, which is a major exporter of broiler meat. Our Mexico business grew well. We also at the same time in 2023 completed the final acquisition of AgriMEX, which is our Mexican operation. That business is now completely run by Oil Dri, Amlan, and we expect very strong growth going forward in Mexico as we continue to sell direct to key producers there.

Speaker 7

In China, we saw a downturn. Some of that was due to market conditions. Some of that was due to a pretty significant restructuring we did of the China business. We had previously gotten to market direct in China with a very large staff with a very large suite of distribution partners. We've now narrowed that significantly.

Speaker 7

We've got a couple of representatives now in China running that business and working with a single master distributor, which helps us Address that market more efficiently with less risk, less financial risk to the company. And then finally, Asia still grew 2% In spite of lingering effects of the pandemic and again pretty significant downturns caused by African swine fever, Which caused pretty severe depopulations in the swine herds. So why are consumers interested in Amylin products? So why do we see the growth that we're seeing in our business? It really is a global move by consumers to desire what we'll call clean food For food that is produced more naturally and more sustainably without the use of pharmaceuticals, without the use of harsh chemicals.

Speaker 7

Amlan's products fit very naturally, very nicely within that demand, where our products are based on oil dries, natural mineral sources that really offer a broad range of efficacies to our customers, but bring them in a natural way. It allows producers to grow animals without the use of pharmaceuticals in many cases. So we are the right product at the right place in the right time. When you look at the market or the overall opportunity in spite of the pandemic, in spite of The conditions of avian influenza, African swine fever, as I mentioned, it is an enormously large market. You can see in the graph on the left that The broiler and swine markets dominate, but the ruminant market, pets, aquaculture, both finfish and crustaceans are also significant markets as well and growing rapidly.

Speaker 7

The graph represents the curve from 2017 to 2022. As we look forward, we expect the market to grow about 3.5% annually and we expect pet, aqua and swine to lead as we look towards 2,030. 1 of the markets we target very directly is in Toxin control on the left side of this chart, you see that the mycotoxin market that we're targeting or the control market is about $1,000,000,000 in 2022. It's growing at about a 5% CAGR and mycotoxins really touch all species from poultry all the way to companion animals, crustaceans to dairy cattle and the quality of milk. So the need to control mycotoxins is urgent for our customers and it ensures that we have the highest quality milk, milk meat and eggs for producers.

Speaker 7

As you look at the right side of this chart, you can see how the toxin Control market is kind of laid out. Broilers and Layers where the poultry side is the largest segment, followed by swine, ruminants, aqua and then companion animals. We expect Companion Animals to grow significantly in the future and it will be a growth opportunity for Amlan. How do we work? Our technology is really based on sorption science or the absorption and absorption of toxins To our clay mineral substrate, you can see on the left side of this chart that only 1 kilogram of our amylin mineral once processed has 60 soccer fields of surface area for binding in the intestines of the animal.

Speaker 7

So it's a tremendously porous material that allows toxins to bind to the surface and adsorption or be absorbed into the inside of the matrix and being trained and removed. So it's a highly effective natural protectant for the animal that allows them to reach their potential. Here's a product spotlight of a new product we just launched this last year. It's a product called NutraPath. We also have a similar product we're promoting in the United States, but our international product, Neutropath, it's based on our clay mineral, but it also includes additional compounds in a formulation or adjuvants, if I could say, that help me directly neutralize pathogenic organisms like Salmonella, like campylobacter, like clostridium.

Speaker 7

It's a product that producers can use when they don't want to use antibiotics or when resistance has grown and they can substitute a natural product in their portfolio to address pathogens in the field. So we're very excited about NutraPath. We believe it will be a significant product in our portfolio going forward. So overall, why are we excited about this business? Why do we believe we'll win not only for Oil Dri, but also for our customers?

Speaker 7

It's the selectivity. It's the uniqueness of our mineral. We source it and mine it in a proprietary way, process it in a way that really broadens its efficacy or utility in animal rations. We're vertically integrated. We control the mining to the delivery of the product to our customers and the support of those products in the field with a global technical service team.

Speaker 7

So we're able to ensure the quality, the consistency, the value, the ROI for our customers. And lastly, our diverse business portfolio. We have 80 years of experience in mineral science. As Bruce and Chris mentioned earlier, we sell in a variety of industries. So we have a lot of utility from what is a natural product that brings tremendous value to the market.

Speaker 7

We also have the stability of our company and the leadership we've had over those 80 years, which really allows us to plan, develop to invest for the long term. So So we're excited about this business and excited about the growth that will come in the Animal Nutrition and Health Sector. So with that, thank you for your attention and I'll hand it back to Relations.

Operator

Great. Thanks, Wade. Thank you all for listening to our presentation. I will now open up the floor to Please submit your questions using the Ask a Question field on the webcast. Questions or remarks must be relevant to the meeting and pertinent to the matters brought before the meeting.

Operator

I will now read the first question. It comes from Ethan Starr, an individual investor, and he asked, What are the prospects for significant revenue growth for Amlan's products and when might that happen?

Speaker 7

Thank you, Ethan. I appreciate And I would argue that it's already happening. We're seeing tremendous growth in this business. There are markets like North America that we I really have only been in for about a year and a half now. So we obviously expect North America to continue to grow very rapidly and at the highest CAGR of any of our business.

Speaker 7

We also are seeing pretty significant rebound now in Asia as those economies recover and again a continually with strong performance in LatAm. So we expect in the next couple of years to be reflective of what we've seen over the last year with strong growth in this business and continued use of our products by all species within these industries.

Operator

Thank you. Our next question comes from John Baer from Ascend Wealth Advisors and he asked, do you plan to increase advertising spending at a Comparable rates as was seen in fiscal 'twenty three and in Q1 of 2024 is your primary focus on retail consumer or B2B and what product lines are you primarily focusing on. Chris?

Speaker 4

Thanks, Leslie, and thanks, John. The strong majority of The advertising spending that you see goes against the consumer business. That's not to say that the B2B business doesn't really kind Relations. Scale their sales platforms through some really good marketing as well, but majority within consumer. And And I think we've spoken to this in the past.

Speaker 4

We spent pretty heavily in Q4. We hadn't been spending prior to that for a couple of good reasons. Primarily, we were in kind of a bit of a global supply malaise. We came out of that and started spending in Q4 against the new platforms that you just saw. A little heavy as we're playing some catch up.

Speaker 4

I think Q1 this year is pretty predictive of what you'll see going forward and at the level as we look at our ROIs that we like.

Operator

Great. Thank you. The next question comes from Robert Smith for the Center For Performance Investing and he Since R and D is a lifeblood of future long term growth, do you plan to commensurate increase in this area to reflect your new earnings level. Also in this respect, how do you measure its productivity?

Speaker 2

Thank you, Bob, for your question. And yes, I mean, R and D is the life A lot of our future and our past and our present growth. So our mission statement, as you long time investors know, is creating value from Sorbent Minerals. And layered on top of that is a real commitment to playing what we call Mineyball, which is our version of Moneyball, which Just getting into the data and trying to make fact based decisions on where do we have a competitive advantage and where do our customers value us the most and trying to lean into there and likewise and walking away from things where we just don't provide the value and frankly there could be another supplier somewhere who could better serve that customer. And the only way to then hang on to those customers is through low margins, which isn't healthy for the long term.

Speaker 2

So how do we measure it is ultimately through the value that we're deriving from the minerals we're selling. So You've heard me talk about this before, but it's really startling and well worth repeating. Back in 2,001 when the company was not doing very well, We maxed out with over 1,000,000 tons sold, but our average selling price was just $156,000,000 of $156 So we generated $161,000,000 in sales and our gross profit was only $28 a ton, so we had $29,000,000 of gross and Company. This last full fiscal year in 'twenty three, we grew from that $161,000,000 to $413,000,000 Our gross profit per ton jumped from $28 to $127 a ton, so almost 6 times Well, 5 times, the growth. And remember, we did 1,000,000 tons back in 2,001.

Speaker 2

We only did 811,000 tons 20 something years later. And that's this commitment to value based selling. So A lot of times you guys see less I mean our top line is growing anyway, but a lot of times you see it as Maybe not as good as it could be, but it's really a conscious decision to walk away from unprofitable business. And to put this momentum in perspective, So while that was a record for us in F 'twenty three average selling price of $509 a ton, up from $1.56 20 years ago, It was $5.62 in the Q1. And again, that GP per ton from $28 a ton up to 1.27 was $156,000,000 in the Q1.

Speaker 2

So that's how we measure it. I mean, we are clearly creating value. Yes, we believe and we believe there's many different ways to achieve that value. It is through products, pricing and performance, but it's also very much with the service that we provide. So we know that all close to 1,000 teammates globally are helping contribute towards delivering value to our customers every day, and we're very appreciative of that, and our customers are too.

Speaker 2

So thanks for a great question, and we take this very, very seriously.

Operator

The next question is from John Baer. He says Amlan International's top line growth was attributed to the sales existing inventory to the company's master distributor in China. How does this affect current and projected near term sales to this master distributor as they sell down the acquired inventory. Wade?

Speaker 7

Yes. Thank you, Leslie, and thank you, John. Yes, this was an activity that and specifically in China with the establishment of our master distributor. Obviously, this was a big part of the restructuring of the business and important for us to conclude to be able to move that product from Amlan ownership in China to that distributor for sale in the market. As you might imagine, in those warehouses that we maintain, we had a mix of products and we also had some products to some of our largest customers that were in fairly low inventory.

Speaker 7

So that master distributor, while selling down the products currently, is also already ordering various of the products that are replenishing what they need to service the market. And we're seeing Some of our key customers there, especially in the dairy sector, grow so significantly that that is exceeding our expectations. So We expect all that volume to be consumed this year, fairly early in the year and we are seeing orders already to replace those that transfer of inventory.

Operator

Thank you. The next question is from Ethan Starr. Last quarter, there was mention of 2 new Amlan products. Are you able to I'll tell

Speaker 1

you more about those at present.

Speaker 7

Yes, Ethan, thank you. And as we've talked about in other sessions, the sales cycle can be fairly long in this industry. Those two products were launched this past year. They are both in trials currently. The first one I'll mention is the PHYLOX product which we sell internationally has a natural anti coccidial.

Speaker 7

It's actually been in direct field trials now for about 7 months with one of the largest integrators in the world. That trial is performing well. We hope for it to conclude sometime in the They're going to basically run a full year trial utilizing the product. So while that's a little bit lengthier than sometimes happen, it is indicative of a long sales cycle. The second product in NutraPaths, we sell a similar product in the United States called AmShure.

Speaker 7

That product is entering trials right now. We expect a little bit shorter cycle with that and we hope to have sales sometime in the springtime of that product to some of the largest U. S. Integrators. So Excited about those products, but we are still working through field trials on both of them that will conclude shortly.

Operator

Okay. We have another question from John Bair. Any comments on the company's pursuit of and outlook on the M and A landscape?

Speaker 2

Thanks, John, for your question. And look, capital allocation is a major focus for the management team and the Board of Directors. And as we continue to repair our margins, we are generating cash, which is great. And then how are we going to use that cash? 1st and foremost, it's investing in our people, in our plants, in our processes.

Speaker 2

As we are delivering more value and as our customers are Demanding more value, it puts more pressure on our processes. So what was acceptable 5 years ago from a quality standpoint will not be acceptable in 5 years. And we have to stay ahead of that curve. So clearly, reinvesting in our plants and our people is number 1. Obviously, maintaining and growing the dividend It's a major use of our capital.

Speaker 2

We've raised the dividend 20 years in a row. And as I somewhat fully Facetiously, but not totally always joke. My sisters, I'd like to be invited to family picnics and so forth. So keeping that dividend healthy and growing is important to me and my and all shareholders, seriously. And so very proud of our record there and want to keep that up.

Speaker 2

Stock buybacks could be a piece of the equation, And certainly, we have an authorization to do that if and when we feel it's opportunistic and the use of cash is right for that. And then finally is our M and A activity. And that one will be very narrowly focused on our mission, Creating value from Sorbit Minerals. So you will not be seeing us get into semiconductors or anything like that anytime soon. So when Opportunities come up within that mission, we will be very aggressive and we have been.

Speaker 2

We've made numerous acquisitions over the years and we will continue to vet them as they come forward and fortunately have a lot of debt capacity if we needed it and are generating cash. So yes, all M and A will definitely be a part of our growth strategy, But it's not like we're going to make deals just to make deals. So we will be very opportunistic, and they will be bolt ons. They will not be

Operator

Okay. One more from John Baer. He asked, What gives you confidence that the B2B sales trends seen in quarter 1 of fiscal 'twenty four can or will continue throughout 24. Bruce, do you want to take that?

Speaker 6

Sure. And very good question. Thank you for the question. As I talked about the renewable diesel business, These plants are very large and they're pulling in a lot of different type of oils and different feedstock oils, vegetable oil being one of them and soybeans It is a big crop that is going to continue to grow to feed this industry and just to feed the general growth of the vegetable oil industry. As they produce oil from soybeans, they produce a lot of protein that gets sold into The different applications for feeding animals.

Speaker 6

So all of our B2B businesses relate to the ag industry. And with all this growth that's going on in the marketplace, it's clear that there's going to be continued growth in our businesses through this fiscal year and beyond based on what's happening right now and

Speaker 4

the growth of this business.

Speaker 2

Great. Thank you, Bruce. And before we conclude, just general comments on the Economy and how it relates to our ability to compete. I'm reading the articles and inflation, while it is toning down, is still well north of where the Fed To be most recent CPI was up for a little over 4%. They're always targeting for 2%.

Speaker 2

And so while it's Slowing down and the slope is getting less, it still is here. And so we will have to continue to be focused and diligent on making sure that we pass along the cost increases as we incur them that are outside of our control. We are very well with our own efficiency, but there are plenty of things that are outside of our control that would impair our ability to Give our customers the value and the quality and the service that they demand and that they deserve. So just mindful of that And we'll see how it goes going forward. I'm very happy that I don't see a recession.

Speaker 2

I would have predicted 1 and I would have been wrong, but I'm glad to be wrong on that front. So thank you very much. As you can see, the fiscal 'twenty three was literally our best fiscal year ever, and we're off to a great start in fiscal 24. And while this is a forward looking statement, I will just say I hope fiscal 'twenty four turns out to be even better than fiscal 'twenty three. Let's keep our fingers crossed, but hope isn't a strategy.

Speaker 2

And what is a strategy is everyone pulling together all 1,000 of us to make it happen. And I'm very, very supportive and confident of the team. So thank you for your support as a loyal shareholder and we'll look forward to talking to you again after the second quarter. The meeting has now concluded. Thank you for joining, and have a pleasant day.

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Oil-Dri Co. of America Q1 2024 & AGM 2023
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