Pay Attention To Microcap Oil-Dri Corporation

Supply Chain Costs Are Still Rising For Oil-Dri Corporation 

Oil-Dri Corporation NYSE: ODC is not a big company but it is representative of an issue that has been and is still plaguing the global supply chain. The company manufactures sorbent mineral materials, things like kitty litter, and similar items for industrial purposes, and it is reeling under the pressures of inflation. While demand for its products is growing its cost are rising and at a rate quicker than Oil-Dri can compensate for. This means yet another round of price increases for its customers, price increases that are going to get passed down the chain from one to the next to help drive systemic inflation, but we digress. The takeaway for Oil-Dri investors is the company is planning to and/or already has raised prices across many of its product lines and that should help restore margins in the coming quarters. 

Daniel S. Jaffee, President, and Chief Executive Officer, stated, “We achieved record-high quarterly consolidated net sales for the first three months of fiscal 2022.  Cost pressures continued to exceed price increases.  Pricing actions were implemented during the first quarter, and additional increases will be executed in the second quarter in order to offset higher costs …”

Oil-Dri Has Mixed Quarter 

There are no analysts following this company yet so the only comparisons to be made are versus prior results. The company delivered $82.46 million in consolidated revenue for a gain of 8.5% versus last year and last year’s sales were up. On a two-year basis, Marketbeat.com data reveals revenue is up more than 15% on rising demand that is exceeding the company’s capacity. That’s led to investment in additional capacity that we see driving increased revenue and profitability in coming quarters. On a segment basis, the B2B segment saw its revenue grow 5% while the Retail/Wholesale segment grew a stronger 10%.

“We experienced a surge of unanticipated demand for our products which led to a backlog of some orders.  While the majority of this backlog was due to delayed pick-ups by customers and longer lead times for materials needed to fulfill this demand, a portion of this was due to our own capacity constraints … we have expanded our production shifts and added necessary equipment in order to resolve these issues,” continued Jaffee. 

The bad news comes in the form of margins which are down in both segments. The B2B segment operating income fell 11% but was outpaced by a much larger 98% decline in the Retail/Wholesale operating margin. Because the company raised prices on many of the B2B items earlier in the year we are expecting to see price increases hit the consumer line hardest this time around. 

“We continue to aggressively implement pricing strategies, cost savings measures, and operational enhancements in order to improve profitability and drive our business forward.”

The Technical Outlook: Oil-Dri Falls To Support 

Shares of Oil-Dri slipped in early trading following the release and may move lower in the near term. The caveat is that a key support level is just below the price action and may halt the decline and or trigger a rebound once broken. If the support at $32.25 fails shares of this stock would fall to the lowest levels since the post-pandemic rebound began. If, however, support at this level is able to hold we see shares of this moving sideways and up to the top of its range near $37.