Oil-Dri Faces Challenges Amid Record Sales in Q4 Fiscal 2024
Oil-Dri Corporation of America (ODC) posted a mixed bag of results for the fourth quarter of fiscal 2024. While the company achieved record sales, it grappled with rising costs and higher tax expenses. This growth was partially fueled by a recent acquisition, although profitability took a hit due to inflation and decreased demand in some sectors.
Performance varied across the company’s segments. Strong sales in fluid purification products were countered by a sharp decline in agricultural sales. Additionally, ongoing integration of the Ultra Pet acquisition added to the pressures of rising expenses and shifting cost dynamics.
Q4 Earnings Overview
For the fourth quarter, ODC reported diluted earnings per share of $1.17, down 30% from $1.67 in the same quarter last year. Net income attributable to Oil-Dri fell 28% to $8.5 million, down from $11.9 million, mainly due to increased costs and tax expenses.
Net sales rose 6%, reaching a record $113.7 million compared to $107.4 million in Q4 fiscal 2023. The Ultra Pet acquisition contributed 5% to this growth, with organic growth from higher-priced products accounting for the remaining 1%.
Segment Performance Disparity
Business-to-Business (B2B): This segment experienced a modest year-over-year sales increase of 2%, totaling $38.9 million. Growth was primarily driven by a robust 11% increase in fluid purification product sales, which reached a record $25 million, fueled by heightened demand for renewable diesel projects. However, the agricultural business faced a significant 40% sales decline due to reduced demand from major clients.
Retail & Wholesale (R&W): In contrast, this segment saw an impressive 8% growth in sales, amounting to $74.8 million. The Ultra Pet acquisition boosted this segment by 7%, while organic growth from domestic clay-based litter and industrial products provided an additional 1%. Noteworthy was the increase in branded lightweight litter sales, although private-label litter performance suffered due to a cyberattack affecting a key partner.
Profitability Metrics
Gross Profit: The company achieved a record gross profit of $33 million in Q4 fiscal 2024, marking a 9% increase year-over-year. The gross margin improved slightly, rising to 29% from 28% in the previous year, demonstrating successful profitability improvements with eight consecutive quarters of margin expansion.
Operating Income: Operating income inched up 1% year-over-year to $12.9 million, as sales growth slightly outpaced the increase in expenses.
Cost Dynamics
Oil-Dri’s cost of goods sold (COGS) increased by 10% year-over-year, mainly due to rising freight, packaging costs, and a non-cash inventory adjustment tied to the Ultra Pet acquisition. However, lower natural gas costs provided some relief, leading to a slight improvement in gross margin.
Selling, general, and administrative (SG&A) expenses rose by 14% year-over-year to $20.1 million, influenced by elevated compensation, sales commissions, and integration costs related to the Ultra Pet acquisition.
Overall, the climb in total operating costs reflected inflationary pressures and increased freight and labor costs, though moderating natural gas expenses offered some relief. Advertising costs are expected to stabilize in fiscal 2025.
Cash & Debt Situation
As of July 31, 2024, Oil-Dri had cash and cash equivalents of $23.5 million, down from $31.8 million a year earlier. This reduced liquidity was mainly due to the $45.3 million spent on the Ultra Pet acquisition and increased capital expenditures, which climbed to $32 million from $24.4 million.
Total debt rose to $49.8 million from $30.8 million in the previous year, reflecting the additional debt taken on for the acquisition.
Recent Developments
In May 2024, Oil-Dri completed the acquisition of Ultra Pet, which added silica gel-based crystal cat litter products to its lineup. The integration process is on track, and the acquisition added positively to earnings in Q4 fiscal 2024.
Closing Thoughts
Despite facing various challenges, Oil-Dri Corporation’s mixed performance highlights both growth potential from acquisitions and the difficulties posed by rising costs. The company’s strategic moves and market positioning will be essential to watch in the coming quarters.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
