Gauging Oil-Dri Corp’s Risk Factors

Oil-Dri Corp of America (ODC) produces and markets sorbent mineral products for diverse markets, including pet care, animal health, nutrition, agricultural ingredients, sports field and industrial and automotive. ODC recently registered robust top-line growth for the fourth quarter of Fiscal Year 2021, but its earnings nosedived.

Let us look at ODC’s Q4 financials and understand what has changed in its key risk factors that investors should know.

Driven by growth in cat litter, industrial and sports and agricultural businesses, net sales increased 20% year-over-year to $78.1 million. Sales of animal health and nutrition products remained flat during this period.

Despite this growth in the top-line, higher costs took a toll on gross profit. Domestic cost of goods sold per manufactured ton increased 7%, domestic freight per manufactured ton increased 7% and domestic packaging costs per manufactured ton jumped 40%.

Consequently, operating income fell to $1.7 million from $9.1 million a year ago. Earnings per share dropped to $0.08 from $0.83 a year ago. (See Insiders’ Hot Stocks on TipRanks)

The President and CEO of ODC, Daniel S. Jaffee, admitted that the Q4 showing was disappointing. However, highlighting a few positives, he said, “We continue to push forward with our two biggest growth opportunities: mineral-based antibiotic alternative feed additives and lightweight cat litter. I am excited to report that our animal health products are currently in several trials across the globe.

“In addition, consumer demand for our lightweight cat litter remains strong, and our branded and private label products continue to surpass category growth.”

Furthermore, to mitigate inflationary cost pressure, ODC has announced plans to increase the prices of its cat litter products sold in the U.S. and Canada in the second quarter of Fiscal 2022.

Despite the drop in earnings, shares of the company are up 2.1% so far this year. Now, let’s look at what has changed in the company’s key risk factors.

According to the new Tipranks’ Risk Factors tool, ODC’s top risk category is Finance & Corporate, which accounts for 34% of the total 29 risks identified. In its recent Q4 report, the company has added three new risk factors.

Under the Finance & Corporate risk category, ODC highlights that it cannot guarantee if its stock buybacks will enhance long-term value for investors. The stock buyback program could potentially decrease liquidity in shares, or affect volatility and could also deplete the company’s cash reserves.

The next two risks are under the Legal & Regulatory risk category. ODC notes that it is subject to various legal and regulatory proceedings that are generally expensive and time-consuming to resolve and could result in significant liability to ODC. Additionally, a future adverse ruling, settlement or unfavorable development could materially impact ODC’s results of operations.

ODC acknowledges that it may be subject to higher taxes or fluctuating tax rates that could negatively affect its results and cash flows. ODC’s effective tax rate is also influenced by the geography, timing, nature and magnitude of transactions, including acquisitions, divestments, restructuring and impairment charges.

The Legal & Regulatory risk factor’s sector average is at 18%, compared to ODC’s 21%.