Earnings Call Transcript - ODC Q1 2024

Leslie Garber, Director of Investor Relations

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're 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 four other proposals. Next will be the business presentations and financial review followed by time for Q&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 Scheland, our Chief Legal Officer and the Vice President and General Manager of the Consumer Products Division. She will conduct a formal portion of today's meeting.

Laura Scheland, Chief Legal Officer and VP/GM of Consumer Products Division

Good morning ladies and gentlemen. I now call the order of the 2023 Annual Meeting of Stockholders of Oil-Dri Corporation of America to conduct the formal business set forth in the notice of meeting 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 close of 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 foregone. Oil-Dri has appointed Peter Sablich of CT Hagberg LLC to serve as the Inspector of Election 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 5,108,734 shares of Oil-Dri's common stock and 2,170,415 shares of Oil-Dri's Class B stock outstanding. Holders of our common stock are entitled to one vote per share and holders of our Class B stock are entitled to 10 votes per share 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. Thus, the number of votes necessary to constitute a quorum at this meeting is 13,416,505 votes. Mr. Sablich has informed me that there are more than such numbers of votes represented at this meeting. Therefore, I declare there is a quorum present for purposes of transacting business. Now, I will present the matters to be voted upon. If any stockholder who would like to make a comment regarding any of the proposals, please submit your comment 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. As described in the proxy statement, the first item of business is the election of nine Directors. The proxy statement listed Oil-Dri's nominees for Director, each of whom currently serves as a Director of Oil-Dri. Those nominees are Daniel S. Jaffee, Ellen-Blair Chube, Paul M. Hindsley, Michael A. Nemeroff, George C. Roeth, Amy L. Ryan, Patricia J. Schmeda, Allan H. Selig, and Lawrence E. Washow. 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 ended 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 appointment to be submitted for ratification by the stockholders at this meeting. The third 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 fourth 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. Stockholders may choose whether they prefer we seek a vote every one, two, or three years, or they may abstain from voting. The fifth 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 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. It is 9:35 a.m. on December 13, 2023, and the polls 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. 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 filing, including our annual report for the fiscal year ended July 31, 2023. We urge you to review and consider those risk factors carefully in evaluating the company's comments and evaluating any investment in Oil-Dri stocks. Copies of our SEC filings are available through the company or online. 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-K to be filed within four business days. As described in the proxy statement, a director may only be elected by a plurality of votes cast. The nine nominees who received the largest number of votes will be elected. We have been informed by the Inspector of Election that the preliminary vote report shows that the nine candidates nominated by Oil-Dri received the largest number of votes. Regarding the second item of business, an affirmative majority of votes represented at this meeting is necessary for ratification of the appointment of Grant Thornton as Oil-Dri'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 ratification received more than a majority of the votes represented at this meeting. Regarding the third item of business, an affirmative majority of votes represented at this meeting is needed to approve on an advisory and non-binding basis the executive compensation of the named executive officers, as disclosed in the proxy statement. We have been informed by the Inspector of Election that the preliminary vote report shows that such approval received more than a majority of the votes represented at this meeting. On the fourth item of business, which is the non-binding advisory vote on the frequency of future advisory votes on executive compensation, the frequency every one, two, or three years receiving the greatest number of votes cast will be considered to be the recommendation of the stockholders. We have been informed by the Inspector of Election that the preliminary vote report shows that three years received the greatest number of votes cast at this meeting. Regarding the fifth and final item of business, an affirmative majority of votes represented at this meeting is needed to approve the amended and recreated Oil-Dri Corporation of America's 2006 Long-Term Incentive Plan. We have been informed by the Inspector of Election that the preliminary vote shows that such approval received more than a majority of the votes represented at this meeting. 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 Jaffee, our President and Chief Executive Officer for our business presentations and financial review.

Dan Jaffee, President and CEO

Thank you, Laura, and welcome everyone to the business section. We've got a great line of presentations for you today. Fiscal 2023 was our 83rd year in business, and it was our best. And fiscal 2024 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. I mean, it's 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 correlation 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. 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 the 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. First and foremost, Laura Scheland, 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 our largest division, which is the cat litter business, the consumer products division. 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 directors says, when she was at better price, she was absolutely one of the all-time best associates. 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 JD from Northern Illinois. You can see, he's been with us five years and was a Chick-Evans scholar back in college, which I think is 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. 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 Indiana and has a total experience with us of five years. Before that, he was with Pepsi. So please recognize and congratulate Jacob Smith on his new role. I don't want to steal any of Susan Kreh's thunder, especially since last time I covered her entire presentation. So I'm going to turn it over to Susan for a financial review of the fiscal year and the first quarter.

Susan Kreh, Chief Financial Officer

Thank you, Dan. It's not open mic night today. It's truly a privilege to be here today to share some highlights of our fiscal year 2023, which was an all-time record year for Oil-Dri, as well as to share some highlights for the first quarter of fiscal 2024, where we continue to see momentum as the team, and Dan mentioned, is a really strong team, delivers double-digit net sales growth across the board and doubles net income over the first quarter of fiscal 2023. As I proceed through the slides, I will be sharing a look back at the past five years of performance trends, as well as focusing on our first quarter 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-Dri’s earnings as the costs associated with the disruptions in the global supply chain increased faster than we were able to pass on in pricing. You will see that not only have we recovered, 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 in growth resulted from our team's focus on our growth strategies even during tough economic times that were incurred during the pandemic. 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 today. Now, I don't want to steal the thunder, even though I'm going to just a little, but I will share the highlights. In a few minutes, Chris Lampson will discuss the successful launch of our Cat’s Pride Antibacterial Clumping Litter. Dr. Wade Robey will share some of the highlights that drove the double-digit growth in our animal health products. And Bruce Patsey joins us this morning to brief us on the renewable diesel market and the opportunities that present to Oil-Dri. 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 first quarter 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 five of our principal product groups have turned in double-digit compound annual growth rates over the past three 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 business to business segment, we achieved compound annual growth rates of 24%, for agricultural and horticultural products, growth of over 21% for our bleaching, clay, and fluids purification products, and 15.5% growth for our animal health and nutrition products. In other words, we are firing on all cylinders and growing significantly in all product groups. We've experienced five years of sales growth, even throughout the pandemic as people adopted animals while they were working from home, and that continues to grow into fiscal 2024. And you see the nice growth to $111 million, a record for sales in our first quarter 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. As we look at Q1 here in fiscal 2024, you'll see that we are actually below the prior year in terms of tons sold. 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 helping to drive our profitability today. We continue to see the benefit of that into Q1 where our net sales per ton have risen to $563 per ton. A remarkable story and excellent work on the part of our 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 cost to supply, but that we've recouped a lot of that and today find ourselves at $156 per ton, an all-time record. We still have a little more work to do as our gross margin percent is climbing back up to 27.8%, but not quite at the levels it was prior to 2019. So the teams are focused on profitability, serving the right business, and we 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, a defined benefit pension plan. That was $4.6 million net of taxes. That positions us nicely because we no longer have the volatility of a defined benefit plan with respect to either the pension liability or the related assets that go along with that. So 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 of last year. Earnings per basic common share, you see the strong benefit of the first quarter here, again, more than double what we posted in the first quarter of last year at $1.61 per share. And you see our continued commitment to our dividends at $0.29 per share here in Q1 versus $0.28 last year and 20 years of continuously increasing the dividends of Oil-Dri and returning to our shareholders. If we look at our significant cash outlays, and we'll be hearing from Aaron Christiansen pretty soon, our VP of Operations. 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 is growing and actually growing outside the U.S. We see the need to build our working capital in specifically inventories and receivables in order to support our customers. Net debt, that's 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 pursue strategic initiatives. And here's the one that's, I think, making everybody smile these days, and that is our share price. 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 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. 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 potentially have 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 plans 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 on booking at Aaron. And with that, that's a good segue to turn this over to Aaron Christiansen, our VP of Operations.

Aaron Christiansen, VP of Operations

Thank you, Susan. I'm really excited to have a chance again this year to talk to our shareholders for a brief minute. Much like last year, I'm going to speak exclusively to the multi-year continued commitment in capital reinvestment in our business. A 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. 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 five-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 million in capital. Fiscal 2024 and beyond are anticipated to be at or above these levels. Oil-Dri 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 three specific investments that have been made and completed or 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 Taft, California plant. I've had a chance to talk with this multiple times over the past quarterly and annual meetings. 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 two primary solutions, which are a combination of PV solar and natural gas-fired 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. 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, exhort products. 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 it debottlenecks constrain 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 one of our primary 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. 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 plant. Rail infrastructure investments come online this coming February soon, and sometime likely no later than the fourth quarter of this year capacity will come online to support more sales or top and bottom line growth. We are very excited to deliver growth opportunities for our bleaching and fluids purification business. With that being said, I'd like to hand the baton to our Group Vice President of Retail and Wholesale, Chris Lamson.

Chris Lamson, Group VP of Retail and Wholesale

Thanks, Aaron, and 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 about some shifts in strategic plans to further accelerate our growth in lightweight. This year will be more show than tell. We've activated a number of those plans and we're excited to give you a better feel for you today by showing them. We've started, I think, over the last several years with a few slides to 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 over 10% approaching 11%. And I think the consistency of the growth is worth calling your attention to. 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 hit triple digits there and gotten to $100 million. Help a guy out. But in all seriousness, about 30% growth year-over-year on the lightweight business, which speaks to 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 represent that. So growth in overall share of lightweight and then significant growth in private label light weight approaching about 80%. But we always need something to work on, 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. It's really what most of the presentation is about. And I know my boss is pretty passionate about this topic because, Dan, you want to?

Dan Jaffee, President and CEO

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 to lightweight, and we actually don't believe that 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. But if you just look mathematically and say, okay, so 15% like lightweight, does that mean that 85% of consumers, all things being equal? 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 two to three 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. 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 say, for that delta, I'm taking home the heavier product. We have competitors who have launched somewhat inferior products, or they're good products, but they're really not that light. So there really isn't all things being equal. The consumer doesn't have that. And so we have launched Project Utopia and that's our goal. Our goal is to give the consumer what they want, what the efficacy they want, at a price point that they believe there's real value at. At that point, we believe they'll choose lightweight. So I'll turn it back to you because we can tell I'm very passionate about this because I don't believe that all things being equal, consumers prefer three times the weight. And by the way, the carbon footprint is three times worse because we weigh out trucks. So if we can get the consumer what they want, it'll actually help the environment in a big way.

Chris Lamson, Group VP of Retail and Wholesale

This is truly an ideal situation. The focus of the rest of the presentation revolves around how we can further drive growth, particularly with a 60% increase in Canada. The challenge lies in transforming the category in the US. It's a journey that requires significant innovation, aptly named Project Utopia. This initiative aims to eliminate the barriers concerning value, quality, and performance that have been highlighted. As a smaller player in the category, we have demonstrated our ability to introduce breakthrough innovations, like we did in 2011 with lightweight litter. Recently, in the last quarter, we launched a significant innovation that customers are excited about—the first and only EPA-approved antibacterial cat litter, which we will discuss in detail shortly. Another key aspect of our strategy is ensuring that the benefits of lightweight litter remain central to our consumer messaging. We'll showcase that shortly. Consistently, we emphasize the advantages related to the carbon footprint, ease of handling, effective truck loading, and the increasing consumer demand for lightweight products. These core messages are being embraced by our retailers, who are actively promoting the lightweight category alongside us. We will now delve deeper into the new antibacterial clumping litter. The Environmental Protection Agency regulates whether a product can be classified as antibacterial or disinfectant, and their approval process is thorough, taking one to two years at both the federal and state levels. One important insight from this is the significant scrutiny involved, which enhances our competitive position. The demand from consumers is definitely there, with two primary drivers in this scoop category: clump strength and odor control. Depending on the consumer studies conducted, these factors rank as top priorities. We have focused on odor control for quite some time, specifically controlling odor-causing bacteria. Our product is the only one that can claim to effectively kill these bacteria, and the feedback from customers has been overwhelmingly positive. Notably, major customers have rushed to adopt this product, even outside of their usual product change cycles due to their enthusiasm. The common feedback from consumers has been a heartfelt appreciation for our genuine innovation and product development rather than mere marketing hype. Next, we are making a shift in our approach. We have an ongoing social good campaign called Litter for Good, where we donate a significant amount of product to shelters in need, which has been greatly appreciated. We have previously focused our discussions on our Cat's Pride brand in relation to Litter for Good, but we are now shifting to emphasize the benefits of lightweight litter. We are promoting this through various media channels in a comprehensive manner. While our traditional television presence is minimal, we are utilizing digital TV, and I will share some examples shortly, along with banner ads. We are actively measuring our return on investment and adjusting our media strategy accordingly. The key focus is on the messaging surrounding lightweight litter because we are the market leader in unit sales and volume without promoting this message. Nick, could you please share some media examples, including both our base media and the materials supporting our new antibacterial initiative? Finally, we'll wrap up. And a little bit difficult to depict for you our sales folks in selling with fires. We did think we'd talk about what has been really extraordinary results here in terms of distribution, in particular. So as you look across our lightweight business and that 80 share on the private label side, we can now say that over 50% of all outlets, individual doors that sell cat litters, sell Oil-Dri private label lightweight cat litters. Which is fairly remarkable. Some of the doors and probably the majority of the doors that don't are actually doors that just don't sell private label or at least lightweight cat litter period. We've also really experienced over the last couple of years. I think, as we've talked before on calls about great progress relative to getting our price value relationship right. We've done that particularly well in e-commerce, 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 outlets. And then, as it relates to the brand, it's been more of a story of expanded distribution where we already have distribution, particularly behind the antibacterial innovation where almost all of those new doors were incremental distribution. Said differently. We didn't lose anything. We just gained. 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 lightweighting. And they’re chasing that market. So with that, I will turn it over to Bruce Patsey, who we love to call Bruce almighty.

Bruce Patsey, VP of Fluids Purification Group

Thank you, Chris. I appreciate your kind words. It's exciting to see the growth in your market. I'm Bruce Patsey, the Vice President of the Fluids Purification Group, and I want to discuss a new market opportunity in renewable diesel. Our filtration unit operates in three main categories: we serve the vegetable oil sector, provide jet fuel processing, and cater to the biofuels market, which includes both renewable and biodiesel. We have introduced two new absorbents, Metal X and Metal Z, that are contributing to our growth in this area. Over the last five years, particularly in 2022 and 2023, our business has seen significant expansion linked to renewable diesel, alongside gaining new vegetable oil customers. Renewable diesel is an advanced biofuel made from vegetable oils, natural fats, and greases. It burns cleaner than traditional diesel and emits less carbon dioxide, which is a major factor driving growth in this industry. Unlike biodiesel, renewable diesel is chemically identical to petroleum diesel and can be blended at 100% into diesel fuel, which encourages oil companies to set up renewable diesel plants adjacent to their existing facilities. Metal X and Metal Z, the products I mentioned for this market, are mineral powders that are used to capture contaminants like trace metals and phosphorus in oil. Removing these impurities is crucial because they can negatively impact the expensive catalysts used in the conversion process to renewable diesel. Our products enhance production efficiency, allowing oil to flow through quickly compared to many competitors. Looking ahead, the renewable diesel market is projected to grow significantly by 2030, with an aim of reaching approximately 7.4 billion gallons. Currently, the market holds around 4.1 billion gallons, indicating substantial growth potential. There are also government incentives supporting the industry, such as a $1 tax credit per gallon of non-aviation fuel produced starting in January 2025. This support is instrumental in encouraging companies to invest in renewable diesel facilities. The use of renewable fuels leads to a significant reduction in greenhouse gas emissions, up to 80%. Additionally, existing refineries can be repurposed for renewable diesel production, allowing companies to utilize the same land and infrastructure while adhering to environmental regulations. Overall, renewable diesel is a cleaner-burning alternative without sulfur or unwanted aromatics. As we progress, more renewable diesel plants are expected to open from 2024 to 2030, complementing the growth of our business. We're also seeing ongoing demand for vegetable oil driven by population growth. North America is our primary market, which is beneficial for our profitability. With an experienced sales team and a long history in this industry, we add value by helping refineries optimize their operations. The outlook for our business is bright, and we anticipate strong performance as we move through fiscal 2024 and beyond. Now, I'll hand it over to Wade Robey, the Vice President of our Agricultural Division and President of Amlan International.

Wade Robey, VP of Agricultural Division and President of Amlan International

Thank you, Bruce, and good morning, everyone. I’m excited to discuss our Amlan International business today. Amlan is the Animal Nutrition and Health division of Oil-Dri Corporation of America. I’ll begin with an overview of our portfolio to provide clarity and illustrate how we operate globally. We have a distinctive range of branded products that we introduced in North America a few years ago, which I will detail later. These products aim to enhance animal productivity to help them reach their full potential and improve production economics. Internationally, we have the chance to focus on specific market segments, leading us to organize, brand, and promote our products differently. In the disease prevention category, we’ve launched several new products, including NutriPath, which we’ll highlight later, and Fusion, a natural antioxidant that can be used alone or in combination with other antioxidants. We also offer products designed for overall productivity and feed efficiency, such as varium and neoprime, alongside our biotoxin control products, Calibran Z and Calibran A. Over the past five years, since 2019, our Amlan business has experienced solid growth, boasting a compounded annual growth rate of 11.3%. Following the pandemic, we saw a significant growth spike of 18% year-over-year in 2022 and 17% in the last fiscal year. This growth occurred despite pandemic-related logistics disruptions and serious disease outbreaks like African swine fever and avian influenza, which continue to affect markets, particularly in the U.S. Despite these challenges, we’ve experienced robust growth and expect this trend to continue. In fiscal year 2023, the North American market demonstrated rapid growth, particularly after the launch of our portfolio early in 2022, which we anticipate will soon become our largest market, consistent with trends in other feed additive markets. Latin America, particularly Brazil, has also shown strong growth, and our Mexican operation, Agra-Mex, is now fully integrated into Oil-Dri Amlan, paving the way for strong growth ahead in Mexico. In China, we encountered a downturn partly due to market conditions and a significant restructuring of our business there. Previously, we operated with a large direct market staff and distribution partners, but we have since streamlined these efforts and now work with a master distributor, allowing us to manage the market more efficiently and with lower financial risk. In Asia, we managed a slight growth of 2% despite ongoing pandemic effects and challenges from African swine fever. Why are consumers drawn to Amlan products? There is a global trend towards clean food produced naturally and sustainably, without pharmaceuticals or harsh chemicals. Amlan’s products align perfectly with this demand, as they are derived from Oil-Dri’s natural mineral sources, providing effective solutions without pharmaceuticals. The market opportunity remains vast, as illustrated by our graph, which shows the dominance of the broiler and swine sectors, alongside significant and rapidly growing segments in ruminants, pets, and aquaculture. We project annual market growth of approximately 3.5%, with pets, aquaculture, and swine leading the charge towards 2030. Our focus on toxin control is particularly relevant; the mycotoxin control market was valued at $1 billion in 2023 and is anticipated to grow at a rate of 5% per year. Mycotoxins affect all species, from poultry to dairy cattle, making effective control essential for ensuring high-quality food products. Our technology is grounded in absorption science, utilizing our clay mineral substrate, which offers extensive surface area for toxin binding. This creates a highly effective natural protectant for animals, enabling them to reach their full potential. We recently launched a product called Neutropet, designed for international markets and based on our clay mineral, enhanced with additional compounds that neutralize pathogenic organisms like Salmonella and Campylobacter. This product provides an alternative for producers seeking to avoid antibiotics. We are energized about this business because of the distinctiveness of our mineral sourcing and processing, our vertical integration from mining to product delivery, and the robustness of our technical support. We have deep experience in mineral science and a dependable company structure, allowing us to plan and invest for the long term. We are optimistic about the growth potential in the animal nutrition and health sector. Thank you for your attention, and I’ll now pass it back to Leslie Garber, our Director of Investor Relations.

Leslie Garber, Director of Investor Relations

Great. Thanks, Wade. Thank you all for listening to our presentation. I will now open the floor to questions. The first question comes from Ethan Starr, an individual investor. He asks about the prospects for significant revenue growth for Amlan's products and when that might happen.

Dan Jaffee, President and CEO

Thank you, Ethan. I appreciate the question. I would argue that it's already happening. We're seeing tremendous growth in this business. There are markets like North America that we are 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. We also are seeing pretty significant rebound now in Asia as those economies recover and again a continually strong performance in LATAM. So we expect 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.

Leslie Garber, Director of Investor Relations

Thank you. Our next question comes from John Bear from Ascend Wealth and Advisors, and he asks, do you plan to increase advertising spending at a comparable rate as was seen in fiscal 2023 and in the first quarter of 2024? Is your primary focus on retail consumer or B2B, and what product lines are you primarily focusing on? Chris?

Chris Lamson, Group VP of Retail and Wholesale

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 of scale their sales platforms through some really good marketing as well. But the majority within consumer and I think we've spoken to this in the past. 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. I was a little happy as we were playing some catch-up. Q1 this year is pretty predictive of what you'll see going forward and at the level as we look at our ROIs we like.

Leslie Garber, Director of Investor Relations

Great, thank you. The next question comes from Robert Smith Performance Investing. He asks, since R&D is the lifeblood of future long-term growth, do you plan a commensurate increase in this area to reflect your new earnings level? Also, in this respect, how do you measure its productivity?

Dan Jaffee, President and CEO

Thank you, Bob, for your question. Yes, R&D is essential to our growth—past, present, and future. Our mission is to create value from sorbent minerals. We are committed to a strategy we call miny ball, which is focused on using data to make informed decisions about where we hold a competitive edge and where our customers find the most value, while also recognizing when to step back from areas where we don't add value and another supplier might serve the customer better. Retaining those customers would require low margins, which is not a sustainable approach. We gauge our success by the value generated from the minerals we sell. Back in 2001, when the company was struggling, we sold over a million tons at an average price of $156 per ton, leading to $161 million in sales and a gross profit of only $29 million. In contrast, this past fiscal year in 2023, our sales increased to $413 million with a gross profit per ton rising to $127. While we only sold 811,000 tons, this reflects our focus on value-based selling. Although our revenue is increasing, we have consciously chosen to distance ourselves from unprofitable ventures. To put this into perspective, our average selling price reached $509 per ton last year, up from $156 two decades ago, and peaked at $562 in the first quarter. This year, our gross profit per ton grew from $28 to $127, and in the first quarter, it was $156. That’s our way of measuring success. We are clearly delivering value and believe there are various ways to achieve it—through products, pricing, and performance, as well as the service we provide. Our nearly thousand teammates globally are dedicated to delivering value to our customers daily, and we truly appreciate their efforts, as do our customers. Thank you for an excellent question; we take this matter very seriously.

Leslie Garber, Director of Investor Relations

Okay, the next question is from John Bear. He says Amlan International's top line growth was attributed to the sale of 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?

Wade Robey, VP of Agricultural Division and President of Amlan International

Yeah, thank you, Leslie, and thank you, John. Yes, this was an activity that happened 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 maintained, we had a mix of products, and we also had some products to some of our largest customers that were in fairly low inventory. 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. We're seeing some of our key customers there, especially in the dairy sector, grow significantly, exceeding our expectations. We expect all that volume to be consumed this year, fairly early in the year, and we're seeing orders already to replace that transfer of inventory.

Leslie Garber, Director of Investor Relations

Thank you. The next question comes from Ethan Starr. Last quarter there was mention of two new Amlan products. Are you able to tell us more about those at present?

Wade Robey, VP of Agricultural Division and President of Amlan International

Yes, thank you, Ethan. We've discussed in previous sessions that the sales cycle can be quite lengthy in this industry. We launched two products this past year, and both are currently in trials. The first product is an international natural antioxidant, which has been in direct field trials for about seven months with one of the largest integrators worldwide. That trial is going well, and we anticipate it will conclude in the spring, as they plan to conduct a full year of trials using the product. Although this timeline is longer than usual, it reflects a typical long sales cycle. The second product, Neutropet, is similar to a product we sell in the United States. That product is just starting trials now, and we expect a shorter sales cycle, aiming for sales in the spring to some of the largest U.S. integrators. We are excited about both products, but we are still completing field trials on each, which will wrap up soon.

Leslie Garber, Director of Investor Relations

Okay. Thank you. We have another question from John Baer. Any comments on the company's pursuit of an outlook on the M&A landscape?

Dan Jaffee, President and CEO

Thanks, John, for your question. Capital allocation is a major focus for the management team and the board of directors. As we continue to repair our margins, we are generating cash, which is great. How are we going to use that cash? First and foremost, it's investing in our people, in our plants, in our processes. As we're delivering more value and as our customers demand more value, it puts more pressure on our processes. What was acceptable five years ago from a quality standpoint will not be acceptable in five years, and we have to stay ahead of that curve. Clearly, reinvesting in our plants and our people is number one. Obviously maintaining and growing the dividend is a major use of our capital. We've raised the dividend 20 years in a row. Keeping that dividend healthy and growing is important to me and my sisters and all shareholders. Seriously, I am proud of our record there and want to keep that up. 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. Finally, is our M&A activity, and that one will be very narrowly focused on our mission, creating value from sorbent minerals. You will not be seeing us get into semiconductors or anything like that anytime soon. When opportunities come up within that mission, we will be very aggressive, and we have been. We have 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. Yes, M&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. We will be very opportunistic and they will be bolt-ons, not tangential jumps into different areas that we're not familiar with.

Leslie Garber, Director of Investor Relations

Okay. One more from John Baer. He asks, what gives you confidence that the B2B sales trend seen in quarter one of fiscal 2024 can or will continue throughout fiscal 2024? Bruce, do you want to take that?

Bruce Patsey, VP of Fluids Purification Group

Sure. Very good question. Thank you for the question. As I talked about the renewable diesel business, these plants are very large. They're pulling in a lot of different types of oils and different feedstock oils. Vegetable oil being one of them and soybeans 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. All of our B2B businesses relate to the ag industry. With all this growth going on in the marketplace, it's clear there's going to be continued growth in our businesses through this fiscal year and beyond based on what's happening right now and the growth of this business.

Dan Jaffee, President and CEO

Great. Thank you, Bruce. 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 wants it to be. Most recent CPI was up for a little over 4%. They are always targeting for 2%. While it's slowing down and the slope is getting less, it still is here. 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 doing 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. Just mindful of that. I'm very happy that I don't see a recession. I would have predicted one and I would have been wrong, but I'm glad to be wrong on that front. Fiscal 2023 was literally our best fiscal year ever, and we're off to a great start in fiscal 2024 and while this is a forward-looking statement I will just say I hope fiscal 2024 turns out to be even better than fiscal 2023. Let's keep our fingers crossed, but hope isn't a strategy, and the strategy is everyone pulling together all thousand of us to make it happen, and I'm very supportive and confident of the team. Thank you for your support as a loyal shareholder. We’ll look forward to talking to you again after the second quarter.

Operator, Operator

The meeting has now concluded. Thank you for joining, and have a pleasant day.