10-Q: Oil-Dri Q1 2026 Sees Sales Dip from Record Highs

Oil-Dri Corporation reports a 6% decrease in Q1 2026 net sales and a 6% drop in net income compared to the prior year's record-setting quarter, driven by lower volumes in key segments.

Summary

• Consolidated net sales for the three months ended October 31, 2025, were $120.5 million, a 6% decrease compared to $127.9 million in the same period of the prior fiscal year.
• Gross profit decreased by 13% to $35.5 million from $40.8 million, with gross margin declining to 29.5% from 31.9%.
• Net income for the quarter was $15.5 million, down 6% from $16.4 million in the prior year.
• Income from operations decreased by 20% to $17.0 million from $21.2 million.
• The Business to Business Products Group experienced a 9% decrease in net sales to $44.3 million, primarily due to lower volumes in fluids purification (down 13%) and animal health & nutrition (down 25%), partially offset by a 12% increase in agricultural and horticultural products.
• The Retail and Wholesale Products Group saw net sales decrease by 4% to $76.2 million, mainly driven by a 5% decrease in cat litter sales, attributed to high demand in the prior year from a large promotion and a lost private label account.
• Total Selling, General and Administrative (SG&A) expenses decreased by 5% to $18.5 million.
• Other income, net, was $0.7 million, a $1.7 million gain compared to a $1.0 million expense in the prior year, primarily due to a positive confidential legal settlement.
• Cash and cash equivalents decreased by $8.1 million to $42.4 million from $50.5 million at fiscal year-end 2025, mainly due to financing and investing activities.
• The company repurchased $7.0 million of stock and paid $2.4 million in dividends during the quarter.
• Capital expenditures for the quarter were $9.1 million.

Sentiment

Score: 4

Explanation: While the company highlights that the prior year was a record high, the current quarter shows significant year-over-year declines in net sales, gross profit, and net income. This indicates a weakening in core operational performance, despite some positive offsets from SG&A reduction and a legal settlement. The decrease in volumes in key segments is a concern.

Positives

• Total SG&A expenses decreased by $1.1 million, or 5%, driven by operating segment SG&A and a reduction in corporate unallocated expenses.
• Other income, net, showed a $1.7 million gain, primarily due to a positive confidential legal settlement.
• Tax expense decreased significantly, partly due to a discrete tax benefit from stock-based compensation and state tax benefits from legal entity conversions.
• Capital expenditures decreased to $9.1 million from $12.8 million in the prior year, indicating potentially more efficient use of capital or completion of major projects.
• Agricultural and horticultural chemical carrier products net sales increased by $1.3 million, or 12%, driven by favorable mix, higher volume, and higher prices.
• Net sales of co-packaged cat litter products increased 8% due to higher volumes.
• Foreign subsidiaries reported a net income of $0.2 million, an increase from a net loss of $0.2 million in the prior year, partly due to a foreign VAT assessment recognized in the first quarter of fiscal year 2025.
• The company remains in compliance with all restrictive covenants under its Credit Agreement.
• Overall domestic per ton transportation costs decreased by 6% and packaging costs by 4%.

Negatives

• Consolidated net sales decreased by 6% year-over-year.
• Gross profit decreased by 13%, and gross margin declined to 29.5% from 31.9%, mainly due to softer volume and higher costs leading to unfavorable fixed cost coverage.
• Net income decreased by 6% year-over-year.
• Income from operations decreased by 20% year-over-year.
• Overall domestic per ton cost of goods sold increased 3%, primarily driven by an 8% increase in per ton manufacturing costs, including materials.
• Business to Business Products Group net sales decreased 9%, with fluids purification down 13% (lower volumes, especially renewable diesel filtration) and animal health & nutrition down 25% (lower volume).
• Retail and Wholesale Products Group net sales decreased 4%, with domestic cat litter sales (excluding co-packaged) down 6% due to a large promotion in the prior year and a lost private label account.
• Cash and cash equivalents decreased by $8.1 million during the quarter.
• Inventory increased by $5.1 million, mainly due to the building of finished goods inventory and other additives to meet anticipated demand, which could indicate slower sales or overproduction.
• Accrued expenses decreased by $13.8 million (excluding capital expenditures), mainly due to the payout of annual bonuses and other miscellaneous expenses, indicating a significant cash outflow.

Risks

• Inherent uncertainties exist in estimates for reclamation costs, primarily due to unknown conditions, changing government regulations and legal standards, and emerging technologies for handling site modification. It is reasonably possible that modification costs in excess of amounts accrued could have a material impact on the Company's results of operations, financial condition, and cash flows.
• The ability to fund operations, make planned capital expenditures, make scheduled debt payments, and remain in compliance with financial covenants depends on future operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business, and other factors.
• The timing and size of any new business ventures or acquisitions may impact cash requirements.
• Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that objectives will be met and may not prevent or detect all errors and fraud due to resource constraints, human error, circumvention by individuals or collusion, or management override.

Future Outlook

The company believes that cash flow from operations, availability under its Note Agreement and revolving credit facility, current cash balances, and its ability to obtain other financing, if necessary, will provide sufficient liquidity for foreseeable working capital needs, capital expenditures at existing facilities, deferred compensation payouts, dividend payments, and debt service obligations for the foreseeable future. The modification work for the Georgia landfill is expected to be completed during fiscal year 2026. The company is currently evaluating the impact of recently issued accounting standards on its future disclosures and consolidated financial statements.

Management Comments

• Oil-Dri experienced strong results in the first quarter of fiscal year 2026. However, since net sales, gross profit and net income reached all-time highs in the first quarter of fiscal year 2025, we experienced a decrease when comparing the three months ended October 31, 2025 to the three months ended October 31, 2024.
• We believe that cash flow from operations, availability under our Note Agreement and revolving credit facility under our Credit Agreement, current cash balances and our ability to obtain other financing, if necessary, will provide sufficient liquidity for foreseeable working capital needs, capital expenditures at existing facilities, deferred compensation payouts, dividend payments and debt service obligations for the foreseeable future.

Industry Context

The filing primarily focuses on internal performance and segment-specific drivers rather than broader industry trends or competitive landscape. The decrease in fluids purification sales, particularly for renewable diesel filtration, is attributed to high demand in the prior year from new customer plant operations rather than a general industry downturn. Similarly, the decline in cat litter sales is linked to specific company-related events like a large promotion in the prior year and a lost private label account, not broader market shifts.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• The company is party to various legal actions that arise from time to time that are ordinary in nature and incidental to the operation of its business. Management believes none of the pending proceedings will have a material adverse effect on the business, financial condition, results of operations, or cash flows.
• A positive outcome of a confidential legal settlement in the matter of Oil-Dri Corporation of America vs. Entera Animal Health, et al., contributed to other income, net, for the quarter.
• A reserve of $2.5 million was recorded in fiscal year 2023 for anticipated modification costs at the sole landfill in Ochlocknee, Georgia. This estimate was increased by $0.6 million in fiscal year 2024 and $0.7 million in fiscal year 2025, resulting in a total $3.8 million expense related to this matter. The modification work is expected to be completed during fiscal year 2026.

Related Party Transactions

• One member of the Board is currently the President and Chief Executive Officer of a vendor. Total payments to this vendor for fees and cost reimbursements were $0.7 million for the first three months of fiscal year 2026, compared to $0.3 million for the same period in fiscal year 2025. There was $0.1 million in outstanding accounts payable due to that vendor as of October 31, 2025.
• One member of the Board retired from the role of President and Chief Executive Officer of a customer on September 28, 2019, and was party to a post-employment consulting agreement with the customer until September 30, 2025. Total sales to that customer, including its subsidiaries, were $0.1 million for the first three months of both fiscal years 2026 and 2025. There were no outstanding amounts due from that customer as of either October 31, 2025, or July 31, 2025.

Stakeholder Impact

• Shareholders: Experienced decreased net income and EPS, but continued to receive dividends ($0.180 Common, $0.135 Class B per share) and benefited from ongoing share repurchases ($7.0 million during the quarter).
• Employees: Stock-based compensation plans are in place, and the payout of annual bonuses impacted accrued expenses.
• Customers: Sales decreased in several product categories due to lower volumes and specific account changes (e.g., lost private label cat litter account). Some customers shifting to pick-up terms reduced transportation costs for the company.
• Creditors: The company remains in compliance with all restrictive covenants under its Credit Agreement, and long-term debt levels are stable.
• Suppliers: Accounts payable increased by $0.3 million (excluding capital expenditures), indicating ongoing purchasing activity.

Next Steps

• Complete modification work on the Georgia landfill during fiscal year 2026.
• Continue to evaluate the impact of new accounting standards (ASU 2023-09, ASU 2024-03, ASU 2025-05, ASU 2025-06) on financial statements and disclosures.
• Management will continue to determine the timing, number, and manner of share repurchases under the existing authorization.

Key Dates

Recommendation

While the company reported a decline in sales and profits compared to a record-setting prior year, it maintained profitability and positive operating cash flow. The reduction in SG&A and a legal settlement provided some offset. The company's liquidity appears sufficient, and it continues to return capital to shareholders through dividends and share repurchases. However, the volume declines in key segments (fluids purification, animal health & nutrition, cat litter) warrant caution. Investors should monitor future quarters for stabilization or reversal of these sales trends before considering a stronger position. The long-term debt structure and compliance with covenants are stable.

Keywords

Sorbent products, Clay minerals, Cat litter, Industrial absorbents, Sports field products, Agricultural chemical carriers, Fluids purification, Animal health and nutrition, SEC filing, 10-Q, Quarterly report, Financial results, Operating segments, Gross profit, Net sales, Net income, Cash flow, Debt, Stock repurchase, Dividends