Good day, ladies and gentlemen and welcome to the Oil-Dri Corporation of America third quarter 2009 earnings conference call. My name is Mary and I will be your coordinator for today. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Mr. Daniel S. Jaffee, President and CEO. Please proceed, sir.

Thank you, Mary and welcome, everyone to our third quarter teleconference. And first off, I apologize for the telephone number snafu -- fortunately 17 of you did find your way to the teleconference so that’s about as good or better of an attendance number as we’ve ever had, so hopefully everyone who wanted to get on the call is now on the call. With me today as always, Andy Peterson, our CFO; Charlie Brissman, our General Counsel; and Rhonda Williams, our Director of Investor Relations, and Rhonda, will you cover the Safe Harbor?

Absolutely. Thank you, Dan. Welcome, everyone, to our third quarter teleconference. On today’s call, comments may contain forward-looking statements regarding the company’s performance in future periods. Actual results in those periods may materially differ. In our press release and our SEC filings, we highlight a number of important risk factors, trends, and uncertainties that may affect our future performance. We urge you to review and consider those factors in evaluating the company’s comments and in evaluating any investment in Oil-Dri stock. Thank you. Back to you, Dan.

Thank you, and we will go through a little presentation and then reserve the majority of the time for a Q&A session. As always, please prioritize your questions, ask your most important question first and then get back into the end of the queue. We will be here for a half-an-hour so definitely hope everyone has a chance to at least ask their most important question. Andy, will you take us through the quarter?

Sure. We had sales of $58.1 million for the third quarter, down 3% compared with last year’s $59.5 million. We had a gross profit of 22.8% in the quarter, up from last year’s 18.6%. Higher selling prices and lower freight costs more than offset reduced volume and an 8% increase in manufacturing costs excluding kiln fuel. The cost of kiln fuel to dry our products in the quarter was relatively flat in comparison with last year’s third quarter. This was a significant improvement compared with the first six months of fiscal 2009 when the cost of kiln fuel was $3 million higher than the comparable period in fiscal 2008. Operating expenses were 16.6% of sales, which was up compared with 13.8% in last year’s third quarter. The higher percentage was primarily due to a higher annual incentive bonus accrual in the quarter compared with last year’s third quarter, and costs related to the launch of new products. Through nine months, operating expenses were 14.8% of sales, which were relatively flat compared with 14.7% in last year’s comparable period. Our effective income tax rate was 29% of pretax income in the quarter, up from 26% in last year’s third quarter. Through nine months, the effective tax rate was 27% in both years. Net income was 4.2% of sales, up from last year’s -- or up from 3.4% in last year’s third quarter. EPS was $0.33, an increase of 18% compared to $0.28 in last year’s third quarter. Through the first nine months of fiscal 2009, $8.3 million of cash was provided from operations, up from $6.1 million in the comparable period last year. Capital expenditures of $12.7 million were up significantly from last year’s $4.3 million. The increase in capital expenditures was primarily due to the construction of a new plant designed to produce engineered granules and purchases of land. Debt payments were $5.6 million in comparison with last year’s $4.1 million. Dividends paid of $2.8 million were up 9.2% compared with last year. Cash and investments at April 30, 2009 was $15.7 million, down $11.4 million compared to last year. Notes payable of $21.5 million was down $5.6 million compared to last year. Dan.

Thank you, Andy. All in all, a very positive quarter, given the backdrop of everything that is going on in the economy. While sales were down 3%, profits were up nicely and so I think a lot of industries would be very happy to see some volume off so slightly and then be able to get some margin repair at the same time. I would like to, Mary, at this time open it up to Q&A so that I make sure I cover the issues that are most important to our investors.

(Operator Instructions) Our first question comes from the line of Ethan Star, Private Investor.

Good morning and congratulations on a nice quarter.

Thank you, Ethan. You ought to go on Jeopardy -- you’re always buzzing right in there. You’re awesome. I knew you would be the first question. What’s on your radar screen?

Well, you’ve been investing a lot of money in the Calibrin rollout and while you may not wish to quantify it, could you please comment on how that investment in the Calibrin rollout has masked the true earnings power of the rest of Oil-Dri's business this fiscal year?

Let me answer part of it and then see if that positively answers your question -- I think in the last quarter, I gave you a sense of the trend and while it’s certainly not material at this point because the snowball, while growing, is still not big enough to leap into materiality land. You know, in the first quarter of this fiscal year, which was the first quarter of the rollout, we sold $88,000 worth of the new products. We sold $204,000 of them in the second quarter and I am happy to say we sold $325,000 in the third quarter. So clearly the snowball is growing and building. However, when you put that in light of a couple of factors, it really is remarkable and very positive. One factor would be the general economic malaise launching new high value-added products in this environment is the equivalent to running against the wind but as you can see, we are still gaining ground. Additionally, things that were completely unforeseen, i.e. swine flue, has certainly not helped the launch. Half of the product line is targeted right at the swine market, our Calibrin Z product, which binds a [relonone] in swine and obviously swine production globally took a hit when everyone frankly from what I understand erroneously linked swine production to the swine flu. They are unrelated, from what I understand. It’s not like you can go and catch swine flu from pigs and certainly pig production, when they are slaughtered and processed, there is zero -- nothing survives that process. But having said that, they got caught up in that hysteria. So given the fact that we’ve had some negative macro trends, we’re pretty positive with the micro trends that we have seen.

Okay, but you didn’t answer my question.

No, but I’m good at that -- see, I try and answer the question I want to answer. No, I mean, you know, I think it’s pretty positive that a company our size can launch new products and still show incremental profitability growth, so what, through nine months now we’re at $0.97 a share against $0.91 a year ago, having embarked upon probably the biggest launch we’ve ever taken on in the last three, four years. So in the past, I know because I’ve been doing this now for a long time, unbelievably. I took over in ’95. In the past, when we launch new products, I mean, we had to come to you investors and say look, we expect you to forego a dividend increase, forego an earnings increase as we launch this but it will be in your best interest in the future. And so we’ve created short-term earnings in order to hopefully benefit future earnings. Now we are of a critical mass and of a size at least for the moment where we are able to reward you guys but also invest back in the business. So you have not seen -- you have not been asked to take a huge haircut in this rollout, which is a good thing.

No, the hair’s grown.

There you go. You’re bushy. Excellent. Well listen, did I sort of answer your question there?

Yes, thank you. I’ll get back in the queue.

Thanks, Ethan.

Your next question comes from the line of Jim Schwartz from [Havi] Partners.

The 420 basis point increase in gross margin year over year, could you kind of just walk me through besides natural gas, what were sort of the puts and takes there? Because it’s pretty significant. I’m just curious if -- I guess the comps year over year for next quarter are relatively easy as well, but do we expect a similar gross margin do you think in the fiscal fourth quarter as well?

Good question. On natural gas, on gas for our kiln fuel was about a push in the quarter versus a year ago in the third quarter, so we gained no gross margin benefit but we didn’t take a hit either. All the benefit came from two things -- number one, selling higher value-added materials and I often reference our average per ton selling price, so we averaged in the quarter $248 a ton against $227 a year ago. So that obviously more than offset some of the cost increase because what we did get a benefit from, for instance, diesel was down, so our freight cost per ton was down. We have input items that use resins, either our jugs or our liners or our [inaudible] polypropylene products and those track with petroleum prices and those were down so those costs were down. So our procurement team did a great job of tracking those indexes and making sure that as those went down, so did our costs. So very positive, I think, to note that while kiln fuel, which is our biggest use of fuel, was a dead push, we did show margin expansion. Now, those of you who follow our Q pretty closely know we are not going to get a lot of relief in kiln fuel in the fourth quarter either because we tend to do our hedging program on a fiscal year basis but come 7/31, a lot of those contracts roll off and so you’ll see a stair step down in the kiln fuel piece of the equation as well. So to answer your question, you know, margins should be similar in the fourth quarter as they were in the third quarter. However, a lot of that is volume related so if volume continues to be soft, you might take a little bit of a margin hit there, just on your fixed cost utilization. But then come 8/1 when the new gas contracts roll in and the old ones roll out, you’ll see a nice bump there, again providing the volume comes in.

Great. Thanks, Dan. Thanks, guys.

Your next question comes from the line of Robert Smith, [Centa] Performance.

Good morning, guys. Can you tell me something about the size and capacity of your new plant?

Yeah, and actually, it was a great grand opening. We were down there last week and we did the ribbon cutting and the team was down there and state officials, representatives from the governor and the senators and it was --

Where is it, Dan?

Excuse me, Bob?

Where is it?

The plant is located in our Ripley, Mississippi facility. And you were asking about the capacity of it -- it’s a modular facility. We started with enough to do 10,000 to 15,000 tons a year, which is not big but we can quadruple that relatively easily as we -- as the market demands it and as we prove out the process. You know, anytime you start anything new up, you are going to have growing pains, let’s say. You know, historically in our industry, clay has always been started from big sizes. You mine it out of the ground in big chunks, you break it down, you break it down, you break it down. You screen it and finally you are left with the fraction you want and then a lot of waste, a lot of dust that gets thrown away. These granules, as we call them, are engineered granules. They are all about building them back up and so by doing that, we can do some pretty unique things specifically tailored for our customers, and so we have a wide array of customers who are very interested in this product and who are working with us already to say hey, can you do this, can you do that, and we can. And so how high is up? It’s hard to say. You are both competing into an existing market -- not clay, but there are other products out there that we will be competing with. Ours has some great advantages over those products. And then we are hoping to expand the market too, that as new formulations come online and they see how really eye-popping this granule is, that they will want to formulate their product on it.

Dan, is this Calibrin specific at the moment?

This is not even related to Calibrin at the moment.

Oh, it’s totally away from it?

It’s totally away from Calibrin, so it’s a -- it’s an existing market for Oil-Dri, in a sense. It’s used in the clay as a carrier but in all sorts of different applications that our historic clay products were either too dusty or too irregular to compete in. These granules are very uniform and have zero dust. They are almost a perfect sphere.

Thanks. I’ll get back in the queue.

You have a follow-up question from Ethan Star, private investor.

Yes, just following up on Bob’s question -- could you please tell us more about the -- what industries are the engineered granule products for? And also, considering you are spending $7 million on a plant for 10,000 to 15,000 tons, I hope it’s a high margin product.

We forgot that part. Yes, absolutely. This is all along our creating value from [sorbin] minerals, so it’s absolutely an evolutionary -- on that evolutionary curve. Ethan, I’m surprised you didn’t spot the articles that ran in the local newspapers. You’re usually pretty good on that radar screen. You’re going to have to search the web for those because they ran a couple of newspaper articles and actually did a good job, and as I joked, they had a nice picture of Kevin Costner there on the front. No, I’m kidding, it was me. But anyway, it’s an inside joke. But your question -- now I’ve forgotten your question. What was your question, Ethan?

Well, what industries are the engineered granule products for?

It’s for an insecticide carrier and it’s for those applications that absolutely require no dust and require a great degree of uniformity so that they can get the pattern, the distribution pattern exactly where they need it to be. Some of the applications they want the granule to disintegrate quickly when moisture hits it. Other ones, they want it to disintegrate slowly, more of a time release, and there are some applications where they don’t want it to disintegrate at all and due to our process, we can make our granule do all three, whatever they want. Fast, slow, or not at all, and so it’s going to be all around food production again and turf and ornamental type applications. It’s, you know, on the agricultural end of our business.

Okay, thanks. I’ll get back in the queue.

You have a follow-up from Robert Smith, [Centa] Performance.

So just circling back to the natural gas pricing situation, I’m a little fuzzy on where you do get the benefit by quarters, based upon your hedging program.

Well, this fiscal year, for instance, Bob, our average cost, MMBTU, and let me put a range on it because it varies on how much we use of one thing or another, but it’s been at around $10 or $11 in MMB to you, okay? And we use about 2.5 million-ish, a little bit less when volume is light, 2.2 -- let’s say 2.2 to 2.8 million MMBTUs a year. So obviously every dollar drop would mean a little over $2 million of incremental profitability, pretax profitability. You can see in our Q that we’re forward bought in the sevens for a chunk of our needs and starting in 8/1, we actually were opportunistic and locked in the first quarter of our fiscal year a little heavier, August, September, and October. We were able to buy those incremental contracts right around four. Now, there’s a delivery charge. You’d have to add a little bit -- five, let’s say it gets to our plan at 510, 520. But you are starting to see that if we save $3, $4 an MMBTU come 8/1, times 2.5 MMBTUs, you know, we can all do the math and it’s pretty startling. So that’s -- you know, as long as the volume comes in and we can survive the hurricane season, I guess first quarter we’re pretty well buffered from the hurricane season but as long as gas doesn’t go back into the $14 to $20 range next year, we ought to be pretty good.

Okay. Thank you. I’ll get back in the queue.

You have a follow-up again from Ethan Star. Ethan, your line is open.

Okay. Thank you. The 10-Q indicated that sales in the last month of the third quarter decreased compared to last year. Are sales continuing to drop off thus far in the fourth quarter or has the drop in the sales leveled off?

You know, I don’t know that we want to be getting into interim. I would just say in general, sales volume has been softer than we would have loved. We don’t think -- frankly it’s all due to the economy, so we’re not just making an excuse. Some of it is due to various industries that are cyclical and that are very much tied to crop production and if the crop comes in very strong, it can have an impact on our business; comes in weak, it can have an impact on our business. So we think our share in the number of our value-added businesses is actually as good or better as it’s been, just the market itself has contracted a little bit but not due to the economy. So do I foresee a 180 and all of a sudden volume come roaring in in the fourth quarter? No. I would see a continuing soft volume in the fourth quarter but having said that, still very bullish on the profitability of the business, given where our cost trend line is going.

Okay. Anything new in the M&A area?

No, nothing new -- just -- I think this is an accurate statement, so let me put some qualifiers around it. You know, in the last six years, all the acquisitions in the category have been made by us on clay production. So either you are likely to see no acquisition or you are likely to see us make an acquisition. This is a tough business. This is not an easy business and unfortunately, it’s getting a lot tougher. That is both bad and good. The good part about it is I guess the barriers to entry just keep going up and up and up. The regulatory profile in our business is getting more and more stringent every year -- health and safety, again raising the bar every year, so it just makes it that much harder to say I want to throw up a clay plant in the United States. That’s just -- as you know, we tried to do that in Nevada and three years and $3 million later, we waved a white flag and ended up acquiring the [Taft] plant in California, an existing grand-fathered and permitted plant. That was sort of a long-winded round-about way but it’s -- you know, when you are making an investment in Oil-Dri, as I’ve said, you are basically saying is there value in enterosorbent minerals -- if there is, this is the place to go. If there isn’t, then run, obviously. But we believe there’s a lot of value in enterosorbent minerals and we believe that our critical mass is going to continue to be good for us and our shareholders.

Thank you. Due to time restrictions, I would like to hand the call to Mr. Jaffee for closing remarks.

Thank you, Mary and thanks, everybody and listen, we are very bullish on the long-term of the business. We are happy to deliver a quarter where we helped, as we predicted, that margins would start to repair, and they did. You know, still have a ways to go or where we think we need to go but looking at sort of historic trend line, we were making 23% back in ’04 but the 22.8% we made in this particular quarter was as strong as we’ve seen since the second quarter of ’05, and that was very positive. And then you kind of look at it, well, you are selling a non-renewable resource so we do always like to measure our progress on a per ton basis. We’re pulling tons out of the ground. We have these resources and what are we getting for those tons? I’ve already referenced our net selling price per ton but bottom line on a net income per ton, you know, we made over $10 a ton in the quarter. And for us, historically that’s a fantastic place to be, so we want to keep it going, come 8/1 hopefully we’ll see another stair step improvement and we just have to make sure the tons come in. Then you get your per ton and obviously the two multiply together and your bottom line will look pretty good. So we’ll look forward to being with you on our fourth quarter and year-ending teleconference and thank you very much for your continued support.

Thank you, Mr. Jaffee. This concludes the presentation. You may now disconnect. Have a wonderful day.