Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 Oil-Dri Corporation of America Earnings Conference Call. My name is Kendall, and I'll be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Dan Jaffee, President and CEO. Please proceed.

Thank you, Kendall, and welcome, everybody to our third quarter and 9-month investor teleconference. With me is Jeff Libert, our CFO; and Doug Graham, our General Counsel; and Ronda Williams, who heads up all of our Investor Relations. And Ronda, will you take us through the Safe Harbor?

Certainly. Thanks, Dan. Welcome, everyone. 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 ask that you review and consider those factors in evaluating the company's comments and in evaluating any investment in Oil-Dri stock. Thank you.

Thanks, Ronda, and we'll stick to our usual format. Jeff, if you would walk us through the financial results.

Sure, Dan. As those of you who have read the release know, this was a challenging quarter financially. Sales were down 1% for the quarter, but up 3% year-to-date, a little over $56 million sales for the quarter and $169 million of sales for the year. EPS for the quarter was $0.28 per share, down 26% versus a year ago. For the year, EPS was $0.50 a share, down 10% versus a year ago. The story -- the top line has been essentially flat for a number of reasons, which I'll cover when I discuss the business group performance. The bottom line as we said in the last teleconference really suffered due to escalating commodity costs, primarily oil-related, but also somewhat paper-related. Those of you who follow us know that oil is a major factor in our costs and for freight and packaging. Additionally, our foreign subsidiaries have struggled, as they have in the past quarter. Also, as disclosed in our release, we spent more than usual on market research and advertising. As we've said in the release, we've spent $400,000 in the quarter for a new product to be launched in fiscal '12, which Dan will cover in just a few minutes. Covering the business groups and the Business to Business segment. Sales declined 1% for the quarter or last year's quarter, but income was down 13%. Co-packaging, international, animal health and bleaching earth sales declined during the quarter. For co-packaging/international, those are primarily coarse cat litter and the coarse cat litter segment of the cat litter market has continued to decline. We are still studying the matter, but we believe that some of the decline may be due to just the sluggish retail environment because of the economy in general. Animal health declined due to a change in…

Thanks, Jeff. Appreciate it and before we open it up to Q&A, I'll highlight or address one question, which I'm sure is on everybody's mind, which is to elaborate a little bit on a sentence from the quarterly release, which says, "This year we have made substantial investments in developing a new consumer product." Quite cryptic there in the news release, and yet they're waiting on it -- we could be getting into competing with Apple tablets, but we're not. We're sticking to cat litter. This is something that's, really it's a product that's 20 years in the making. We've been working on this very hard for the last 24 months with particular focus in the last 12 to 18 months. But what it is is we've always known that cat litter was used by volume, yet it was determined by the Department of Weights and Measures to be sold by weight, and so, because it was a solid. Although there are some solids that are sold by volume. For whatever reason they decided weight was the best value measurer for the consumer. And so what they really incentivized everyone to do was to come up with the heaviest weight products because then you could drive down your cost per pound, but really that was not the consumer's best interest. Well, the environmental movement has really turned that whole concept on its ear because as the liquid detergent guys proved that by taking water out of detergent, they were able to shrink the amount -- the number of ounces you were getting as a consumer. And prior to that move, liquid detergent was pretty much sold on a per ounce basis. You look at the cost per ounce and if that was something that you were focused on particularly, that's…

[Operator Instructions] Your first question comes from the line of Ethan Starr.

I'm very interested in this new product. Now you already have this Cat's Pride scoopable that's 14 pounds, whatever ounces is 20 pounds for the same volume. How does a new product compare in terms of weight to everyone else's 20 and your 14 for the same volume?

Very good question. Your specific question was, how does it compare on weight? It's a little bit heavier. The problem with the Cat's Pride -- Cat's Pride scoopable is a great product. It has a couple of achilles heels. It doesn't clump as hard and it's a little dustier. The substrate we use to make it clump to train full calcium bentonite into performing the clump actually creates some dust, and it doesn't clump as well as sodium bentonite. So while it's a good product, the analogy I would use for it, although it's better than this analogy, but this is a better analogy maybe for the pure alternatives, the wheats and the corns and so forth that are very light. Ours are still in the very good range is the idea of an electric car. I mean, I don't know anybody that's driving a purely electric car, but if it will go as far, as fast, was as cheap, was as easy to fill and to recharge as the gas cars to fill up, all those attributes, but did all that a gas car did, pretty much everybody would be driving an electric car. But the fact is, it doesn't. So that sort of Cat's Pride scoopable is an achilles heel. It's a great product for those people that don't need the clump strength immediately. Over time, Cat's Pride Scoopable actually clumps harder than sodium bentonite. It sets up and it congeals. But if you're want a -- for the high maintenance, high active or people with multiple cats, they sometimes want the harder clumping.

Okay. Will there be any benefit as far as less freight -- less fuel cost when freight shipping?

Well, I mean, for instance, let's just think about it logically. The Department of Transportation mandates that you can't put any more than 44,750 pounds in a truckload, okay? So if you have a current formulation that weighs 20 pounds a jug, you can calculate -- there's pallets in there, but you can calculate how many units you could get on a truckload. So all of a sudden, that same size jug which will fill the same amount of trays, instead of weighing 20 pounds weighs 15. You're going to get not 25% more because, again, there's pallets and so forth. But you're going to get about 22% more on every truckload for the exact same freight cost to get the first truckload to the account. So absolutely, there's dollar savings. There's also soft savings. I mean, think about it, if you're a retailer and you're breaking in whatever, 40,000 truckloads a year. Now to fill that demand, you only need to bring in 30,000 truckloads, well, your dock time just got a lot better. Your flow in and out of your yard just got a lot better. You just reduced the number of trucks you got to bring in by 10,000, not to mention the carbon footprint, which is very good since they're bringing in 40,000 truckloads with all that diesel and all the emissions, the CO2 emissions, you're now bringing in 10,000 less.

Okay. How's the pricing on the products?

At parity with the branded players in the category.

[Operator Instructions] The next question comes from the line of Robert Smith with Center for Performance Investing.

Well, you surprised me. I thought you were coming out with color coordinated cat litter. Okay. So just let me -- what are you going to call this?

I'm looking at my legal counsel. Are we divulging that yet?

I don't think so.

No, we're not divulging that yet. You'll know when it's time. We're going to have to support it with mass media. We're going to be doing some TV. We're going to be doing some print. Hopefully, you'll see it all over the place.

Okay. But I mean on the product, you're going to have to really be very clear as to what the product by name is going to be able to do.

I agree 100%.

Okay. So let's circle back to Wal-Mart, then the point of distribution comment. When you say it will reach comparable levels to fiscal 2009, was that the peak?

Yes.

Okay, so that's very encouraging.

It's very encouraging. I'll tell you the caution note is look, we were off the shelves for 2 years. We're now pretty much back where we were 2 years ago. Our movement is not the same per store. We're seeing a ramp up, but it's slow and, well, troubling I'm just -- I wish -- look, I wish we just immediately got back and we were moving the same per store today that we were moving 2 years ago. That hasn't happened, so we're working hard with the buyer. I can tell you they're very supportive. They want this to work. They want to get it right. There's some shelf positioning problems, where they sort of put it in some of their schematics, maybe not where it would be most advantageous for our brand and are working on that. So yes, it's very positive that we're back. I mean, it's unbelievable. This would be a harder business study at some point.

So can you -- is there any way to -- for the fourth quarter, the incremental business I mean, is this substantial?

We're not getting into that level of detail. But the good news is, from a points of distribution standpoint, we're equal to or even slightly ahead of where we were back in June of '09.

Okay. And the comment about the Verge granules and manufacturing costs, is that due to the increased commodity costs or what?

Actually, it's due to the fact that Verge is still really a product under development, and we continue to refine our process and learn more and make better quality and reduce cost. But it's still a fairly new process in the big scheme of things. And so it's -- for the foreseeable future, it's going to be higher cost than we would like.

The good news is there are some major breakthroughs in the quarter of how the process, one of the major granules we're making, and really dramatically reduced the cost. So going forward, there's some -- there's a rainbow out there.

So how will this influence the pricing of the product?

It's really -- you'd hoped they're disconnected in a sense. I mean, they can ultimately be disconnected if you're costs are greater than your sales price, then they get very connected. But once you're, hopefully, getting to the point where you're making margin, you want to be value priced, you want to be providing a granule that the consumer, your customer sees real value in and they don't really care what your costs are because they're getting utility out of it, hopefully, above and beyond whatever they are paying for it. And so, as you know, our mission statement is creating value from sorbent minerals. So we're really focusing on what's the value to the end user, trying to use this granule in those applications where they would find the most value.

Are you going to accept a lower margin than you would originally anticipated?

Ultimately, no.

I wouldn't say that. I mean, we find that -- though we've had a number of learnings as we go through, and one of the learnings is the market seems to value the product. And so we believe that, at this point, that the margins will be very attractive.

Can you tell me something about the background of Kevin Hayes?

No, I don't it -- just we're happy to have him. He's in the animal division. He's happy to have us. So far, I mean, he's good, but none -- we're not going to get into details.

How about China, you said you had registration there?

For Calibrin-A, -Calibrin-Z, right?

For Calibrin-A.

Calibrin-A.

Calibrin-A is registered. Calibrin-Z, there is a moisture hiccup, and we're still working on it. We believe we'll ultimately be registered.

So have you seen anything develop from that?

Sure, only to say, I'd just say, Amlin in general for the fiscal year has been disappointing, and we're working on it. But we think we've got some work to do. The product works and there's a real customer need. So ultimately, if you think you could figure out how to price it right, market it right, package it right, I think all 3 of those have some big question marks around it, how we've approached this, to ultimately get the pump primed. But we're not there, but the good news is there's a real market and our product really works. I mean, every time we do any studies, any tests, our product works. It's really the best out there at binding certain toxins. So we're going to figure this one out, but it's taking us time.

And I missed the last comment right at the tail end, you threw some figures out of I think $0.5 million and $2.5 million. What is that?

Was that Jeff or me?

That was me and that was related to the amount of money spent on stock repurchases during the year -- in the quarter.

Your next question is a follow-up question from the line of Ethan Starr.

Yes, have you begun the process of adding more capacity to the Verge production line?

No.

We're ramping up. As we learn more about the process, we're doing better with what we have. We're assessing expansion, but we're not...

Yes, you're thinking of Phase 2, because I did reference that on a prior call.

Right. We have not done that yet.

Okay. And regarding the new consumer product, the new cat litter, will that help get you increased distribution to chains you're not in already?

That's certainly the hope. I mean, and like I said, it hits so many key attributes both for the ultimate end user and for the retail partner that -- I mean, there's no such thing as a no-brainer, but this one's as close as it gets. Thanks. I mean, yes, I mean, we're pretty much down to the final couple minutes, and unless there's a question from someone other than Ethan or Bob. Kendall, is there?

You have a follow-up from Robert Smith. [Center for Performance Investing]

Okay. Bob, let's take your follow-up and then I'll do the wrap up.

I guess this fiscal year isn't going to be any more fire on the bottom line, but I hope you guys continue to inch up the dividends. I think it really pay in the long term.

Well, thank you for that feedback and as always, the board will address it at the next board meeting.

Okay, good luck.

Thank you. All right. Well, it didn't come up in any specificity, but I had the marketing team pull this together, so I might as well share some of it. The IRI data, we talked about it. It's only 45% of the market, but it does give you a snapshot and with our increased attention and investment in the consumer product end of our business, I think it's important for us to share with you each teleconference some of the market dynamics so you can assess for yourself how we're doing and how is the launch going. So the category is, as I said, it's $1.8 billion estimated. We know IRI is capturing $825 million. That's the 52-week number ended May 29, 2011, and it's up 0.4% from last year. So relatively flat, which is for this category down. I mean, this category for the -- historically has outpaced population growth and it's done well. So it shows that the economy is definitely having an impact, even on the cat litter category. It is in dollars, so people obviously are trading down. I don't think they're getting rid of their cats. Scoopable is up 2.1%, coarse is down 8%. So you start to see that the decline in coarse is speeding up a little bit and scoopable is inching up 2%. Dollar share scoopable is 70% roughly. Coarse grind is 20% of the category, and then 10% of things we would call alternatives, these wheat and peanut and corn and crystals, the purely silica gel products, which were down 2% for the year and they represent about 2.5% of that remaining 10%. So it gives you an idea where the category is. Happy to report Cat's Pride on a 52-week basis of the brand, dollar share for IRI was 3.7%,…

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.