Good day, ladies and gentlemen, and welcome to the Oil-Dri Corporation of America Q2 2014 Earnings Conference Call. My name is Tracey, and I will be your operator for today. At this time all participants are in a listen-only mode. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Mr. Dan Jaffee, President and CEO. Please go ahead, sir.

Thank you, Tracey. Welcome everybody to the Second Quarter and Six Months of Fiscal 2014 Investor Teleconference. Joining me on the call today is Dan Smith, our CFO; Doug Graham, our General Counsel; Reagan Culbertson, Investor Relations; and a special guest today, Dr. Ron Cravens, who runs our Global Animal Health Business will be here to field any and all questions regarding that particular area of Oil-Dri. Before we move on, Reagan, will you cover the Safe Harbor provision?

Okay. Everyone, welcome. On today's call, comments may contain forward-looking statements regarding the company's performance in future periods. Actual results in these periods may materially differ. On 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 for joining us.

Great, thanks, Reagan. And Dan as always will walk us through the quarter and the six months.

Okay, thanks, and good morning to everyone. Oil-Dri has announced record sales for the second quarter and first six months of fiscal '14. Earnings also improved in the second quarter. Sales of 69.3 million for the quarter and 132.9 million for the first six months were both up significantly from the same period last year. Our earnings per share of $0.60 per diluted share for the quarter which was up about 94% as compared to fiscal '13's value of $0.31. The quarter results throughout our to-date EPS are $1.1 versus $0.94 for the first six months of fiscal '13. Our retail and wholesale team reported improved sales, increased income for the quarter. We saw 50% volume increase driven by the increased private label cat litter sales associated with our acquisition of the assets of MFM Industries, Inc., a private label cat litter manufacturer. In addition to the private label increase, our sales of the Cat's Pride Fresh & Light product line grew by about 60% for the quarter as compared to the second quarter of fiscal '13. Our advertising and promotional spending was down for the quarter, and slightly down for the first six months as compared to the same periods in fiscal '13. However, we continue to expect that our advertising and promotional spending for fiscal '14 will be greater than fiscal '13. Our B2B group had a significant sales and income growth for the quarter and for the first six months. The improved results were thanks to the strong performance by fluids purification, animal health and agricultural products. Our gross profit percentage for the quarter was down to around 24% from 27% reported in the second quarter of fiscal '13. Our gross profit percentage for the first six months was about 25% as compared to 27% last year. We have experienced increased materials, packaging, freight cost throughout fiscal '14. The cost of natural gas using our manufacturing processes increased 28% for the quarter and 33% for the first six months as compared to same periods in fiscal '13. We remain strong from a balance sheet perspective. Our and investment balances at the end of the quarter were about $20 million, which was down about $16 million from the second quarter of fiscal '13. The decrease was driven by the acquisition of MFM, regularly scheduled debt payments, capital expenditures and working capital changes. On November 1, 2013 we invested about $13 million to acquire certain assets of the cat litter manufacturer MFM Industries, Inc. We're still working through the asset valuation process, but you will note that we increased our other assets and values to reflect initial valuation of goodwill and intangible assets. Finally, we continue our strong dividend payments to our stockholders with approximately 1.2 million paid out during the quarter. Thanks. I'll turn the meeting back to Dan Jaffee.

Thanks, Dan. And I won't even elaborate, I mean in your comments I'll see where the investors want to take the call. So, Tracey, let's open it up to Q&A. But as always, I'd like to encourage everyone to ask your most important question first, and then go back to the end of the queue. So, we make sure everyone who wants to ask a question get the chance, because as always we have a halt at 10:30 Central Time.

Thank you. (Operator Instructions) The first question comes from the like of Ethan Starr, Individual Investor. Please go ahead.

Good morning. Nice quarter.

Hi, Ethan, thank you.

I'm wondering why did you pay so much for the MFM assets, and how is the integration of that business going, and how has it benefited your branded distribution?

Okay, good question. I mean, first of all, the market price of any asset is determined by what someone out there is going to pay for it. It was an auction process. And we were the high bidder, but it wasn't like it was a sealed thing, it was an open auction. And we went back and forth and back and forth, and fortunately for us, we have enough synergies to more than justify the evaluations. So that's how the price gets determined. It's not -- you can't look at up on eBay or anything …

Okay. Yeah, I didn't know it was an auction, okay.

Yeah. It was a bankruptcy auction, which we participated in. Frankly, we are very happy we won the bid. So far it's going very well. The integration of all of those terms into our existing facility, so it's been a real challenge on our supply chain, you drop in that much business to really [alternate] (ph). And our operations and logistics and procurement teams have done a heroic job just trying to absorb it all. I sort of analogized it's a real "lose the ball" show, which is an item that's flying off the line. That's sort of what it looked for a couple of weeks. And we settled down on in our [fill ways or] (ph) backups to where they need to be. And our scorecards are getting where they need to be. But I've already met with a number of the customers who we're already doing business with in a large way, but now it's really moved to the top of their supplier chart. And they're very happy that it ended up in our hands. They embraced not only our ability to supply them private label goods, but also they learned that our brand is so successful. And so it's really going to be helpful on all fronts. It's going to make us more important when we sit at table with these major retailers, and it's going to help us be more efficient in some more of our brands. So, it's really a win/win for us.

Great. So, you added branded distribution where you didn't have any previously?

They don't move that fast. They go on planograms. I would just say I'm going to stick with my comments.

Okay. I will move back and get back in the queue.

Okay, thanks.

Your next question comes from the line of Robert Smith, Center for Performance Investing. Thank you. Please go ahead.

Hi, good morning. Can we bring Ron in? Listen, this question is directed to Ron. So, Ron welcome to the call. It's wonderful to have you on board. I'd like to see you available on some future calls as well. So, my question for you Ron is, can you give us some idea of the opportunity that you're going to be addressing in the next several years. You must have an internal three or five-year business plan. It seems very exciting and I'm wondering what color you can give to us.

Thanks, Robert. I can give us some general comments on the three to five-year view from our particular business segment. I think as you're aware, we have modified or evolved the business from what it historically was to more of a medical look particularly as we look at the application of our materials in managing gut-related diseases. It's a very heart area both on the human side as well as the animal side. And we continue to do research, which has led to some good advances. And we will continue to do that. And then, the other arm of that, I guess, if you will is improving our distribution and reach to the market, so that we can take advantage of our R&D. And we are seeing some real progress, some real nice results out of our R&D efforts, and they are starting to move into the market.

Could you give me some idea of the market opportunity size-wise and in animal health in the gut area?

That's a very open question that would be turned in there. I guess you would have to try to guess what particular thing you are trying to look at. I believe animal health itself is an $18 billion market space. Gut-related issues are going to be several billion dollars. How we can participate in that will be dependent on the regulatory environment and what sort of regulatory claims we can gain. Our intended space really is focused on the maintenance of a healthy gastrointestinal environment, which will lead to high productivity. Historically those markets are probably in the $2 billion to $3 billion area.

And then, what are the steps that you essentially have to take going forward from where you are now?

I think the main things we are doing are continuing to refine and support our products through research, and then select the markets where we have the best opportunities, given the modernization and consolidation of the livestock production systems, as well as the regulatory environment that allows us to take advantage of the performance of our products. Largely, those are outside of the U.S. with Latin America, Southeast Asia, North Asia, China certainly, North Africa, those areas where you are seeing the development of the agricultural industry, particularly the animal protein business as the population growth increases in its individual wellbeing or financial earnings increase, you see an increased consumption of animal protein. So, those are the areas where we are really focusing.

Okay, thank you. I'll get back in the queue.

Thanks, Rob. Excellent.

Your next question comes from Ethan Starr again, Individual Investor. Please go ahead.

Yes. What is the market potential for your new MD09 product? And I'm wondering if there are any competitors.

Ron, this is for you again.

Okay. Thanks, Ethan. MD09 is a product which has applications in a number of places, but we are currently pursuing the use of the product in poultry for control of essentially poultry diarrhea, which is called wet droppings in that segment. This is a very common issue. The size of the market is difficult to say just because of the nature of it. There are many competitors in the market. Based on our experience, we have a product that competes very, very well with anything on the market. But again, this is a price sensitive market. So, I think development in the size are going to be substantial, but I can't give you a specific comment today.

Okay. If you can do it for chickens, what can you do for humans?

You could in fact …

There is already Kaopectate.

Yeah, there is Kaopectate. There is also a direct material that's sold out of the company in France. It has a montmorillonite clay with a great flavoring that you can mix in a cup of water and consume for non-specific diarrhea. I know it's sold in China, because I had the occasion to use it.

And Ethan, next time you get an upset stomach, certainly, we will send you a waiver and a bottle and you will let us know how it works.

Okay. I'll get back in the queue. Thanks.

Your next question comes from Robert Smith, Center for Performance Investing.

Yeah, to Ron again. So, Ron, the Chinese -- our office is going to open. What are your expectations of the next 12 months?

Our expectations are to get to all of the start-up challenges, learning how to operate in China. Our expectation is that the business will grow substantially over the next few years. The next 12 months will be in that rollout phase, if you will. So, I think our particularly turns out and ad investment, we will start to increase as we hit towards the end of next year.

And just circling back to Ethan's question about MD09, could you give me an idea of the market opportunity and the size of that particular effort in poultry diarrhea/dropping?

Yeah. I think I can't give you hard dollars, I can give you some, maybe general guidelines that it's in the several hundred million dollar market is -- things that are used out there today, but there are many, many competitors. We just believe our product has unique capability, and we are going to find out for sure how much return we can get on it.

Well, what do you think the uniqueness is?

The uniqueness is that you will part the performance of the product, and part the fact that it's a very natural, 100% safe product. Whereby, when we have done field studies with the product, we can see improvements in the animal's fecal consistency within 24 to 48 hours. This is something that producers of course like, and it's a differential that we believe is at least on the forefront of the products for efficacy in this area.

What is the computation offered? You offered 24 to 48, where are they?

I'd say they are going to be something a little more protractile than that. But our job is not to define what they do; our job is to define what we can do.

So, you are telling me -- are you telling me that if you had 10% penetration, you will be seeking a $20 million, $30 million in volume just from that one product?

No. I am not going to make any projections on size.

No, no. Well, you said that particular area was around a couple of hundred million dollar market. So, I am just thinking, 10% of that maybe speaking of $20 million, $30 million. Am I wrong?

Dan, can you comment …

Yeah. We are not giving any forward guidance. You are allowed to do …

No. I am not looking to …

That's fine. We just render our models. And so, we are not answering. So, you can keep asking, but we are not going to answer.

No, no. It's an inaccurate statement a couple of hundred million dollars or several million dollars, hundred million dollars. And that's accurate. So I can do my own 10%. Is that correct?

I believe it's fair that you can make your own assessments of what that maybe to try to define the size of these markets which have no real tracking. You are just making guesses. And you are competing against everything from antibiotics to soluble fibers.

Okay, thanks a lot. I won't oblige with that. I'll get back in the queue.

Your next question comes from Ethan Starr, Individual Investor. Please go ahead.

Let's talk about Cat's Pride Fresh & Light a little bit. Sales went up quite a bit. It sounds like its doing well. And how much of the sales is new distribution versus more, or keep business. And what's those marketing spent you will be doing in the second half of the year, and tell us a little more about that, please?

Yeah. And I am going to talk generally because when we reported in the news release with an increase of 60%, which is absolutely accurate. But IRI doesn't put its periods exactly with the beginning and end of our quarter. So if you can't align the two up, so I am going to file the numbers that are necessarily going to line up, when we get the dates don't line up. And they are not capturing a 100% of the market. And we report a 60% increase, that's on shipments from our -- shipments and surety from us. So, its apples and oranges, but it should directionally give you what you need to know. So we are very excited that in the most recent IRI period, okay, for what's known as all of MDRs, which is mass, drug and grocery, okay? So, it's really captured probably 65% to 70%. In mid-single that's setting the path to club stores, Pet Specialty like Petco and Pet Smart, Pet Supplies Plus. But you are capturing a big enough sample size and it is directionally a real good indication of how well it's doing, and what you are trying to get at, which is velocity. So, our distribution in that area went up 5%. But our sales were up 36%. So, you get an idea that the velocity is growing significantly. I mean we have added products, and obviously many consumer companies have added products that are the opposite of what's happening, while you suffered from this churn, we keep putting on new real estate, but its two steps up and three steps back. And so, your distribution will go up 30%-40% and your sales volume will go up 10% and 20%, and so you are actually seeing a decline in velocity off the…

Yeah, I know all this, Dan.

Okay, good. It's important. You're not the only one that's on the call. If this is boring, you all stop, so I'll stop.

Well, we there is only limited time of the call, that's the issue. If you have an hour to talk about how is liquid detergent, go ahead, but we don't have an hour.

Okay.

Okay?

So, I've answered the question.

Thank you. Quickly if I can squeeze one more in, what's up with Calibrin versus Varium, when is Varium coming out?

Varium is going to be moving into the market towards this second half of this year depending on the registrations. As you know, we operate in a highly regulated environment. And we have to wait until we get approvals. Varium will be an extension of the overall product line, the whole portfolio, all of these products find utility in the area of managing health of the gastrointestinal threat.

Okay. Is that calendar year or fiscal year, second half?

Second half with be calendar year.

Okay. I'll go back in the queue. Thank you.

Your next question comes from the line of Robert Smith, Center for Performance Investing. Please go ahead.

Yeah, hi. Dan, you know I'm a long-term investor. But in the looking-forward section of your release, there is a paragraph that's a little (indiscernible), will you say the impact on earnings in the second half, but seeing that you're very optimistic going forward in the second half, it will be a busy and exciting period. What are you telling us? Are you telling us that essentially the numbers are going to be affected in a certain way, but still the developments away from the numbers are what's busy and exciting or are the busy and exciting development from the second half going to be a positive to the bottom-line as well?

I guess it's the combination of the two. I think that the purpose of that paragraph was really out of respect to our long-term holders. And so, but you didn't just take the first six months double them or say okay, they're all this much of the milestone, that we'll assume we're going to be of that much in the back half of the year and come out with your own projections. We don't really -- we're not going to give you any kind of guidance, you are going to have to run your own models. But we can see enough that when you factor in the items that we put out there, the incremental standing, the natural gas, and tax rates returning more to the normal historic levels, what we're telling is, don't you take the mid-year number and double it and put some number on it. That's what we're telling you.

Okay, thank you.

All right, good. Well, Tracey, I think we're out of time, and so let's close the Q&A line. And I just want to thank you guys. I would encourage you other investors who are on the call, if you have question to ask then, because Robert and Ethan are doing a great job of following the company. And we're very gracious to ask question after question. But that's why we end in 30 minutes, because it really -- nobody else seems to ask a question. And so as long as that's the case, we're going to keep it to 30 minutes. If we have a multiple questioners and we can't get to everyone's question within the 30 minute time period, we will absolutely look forward or consider extending the time. But as long as it just seems to be the same two people asking question over question; we're going to stick to our 30 minutes. So, thank you. We appreciate your participation and your loyal support. And we will talk to you again in 90 days-ish. Thanks a lot.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. And have a good day. Thank you.