Oil-Dri Corp of America (ODC)

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with the financial statements and the related notes included herein and our Consolidated Financial Statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2025. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed herein under "Forward-Looking Statements" and "Risk Factors," and those discussed under Part I, Item 1A, "Risk Factors," of our Annual Report on Form 10-K for the fiscal year ended July 31, 2025.

OVERVIEW

We develop, mine, manufacture and market sorbent products principally produced from clay minerals, primarily consisting of calcium bentonite, attapulgite and diatomaceous shale. Our principal products include agricultural and horticultural chemical carriers, animal health and nutrition products, cat litter, fluids purification and filtration bleaching clays, industrial and automotive floor absorbents and sports field products. Our products are sold to two primary customer groups, including customers who resell our products as originally produced to the end consumer and other customers who use our products as part of their production process or use them as an ingredient in their final finished product. We have two reportable operating segments based on the different characteristics of our two primary customer groups: the Retail and Wholesale Products Group ("Retail and Wholesale") and the Business to Business Products Group ("Business to Business"), as described in Note 10 of the Notes to the unaudited Condensed Consolidated Financial Statements. Each operating segment is discussed individually below.

RECENT EVENTS AFFECTING THE COMPANY

Over a period of several days in January 2026, the southern and eastern United States was impacted by a significant weather event known as "Winter Storm Fern" that resulted in snow, freezing rain, and ice causing widespread damage and power outages (“Weather Event”). During this time, due to safety concerns and interruptions that we experienced to power, natural gas, and water, we temporarily shut down operations of our facilities in the affected regions, which resulted in reduced production. Our supply chain was also impacted, causing significant delays in delivery of materials and services necessary to resume production. These shutdowns and delays resulted in decreased fixed cost absorption and an increase of backlog in the second quarter of fiscal year 2026. All operations have since resumed normal activity and the backlog has decreased by $2.2 million at the end of the third quarter when compared to the prior quarter. We define backlog as purchase orders that we have received from customers and that we have accepted, but that have not shipped by the customers’ requested ship dates.

While ongoing geopolitical tensions and conflict in the Middle East have contributed to broader market volatility, these conditions did not have a direct, material impact on our results for the current quarter. However, continued uncertainty in the region may lead to increased input and transportation costs in future periods. The Company continues to closely monitor developments and assess potential impacts on operations and costs.

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NINE MONTHS ENDED APRIL 30, 2026 COMPARED TO

NINE MONTHS ENDED APRIL 30, 2025

CONSOLIDATED RESULTS

Consolidated net sales for the nine months ended April 30, 2026 were $364.6 million, representing a 1% increase compared to net sales of $360.4 million for the nine months ended April 30, 2025. The increase was driven primarily by higher volumes of cat litter and agricultural and horticultural products, when compared to the same period in fiscal year 2025. Further details of the drivers are discussed below in the segment analysis.

Consolidated gross profit in the nine months ended April 30, 2026 was $101.5 million, a decrease of $6.7 million, or 6%, from gross profit of $108.3 million in the nine months ended April 30, 2025. Gross margin (defined as gross profit as a percentage of net sales) in the nine months ended April 30, 2026 decreased to 27.8% from 30.0% in the nine months ended April 30, 2025, driven primarily by higher per ton costs. For the nine months ended April 30, 2026, the overall domestic per ton cost of goods sold increased 4% compared to the same period of fiscal year 2025. The increase was primarily driven by higher per ton manufacturing costs which increased 8% when compared to nine months ended April 30, 2025. Labor was the largest contributor to this increase, along with higher costs for repairs, depreciation, purchased materials, and natural gas. These increases were slightly offset by a 3% decrease in per ton transportation costs, and 1% decrease in per ton packaging costs for the nine months ended April 30, 2026, when compared to the nine months ended April 30, 2025.

Total SG&A expenses of $51.8 million for the nine months ended April 30, 2026 were $3.9 million, or 7%, lower compared to $55.7 million for the nine months ended April 30, 2025. The decrease was driven by a $3.5 million reduction in corporate unallocated expenses, primarily as a result of a lower incentive bonus accrual and lower corporate human resource costs. The additional $0.4 million decrease in SG&A expenses at the operating segments level is discussed below.

Total other income, net was $1.7 million for the nine months ended April 30, 2026, roughly a $3.5 million gain compared to total other expenses, net of $1.9 million in the same period of fiscal year 2025. This gain was driven by a number of items including, $0.9 million due to a reduction in the estimated landfill modification costs recognized in fiscal year 2026 compared to an increase in the estimated cost recognized during the nine months ended April 30, 2025 and $0.8 million due to foreign exchange gains. The gain was also in part driven by the positive outcome of a confidential legal settlement in the matter of Oil-Dri Corporation of America vs. Entera Animal Health, et al.

Tax expense was $8.8 million for the nine months ended April 30, 2026 compared to $9.8 million for the nine months ended April 30, 2025, mainly due to the impact of discrete items. We used an effective tax rate of 17% for the nine months ended April 30, 2026 compared to a 19% effective tax rate in the same period of fiscal year 2025. We adjust our effective tax rate based on expected annual taxable income and our assessment of various tax adjustments, including depletion and discrete items.

Our unaudited Condensed Consolidated Balance Sheet as of April 30, 2026 and our unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended April 30, 2026 show a $12.5 million increase in total cash and cash equivalents from fiscal year-end 2025. The increase was driven primarily by positive cash flow from operations, partially offset by investing and financing activities. Refer to the "Liquidity and Capital Resources" section below for more details.

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BUSINESS TO BUSINESS PRODUCTS GROUP

Net sales of the Business to Business Products Group for the nine months ended April 30, 2026 decreased $4.4 million, or 3%, compared to the nine months ended April 30, 2025, driven primarily by a reduction in sales of our fluids purification and animal health products, partially offset by an increase in sales of our agricultural and horticultural products. Net sales of our fluids purification products for the nine months ended April 30, 2026 decreased $5.2 million, or 6%, compared to the nine months ended April 30, 2025. This decrease was due to lower volumes, primarily of our products used in renewable diesel filtration, which were significantly higher in fiscal year 2025 when several new customers began operations in new plants. Net sales of our animal health & nutrition products for the nine months ended April 30, 2026 decreased $3.4 million, or 17%, compared to the nine months ended April 30, 2025, due to lower volume primarily driven by a temporary loss of a key customer at one of our distributors. Net sales of our agricultural and horticultural products for the nine months ended April 30, 2026 increased $4.2 million, or 13%, compared to the nine months ended April 30, 2025, due to a combination of favorable mix and higher volume.

Gross profit decreased 11% in the nine months ended April 30, 2026 compared to the nine months ended April 30, 2025. This decrease was mainly due to lower sales resulting in unfavorable fixed cost absorption and higher per ton manufacturing costs. For the nine months ended April 30, 2026, the overall Business to Business domestic per ton cost of goods sold increased 5% compared to the same period of fiscal year 2025. The increase was primarily driven by higher per ton manufacturing costs, including materials, which increased 9% when compared to nine months ended April 30, 2025. Per ton transportation and packaging costs remained flat for the nine months ended April 30, 2026, when compared to the nine months ended April 30, 2025. SG&A expenses increased by $0.4 million, or 3%, for the nine months ended April 30, 2026 compared to the nine months ended April 30, 2025, primarily driven by higher compensation costs.

RETAIL AND WHOLESALE PRODUCTS GROUP

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ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with the Consolidated Financial Statements and the related notes included elsewhere herein. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause a difference include those discussed under “Forward-Looking Statements” and in Item 1A “Risk Factors” in this Annual Report on Form 10-K.

OVERVIEW

We develop, mine, manufacture and market sorbent products principally produced from clay minerals, primarily consisting of calcium bentonite, attapulgite and diatomaceous shale. Our principal products include agricultural and horticultural chemical carriers, animal health and nutrition products, cat litter, fluids purification and filtration bleaching clays, industrial and automotive floor absorbents, and sports field products. Our products are sold to two primary customer groups, including customers who resell our products as originally produced to the end consumer and other customers who use our products as part of their production process or use them as an ingredient in their final finished product. We have two reportable operating segments based on the different characteristics of our two primary customer groups: the Retail and Wholesale Products Group and the Business to Business Products Group. Each operating segment is discussed individually below. Additional detailed descriptions of the operating segments are included in Item 1 “Business” above.

On October 9, 2024, the Company announced that our Board approved a two-for-one stock split in the form of a stock dividend. Stockholders of record as of the close of business on December 20, 2024 received a distribution of one additional share of Common Stock for each share of Common Stock held by such stockholder and one additional share of Class B Stock for each share of Class B Stock held by such stockholder as of the record date. The additional shares were distributed on January 3, 2025, and our Common Stock began trading on a post-split basis on January 6, 2025.

The stock split did not affect the par value of the Common Stock or Class B Stock, however, in order to implement the stock split we amended our Certificate of Incorporation on December 11, 2024 to increase the number of authorized shares of Common Stock from 15 million to 30 million. Proportionate adjustments were made to the number of shares that remain available for issuance pursuant to the Amended and Restated Oil-Dri Corporation of America 2006 Long Term Incentive Plan, as amended (the "2006 Plan"), as well as to the outstanding awards under the 2006 Plan.

While ongoing geopolitical tensions and conflict in the Middle East have contributed to broader market volatility in the second half of fiscal year 2026, these conditions did not have a direct, material impact on our results for the current fiscal year. However, continued uncertainty in the region may lead to increased input and transportation costs in future periods. The Company continues to closely monitor developments and assess potential impacts on operations and costs.

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RESULTS OF OPERATIONS

FISCAL YEAR 2026 COMPARED TO FISCAL YEAR 2025

CONSOLIDATED RESULTS

Fiscal year 2026 was another record year, with consolidated net sales and net income reaching all-time highs. Consolidated net sales in fiscal year 2026 were $493.8 million, up 2% from net sales of $485.6 million in fiscal year 2025 driven by favorable mix. The Retail and Wholesale operating segment drove the overall increase with higher cat litter volumes. Although Business to Business net sales declined slightly due to softer volumes in fluid purification and animal health products, the decrease was partially offset by growth in demand of agriculture products.

Cost of goods sold increased $13.8 million, or 4% in fiscal year 2026 compared with fiscal year 2025, as domestic per-ton costs rose 4% compared to fiscal year 2025. The increase was driven by higher per ton manufacturing and transportation costs. Per ton manufacturing costs increased 6% in fiscal 2026 as compared to fiscal 2025, primarily due to higher labor, materials and depreciation costs. Per ton transportation costs increased 3% mainly due to higher diesel costs and fourth-quarter trucking market impacts. Per ton packaging costs remained flat, as many packaging supply contracts are subject to periodic price adjustments, which lag changes in underlying commodity prices. These cost pressures resulted in a $5.6 million, or 4% decrease in consolidated gross profit in fiscal year 2026 compared to the prior fiscal year. Gross margin (defined as gross profit as a percentage of net sales) declined to 27.8% in fiscal year 2026 from 29.5% in fiscal year 2025.

Operating income remained relatively flat as the decrease in SG&A offset the decrease in gross profit. Total SG&A decreased $5.3 million, or 7% in fiscal year 2026 compared to fiscal year 2025. The decrease was driven by a $4.6 million reduction in corporate unallocated expenses and, to a lesser extent, by SG&A incurred by the operating segments. The decrease in corporate unallocated expenses in fiscal year 2026 as compared to fiscal year 2025 was primarily as a result of lower human resource costs attributed to corporate functions, lower incentive bonus and a reduction of outside services costs. SG&A expenses at the operating segments level are discussed below in the discussion of our segments' operating income.

Total other income, net for fiscal year 2026 was $1.5 million, a $3.5 million change from other expense, net of $2.0 million in fiscal year 2025. This gain was driven by a number of items including $1.0 million due to a reduction in the landfill modification costs recognized in fiscal year 2026 compared to an increase in the estimated cost recognized during fiscal year 2025 and $0.9 million in higher interest income in fiscal year 2026 compared to the prior fiscal year. The gain was also in part driven by the positive outcome of a confidential legal settlement in the matter of Oil-Dri Corporation of America vs. Entera Animal Health, et al.

Tax expense for fiscal year 2026 was $12.5 million compared to $12.2 million with an effective tax rate of 18% in both fiscal year 2026 and fiscal year 2025. Our effective tax rate is based on annual taxable income and our assessment of various tax adjustments, including depletion and discrete items. See Note 6 of the Notes to the Consolidated Financial Statements for additional information about our income taxes.

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Consolidated net income for fiscal year 2026 was $57.0 million, or $3.92 per share of diluted Common Stock, compared to $54.0 million, or $3.70 per share of diluted Common Stock in fiscal year 2025.

Our Consolidated Balance Sheets as of July 31, 2026, and our Consolidated Statements of Cash Flows for fiscal year 2026 show an increase of $23.2 million in total cash and cash equivalents from fiscal year-end 2025. The increase is mainly due to cash flows from operating activities. Refer to the "Liquidity and Capital Resources" section below for additional information about our cash and cash equivalents.

BUSINESS TO BUSINESS PRODUCTS GROUP

Net sales of the Business to Business Products Group for fiscal year 2026 were $180.2 million, a decrease of $2.4 million, or 1%, from net sales of $182.6 million in fiscal year 2025, driven primarily by a reduction in sales of our fluids purification and animal health products and partially offset by an increase in sales of agricultural and horticultural products. Net sales of fluids purification products decreased $5.4 million or 5% in fiscal year 2026 compared with fiscal year 2025, driven primarily by the decrease in demand for our products used in renewable diesel filtration, which was significantly higher in fiscal year 2025 when several new customers began operations in new plants. Net sales of our animal health and nutrition products decreased $1.9 million, or 7%, in fiscal year 2026 compared to the fiscal year 2025, due to lower volume primarily driven by the temporary loss of a key customer at one of our distributors. Net sales of our agricultural and horticultural products increased $4.9 million, or 11%, for fiscal year 2026 compared to fiscal year 2025 mainly as a result of stronger demand from key customers.

Gross profit and operating income decreased in fiscal year 2026 compared to fiscal year 2025, due to lower net sales and higher cost of goods sold and SG&A. Cost of goods sold increased $1.9 million, or 2%, mainly due to per ton cost of goods sold which increased 4% in the fiscal year 2026 compared to fiscal year 2025. This increase was primarily due to higher per ton manufacturing costs, including materials, which increased 6%. SG&A expenses for the Business to Business Products Group increased $0.1 million, or 1%, for fiscal year 2026 compared to fiscal year 2025.

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RETAIL AND WHOLESALE PRODUCTS GROUP

Net sales of the Retail and Wholesale Products Group for fiscal year 2026 were $313.6 million, an increase of $10.7 million, or 4%, from net sales of $303.0 million in fiscal year 2025, primarily driven by increased sales of our cat litter produ

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