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.

RESULTS OF OPERATIONS

FISCAL YEAR 2025 COMPARED TO FISCAL YEAR 2024

OVERVIEW & CONSOLIDATED RESULTS

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Oil-Dri experienced another record-breaking year with consolidated net sales, gross profit and net income reaching all-time highs. Consolidated net sales in fiscal year 2025 were $485.6 million, an 11% increase from net sales of $437.6 million in fiscal year 2024. Record revenues were recognized by both operating segments, with net sales growth across all principal product groups. Net sales for the Business to Business Products Group grew primarily due to fluids purification products used in the renewable diesel business and higher sales from agricultural and horticultural products. Net sales for the Retail and Wholesale Products Group increased primarily due to the introduction of silica-gel crystal cat litter as a result of the acquisition of Ultra Pet in May 2024.

Despite higher cost of goods sold and selling, general and administrative expenses ("SG&A"), our gross profit and consolidated income from operations increased in fiscal year 2025 when compared to fiscal year 2024. Consolidated gross profit in fiscal year 2025 was $143.1 million, an increase of $18.0 million, or 14%, from consolidated gross profit of $125.1 million in the prior fiscal year. Gross margin (defined as gross profit as a percentage of net sales) of 29.5% in fiscal year 2025 increased from 28.6% in fiscal year 2024. Cost of goods sold increased $30.0 million, or 10% in fiscal year 2025 compared to fiscal year 2024, primarily due to domestic per ton cost of goods sold which increased 5% compared to fiscal year 2024. This increase was primarily driven by our product mix which resulted in higher overall per ton material and transportation costs, which increased 7% and 5%, respectively. These increases were slightly offset by a 3% decrease in packaging costs for fiscal year 2025, compared to fiscal year 2024.

Total SG&A increased $1.4 million, or 2% in fiscal year 2025 compared to fiscal year 2024. The increase was primarily driven by operating segment SG&A, which increased by $3.4 million, partially offset by a $2.0 million reduction in corporate unallocated expenses. SG&A expenses at the operating segments level are discussed below in the discussion of our segments' operating income. The decrease in corporate unallocated fiscal year 2025, was primarily due to a decrease in acquisition-related expenses compared to fiscal year 2024.

Total other expenses, net for fiscal year 2025 remained flat compared to fiscal year 2024 at $2.0 million.

Tax expense for fiscal year 2025 was $12.2 million with an effective tax rate of 18% compared to $10.2 million with an effective tax rate of 21% in fiscal year 2024. The increase in tax expense was driven by higher net income. Favorable return to provision adjustments for returns filed in 2025 drove a decrease in the 2025 effective tax rate. Tax credits and a change in timing of deductions drove the lower 2024 tax return rate. See Note 6 of the Notes to the Consolidated Financial Statements for additional information about our income taxes.

Consolidated net income for fiscal year 2025 was $54.0 million, or $3.70 per share of diluted Common Stock, compared to $39.4 million, or $2.72 per share of diluted Common Stock in fiscal year 2024. This increase was primarily due to the increase in net sales which more than offset the increase in operating expenses, interest expenses and income tax.

Our Consolidated Balance Sheets as of July 31, 2025, and our Consolidated Statements of Cash Flows for fiscal year 2025 show an increase in total cash and cash equivalents from fiscal year-end 2024. 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

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Net sales of the Business to Business Products Group for fiscal year 2025 were $182.6 million, an increase of $32.1 million, or 21%, from net sales of $150.5 million in fiscal year 2024, driven primarily by sales of our fluids purification products and, to a lesser extent, agricultural and animal health products. Net sales of fluids purification products increased $17.6 million or 19% in fiscal year 2025 compared with fiscal year 2024, driven primarily by the increase in demand for our products used in renewable diesel filtration. Net sales of our agricultural and horticultural chemical carrier products increased $10.8 million, or 32%, for fiscal year 2025 compared to fiscal year 2024 mainly as a result of stronger demand, primarily as key customers resumed purchasing after working through inventory surpluses. Net sales of our animal health and nutrition products increased $3.7 million, or 15%, in fiscal year 2025 compared to the fiscal year 2024, primarily due to higher sales volumes.

Gross profit and operating income increased in fiscal year 2025 compared to fiscal year 2024, despite higher cost of goods sold and SG&A expenses. Cost of goods sold increased 16.9 million, or 19%, mainly due to per ton cost of goods sold which increased 5% in the fiscal year 2025 compared to fiscal year 2024. This increase was primarily due to higher transportation costs. SG&A expenses for the Business to Business Products Group increased $1.0 million, or 7%, for fiscal year 2025 compared to fiscal year 2024. The increase was mainly driven by higher research and development costs and a foreign value-added tax ("VAT") assessment, partially offset by cost reductions across other general and administrative expenses.

RETAIL AND WHOLESALE PRODUCTS GROUP

Net sales of the Retail and Wholesale Products Group for fiscal year 2025 were $303.0 million, an increase of $15.9 million, or 6%, from net sales of $287.1 million in fiscal year 2024, primarily driven by sales of our cat litter products. Domestic cat litter net sales, excluding co-packaged cat litter, were $225.9 million for fiscal year 2025, an increase of $13.1 million, or 6%, when compared to fiscal year 2024. Crystal cat litter sales represented $14.9 million of the increase, partially offset by a net decrease in clay-based litter. $3.7 million of the decrease was due to the loss of a private label account and $3.2 million due to customer bankruptcies. These losses were offset by other revenue gains within coarse and branded light-weight cat litter products due to new distribution with both existing and new customers. Net sales of co-packaged products increased by $0.9 million in fiscal year 2025 com

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