Good day, ladies and gentlemen and welcome to the first quarter 2010 Oil-Dri Corporation of America earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today's conference, Mr. Dan Jaffee, President and CEO. Please proceed, sir.

Thank you and welcome, everyone to the first quarter investor teleconference. Joining me here in Chicago are Andy Peterson, our CFO; Charlie Brissman, our Vice President and General Counsel; and Rhonda Williams, who heads up our Investor Relations and will take us through the Safe Harbor provision.

Thank you, 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 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, Dan, back to you.

Thank you, and Andy will start out with some details and then I will give some overview comments.

We had sales of $53.4 million in the quarter, down 15% compared with last year's $63.1 million. Most of this decrease was due to lower volume. We had a gross profit margin in the quarter of 23.1%, up from last year's 19.6%. A favourable sales mix of our higher value products, combined with lower costs for freight, packaging, and fuel used to dry our clay-based products offset the impact of the lower volume sold. Operating expenses were 16.8% of sales, which was up compared with 13.8% in last year's first quarter. The higher percentage this year was primarily due to lower sales. Our effective tax rate in the quarter was 28% of pretax income, up from 27% last year. Net income was 4.1% of sales, up from 3.6% in last year's first quarter. EPS in the quarter was $0.30, down 3% compared to $0.31 last year. Cash provided from operations in the quarter of $7.6 million was $10.2 million higher than last year when we used cash in operations. This was primarily due to lower accounts receivable and inventories because of the reduced sales. Capital expenditures of $1.3 million were down $2.2 million compared with last year's first quarter. Debt payments in the quarter of $200,000 were down $3.9 million compared with last year. We had no purchases of treasury stock, which was down $600,000 compared with last year's first quarter. Dividends paid in the quarter of $1.0 million were up $76,000, or 8% compared with last year. Cash and investments at October 31, 2009 was $25.0 million, up $8.3 million compared with last year's first quarter. We had $3.7 million more in cash and investments than we had debt at the end of the quarter. Dan.

Fantastic, thank you, Andy. And before we open it up to Q&A, just to make sure we cover the most important issues on your guys' radar screen, let me just say as a large investor and senior manager here, I was very happy with the quarter. I mean, this is the first quarter of the new reality since Walmart implemented their new planogram that we announced a little ways back, which dramatically reduced the store count for Cat's Pride branded products. We still supply the same Special Kitty items that we always did and enjoy that relationship. And what we saw was -- can be termed as nothing else other than a market explosion outside of the Walmart stores with all of our other retail partners. The category was relatively flat and depending on which period you want to look at and which SKU you want to look at, Cat's Pride Scoopable itself was up over 60% in the most recent IRI period for a four-week snapshot, and then I think what we put in the news release was more of an eight or a 10-week snapshot, so you could see that the momentum is actually gaining. So time will say, I think we said 44% unit growth in the news release and that was over a longer time period. So time will tell what will happen long-term. I continue to be bullish, both about our consumer business and also our relationship with Walmart. I mean, if you think about it from a macro, macro sense, they are the world's largest retailer of sorbent mineral products, which take the form of cat litter, and we are the world's largest manufacturer of sorbent mineral products with a geographic dispersion of our plants that makes our business model a low-cost provide, or the low-cost provider, and so when you put those two together and you look at their momentum going forward and our years and years and years of preserves that we have on the books, we are going to be in relationship. What form that relationship takes will change over time and so -- but I continue to be very proud of our relationship with Bentonville and look forward to seeing that take different forms going forward. I'd like to open it up to Q&A.

(Operator Instructions) Your first question comes from the line of Ethan Starr.

Good morning and congratulations on a very nice quarter, all things considered. Could you please give us an idea of what earnings would have been this quarter if input prices had been the same as for last year's first quarter?

No -- I mean, only because I don’t have that information. We don’t look at it that way. Clearly yeah, you know, you can tell that the costs were favourable to us and that helped us expand the margins, so despite the fact that we had a $10 million in sales shortfall, I think the GP was less than $50,000 off of last year -- yeah, $53,000. So clearly margin expansion helped almost completely offset that sales shortfall.

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

Your next question comes from the line of Robert Smith with Center for Performance.

Good morning. I also want to congratulate you on a good quarter. [Calibran] -- can you give us some numbers, as you have in the past?

I'm ready for you -- so I'll remind you of the historic and then I'll give you the new quarter -- so Q1 of 09, $88,000 in sales. That was our first quarter rolling it out; Q2, $204,000; Q3, $325,000; Q4, $452,000; and if anyone had a drum set here, I'd be asking for the drum roll, but the Q1F10 was $921,000. So as you can see, a nice progression. I think as we talked last time, we said we were hoping that the percentage may increase or decrease but the dollar roll will be bigger and actually we got both this time. I mean, Q1 was actually double the prior quarter from 450-ish to 920-ish, so we were happy with that progression.

Well, that's starting to get some good traction here for sure. So the question is what about the delta?

Well, you'll have to tune in again in 90 days but again, we are continuing to receive positive feedback from the marketplace and the products work and one of the great things we discussed at the annual meeting yesterday that we are able to bring to the market that really no other marketer of [inaudible] binders can is the concept of traceability, of knowing from literally the moment it leaves the ground to the moment the end user gets it, we are the only ones who handle our product. Everybody else is buying, selling, mixing, matching -- and so they really can't vouch for the traceability first-hand. We can and that kind of confidence means a lot to the nutritionist and the farmers out in the field. So will next quarter be better than this quarter? I sure hope so but again, you know, it's a long-term game but we love the trend so far and we love the long-term prospects of the brand.

Dan, is what you just said applicable also to the [AMCO] product?

You mean traceability?

Well, yeah, that's what you sort of highlighted here.

And when you say -- but be specific, do you mean their entree into animal health?

Yeah.

You know, I can't speak to that specifically. I'm not sure how they end up getting into the end market. To the extent they market it directly, then I am sure they have their own traceability claims to make. We certainly keep ours from cradle to grave.

Is it at all a function of the field people -- I mean, the amount of sales presence in the marketplace? I mean, are you expanding your sales force? Or how are these numbers being developed?

Well, absolutely -- I mean, we have put more "feet on the street" and we have more market penetration but we utilize distribution in all the various countries, so our salespeople, direct sales people call on their distributors. They work the end users and that's how you ultimately get it to the end user. So clearly it's giving us the confidence to continue to, as the business grows, pay as you go and continue to put more and more presence out there because it seems to be a great pay-back.

Okay, do you actually have numbers on the Walmart sales -- I mean, the percentage of the business?

You mean what percent they represented of us this past quarter?

Yeah -- did we disclose that in the Q?

No.

Okay. I have to wait for an annual number?

Historically, we've only given sales percentages on two customers -- Walmart and Clorox, because that's effectively what the SEC requires. And beyond that, in sort of keeping with our approach to these issues, we've never tried to break it down or benchmark it between periods.

Okay, and --

Let's go back in the queue, Bob, just in case somebody else has a question and then you can come back around.

Sure.

Your next question comes from the line of Brad Evans with Heartland. Brad Evans – Heartland Advisors: Good morning. Nice quarter, under the circumstances. My hat's off to you. The one thing that did surprise me in the quarter, Dan, was just the SG&A run-rate in light of the sales decline. I was expecting perhaps there to be more favorability and in terms of absolute dollar levels in the first quarter, can you just -- anything unusual -- it doesn't speak to it in the Q, but anything that you can bring out or comment on that would be helpful.

Not really -- I think it's just -- in terms of our SG&A really doesn’t vary greatly with our sales levels and so it's -- you know, you get pretty much fixed expenses and a reduction in sales and so you are going to end up with a higher percent. Brad Evans – Heartland Advisors: Can I ask you just in terms of the -- did the lack of action to take costs out of the SG&A line, does that reflect your view or a high degree of confidence that you will be able to replace the lost Walmart volumes in a reasonable timeframe?

Well, I think -- you say lack of action. I think we took a lot of action and you and I talked about this a quarter ago, do I'll assume you are specifically referencing a reduction in force? Brad Evans – Heartland Advisors: Well, I'm just talking about absolute dollars, Dan. Sorry, I didn’t mean lack of action -- I meant just looking at the absolute dollars, $9 million of SG&A versus $8.7 million in the prior year's quarter on a 15% decline in sales -- that was where my comment is based.

Yeah, no no -- I feel the same way as I did three months ago. I'm glad we took the approach we did, which as we said three months ago, nobody took a merit increase this year and at the same time, we did not have any lay-offs due to the lost Walmart business. Seeing this quarter, I'm glad because again, we could have laid people off and maybe made an extra few pennies a share this quarter, but where would that leave us going forward? Now you've crippled the business and there's no ability to grow. So you know, I'm happy with the approach, I'm happy with our SG&A, and I'm happy with the quarter, so that's all I can tell you. Brad Evans – Heartland Advisors: Let me just ask one tangential question to that then -- did you open any new large accounts, any new accounts on the Cat's Pride side in the quarter that you can comment on?

Yeah, well, I can -- the answer is no new accounts -- what we did was we reached out to our existing accounts and we used this as a proactive way to get closer to them and say look, for years you've been losing business to Bentonville, to Walmart -- let's partner up, let's pile high. You are going to have shoppers come into your stores looking for Cat's Pride. I mean, our items are unique. Cat's Pride flushable is the only product that is certified safe to flush. And [Cat Get] is the number one selling disposable cat tray -- the lines are the number one liners. So we've got a lot of brand loyalty, a lot of brand appeal with what are called brand aspirational buyers. So our hot line was ringing off the hook as the new planogram went into effect and we would find out where they lived and turn them over to stores that carried our products. So that explosion that occurred -- I mean, you know, if you multiply a market basket, Walmart would be the first one to educate us and anyone else on the concept that when someone comes in to buy Cat's Pride, for instance, they don't just come in to buy one jug of Cat's Pride and leave the store. They buy a suite of products and they will spend on average a certain amount of money. On average with Cat's Pride, that tends to be about $120. So when you look at the unit lift outside at the non-Walmart accounts, in the grocery accounts, in the dollar stores, in the pet specialty, the lift that went on in the past quarters since they put in the new planogram, multiply that unit lift on an annual basis and then multiply it by $120 a share, it's $200 million at retail. It's huge. So our non-Walmart accounts are very happy with Cat's Pride -- I mean, it's been a way of reversing what has been a 20-year trend of losing business to Bentonville. Brad Evans – Heartland Advisors: Okay. Again, nice quarter. Thank you.

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

A question on the B2B business, granted it was a pretty tough comp from the October 08 level but I guess I'm curious -- can you go through -- because that was down roughly 15% year over year and as the year -- as fiscal 10 progresses, the comps get relatively easier. Maybe just go through a little bit of what happened in B2B and maybe looking forward, what -- I know you hate looking forward, but maybe near-term, what we have to look forward to in the B2B segment?

I love looking forward -- I just don’t like to tell you guys because then I'm held accountable, so -- I mean, Andy actually heads up our B2B and I would let him start with comments and then I could certainly add some color to that.

Yeah, I mean, I think that the -- you know, the quarter I think as you look across all of the B2B businesses, you know, I mean, I think it's a reflection of the economy. I think it's a reflection of -- that our customers are not growing their business and their businesses have declined. And I think that's true in pretty much every one of those segments. And so I think the expectation is that the demand is going to return more like it has been in the past and we expect to see that occur. We haven’t -- as Dan commented, we haven’t done anything from a short-sighted standpoint to pull back, to reduce what we are doing, to reduce our R&D, to reduce our sales organizations -- we are staying the course and these are all good businesses and value-added products and they will get better as time goes on.

And Andy, just could you go into detail about the co-packaged cat little business and what happened there maybe?

I'm not sure the co-packaged -- I mean, I think that my comments fit with co-packaged cat litter. I mean, it's kind of the same thing that we are talking about here.

The only thing I would add, and I agree with you, everything you said is right -- is that when you look at co-pack cat litter or the other B2B businesses, one delta this year versus last year was either the price being lower because it's a contractually determined price but obviously as you can see from the margins, costs dropped more than the price so it was a favourable swap -- we would take this swap versus what went on a year ago. And if you look at the international freight scene, I mean, I know freight in B2B was down significantly in the quarter and there we don’t tend to make margin on freight, so we are just trade -- we are just handling dollars. So while the sales were down, you know, you've got to get to the bottom line, especially in a business like ours where you have a non-renewable resource -- frankly I am happier with this year's quarter than a year ago's, given a couple of big dynamics. We did ship less tons, so we used up our non-renewable resource at a slower rate, even though we have 100 years reserves doesn’t mean we should just fritter them away. And so our profit per ton actually went up and then when you compound it or add to that little analysis, the fact that we did dramatically less business with Walmart, our single-largest account, that's both a negative but from an ownership or a diversification standpoint, it's a positive. I mean, Bob asked the question what percent of their business -- of our business did they represent and while we are not going to get into all the details, we know they used to represent nearly 30%-ish, 20-some odd percent. You know, we lost nearly half of it, maybe less than half, so you can do the math. They now represent maybe only 15% of our business or something like that, give or take. So we are that much stronger in the sense that going forward, you can't lose it again.

And I guess last question, Dan, just the nature of the cat being as finicky as it is, is Walmart noticing or are they seeing customers gravitate towards maybe a Target or a Publix to get that Cat's Pride? I mean -- because you've got a pretty big user base of Cat's Pride. Did Walmart -- did they not anticipate the reaction of cats, I guess?

I am not sure what their anticipation was. I mean, all I can say is that we are continuing to be of a very open and communicative relationship with them and that's a positive sign. And so like I said, long-term I love our chances with them for all the macro dynamic reasons I pointed out at the beginning. Short-term, you know, anything can make sense and so if this seems to make sense for them in the short-term, then we just have to support that. It's our job to convince them that we need to get back to the way things were.

Okay, thanks, guys. Nice job.

Thank you. And it's in their best interests, not that it's in ours.

Your next question is a follow-up question from the line of Robert Smith with the Center For Performance.

Before I go into my question, I want to beg you guys to expand the time that you are giving us because it's just not enough. That's my opinion and I hope you can consider it. So on with the question -- so what can you tell us about the natural gas element and profile it going forward for the rest of the year.

You know, nobody has a crystal ball but what we are learning, maybe painfully, is -- both painfully and beneficially, is we are in a pretty rational market. I mean, when gas prices went up, the prices of our -- to our end users went up and when gas prices go down, you know, we are going to have to get more competitive with our pricing. But it doesn’t seem like a long-term hedging strategy makes a whole lot of sense. And so we are not going to -- what's that?

You are 20% hedged, you said earlier?

Yeah, but we got ourselves where we would go out a whole year and do all this and we still have some hedges out there but we are trying to stay a little bit shorter focused where maybe we will have a few more hedges for an upcoming quarter because it does take time -- you do want to take some of the volatility, maybe buffer any large increase but we don’t need to be predicting where gas is going in 2011, 12, and 13, that's for sure. When we get there, we are pretty confident the price of cat litter will accurately reflect whatever that input is. So that's clearly a very favourable delta this year versus last year -- very favourable.

Can you tell us what the R&D pipeline might look like now and how you are working on other developments?

Not really -- there's nothing -- as you know, I rarely talk about anything until we are in the end zone and the points are on the board, so I can just tell you -- I mean, as Andy said, we have not cut back at all, we are spending at the same or even higher level of R&D than we have historically and it's because we continue to see a lot of opportunities to extract more and more value out of our unique minerals. So not time to talk about those things but those guys are not sitting idle waiting for the phone to ring, that's for sure.

What do you think R&D expenses will be this year versus last?

I wouldn’t want to make a prediction. I mean, you see what the -- you know, in terms of -- you see what we have done in the past and --

In line.

Yeah, in line.

Okay, so you are not beefing that up in any way, so to speak?

No.

Okay. Is [Cam Turner] still alive?

Cam Turner is still alive.

And you still have your interest?

We still have our interest. It's on the books at zero though, so anything -- whatever happens, we win.

Okay. In the line item other long-term liabilities, what's in that?

They promised me no math, so --

That's the -- I think the biggest reason for the increase there is our pension liability.

Can you tell me something about that?

Probably the biggest thing swinging the pension liability is the discount rate used and with the fed kind of sitting on interest rates, it's a lower number than it has been.

What are you using?

Six percent.

Okay. Share buy-back program -- is that still authorized?

Yes.

Yeah, we still have shares authorized but we have not been active.

How much is left?

I think it's a $250,000 kind of number.

Okay. And what can you tell us about the rest of the year? What are the pluses and minuses going forward?

Okay, I'll hit that and then I think we're done, so -- okay, and I -- listen, we hear you on the length of time but honestly, Bob, it's just going to -- I know it would be beneficial to you but I'm not sure ultimately it would be beneficial to your investment because we just end up giving away secrets that we don’t need to give away -- not that we are secretive, but you know what I'm saying -- competitive advantages. So I think we've covered the highlights.

Are we going to have another analyst meeting in New York at some point?

At some point, yes, I can agree with that. When, I don’t know.

Okay.

We did just have one in Boston. We had our annual meeting in Chicago yesterday, and Ethan made both of them, and Jim made the one in Boston.

I didn’t know about the one in Boston.

Well, we hid it from you -- no, I didn’t hide it from you, I don’t know. Eric may -- I don’t know if you are still in contact with Eric but he coordinates those. So let's leave it at that. I mean, the balance of the year -- look, we are in a very dynamic situation with -- you know, anytime you get a major change with your single largest account and you come out of that first quarter the way we did, we are all happy around here in Oil-Dri. Now, we are not -- you don't -- wars are not won in retreat, as Churchill pointed out after Dunkirk, but having said that, you know, it sure beats the alternative. So we feel very comfortable and confident with our long-term prospects. We still feel good about fiscal 10 -- in fact, frankly after this first quarter, we feel better about fiscal 10 than maybe we did when we first heard the news down in Bentonville. So let's leave it at that -- let's all have a happy and healthy holiday season. Let's deliver our second quarter and we will be talking to you then. Thanks very much, everybody.

Thank you for your participation in today's conference. This concludes your presentation and you may now disconnect. Have a great day.