This week, colleague Lawrence Meyers produced a compelling write-up on Darling Industries (NYSE:DAR), which uses animal and food waste products and turns them into commercial goods. I had never heard of this company, but it lies in one of the most fertile areas for Peter Lynch-style investment prospects: It's a dull business, and it does something that many people find disagreeable.

Well, I've got another company in that vein -- sorbent clay and cat litter manufacturer Oil-Dri (NYSE:ODC). You may not have spent much time wondering about kitty litter manufacturers, but here's the thing: If Oil-Dri is the benchmark, it's very profitable and has excellent, defensive businesses. Kitty litter, believe it or not, is a mined product -- Oil-Dri alone mines about 500 tons of sorptive clay per day. These clays are used in dozens of applications: floor absorbents in the automotive and other industries, edible and petrochemical oil refining, sport field conditioning, crop protection, animal feed, and yes, the business end of cats and other household animals. I'd say as exciting as dirt, but that would be redundant.

Oil-Dri just reported its first-quarter 2005 results, and they were a mixed bag (sorry). In one of its key businesses -- crop production -- Oil-Dri's quarterly revenues declined more than 52% from last year's record quarter. Total earnings for the quarter were down almost 30%, on sales that were 5% lighter than last year's. Sounds awful, right?

Well, it's not great, but it's also indicative of something other than some severe degradation of business. A look at last year's press release for quarterly earnings shows a big jump of 42% in the agricultural business. So while the company would certainly have preferred last year's results to continue, what essentially happened this quarter is that Oil-Dri's agricultural business reverted to trend.

Free cash flow for the quarter is also negative, with operating cash coming in at just over $1 million while capital expenditures hit $1.7 million. A problem? Not really. A look back over time shows the same pattern, where Oil-Dri generates copious free cash flow three quarters of the year, while the first quarter -- this one -- has been negative.

On the positive side, Oil-Dri used some of its cash to repurchase $1.8 million in shares, or almost 2% of its total shares outstanding. Also, the company increased its dividend, now paying out more than 2.7%. All in all the company had an OK, not a great, quarter. But remember, this is kitty litter we're talking about. Just how exciting do you want it?

See also:

Bill Mann doesn't own a cat. Nor does he own any company mentioned in this article. He used to think that folks who used cat litter to clean up oil spots on their driveway were just being clever. Turns out that's what it's for. Oil-Dri offers a double whammy. It's a terrific Hidden Gem , but it's also an income investor's dream. A free trial to our Income Investor newsletter is yours for the asking.