Cat people, dog people, investors of all stripes, it's time once again to check in on an investment that can appeal to the pet lover in all of us: Oil-Dri Corporation (NYSE:ODC), the nation's largest manufacturer of kitty litter. The company reports its fiscal Q4 and full-year 2006 earnings on Monday.

What analysts say:

  • Buy, sell, or waffle? Exactly zero analysts are following Oil-Dri, giving attentive Fools a great opportunity to spot a bargain -- if it is a bargain.
  • Revenues and earnings. No analysts means no estimates for either revenues or earnings, not surprisingly.

What management says:
Oil-Dri's had a rough year so far, with sales up 8% year to date, but profits suffering -- down 22%. That's not quite as bad as it sounds, though. For one thing, last quarter Oil-Dri took a $0.09-per-share charge to earnings for repatriating foreign-earned profits under the 2004 Homeland Investment Act (which grants U.S. companies a favorable tax rate in return for bringing foreign profits back to the U.S.). Back that charge out, and the magnitude of the earnings decline shrinks to 12%.

Moreover, if you take the CEO's words at face value, things are starting to turn around at Oil-Dri. Last quarter, CEO Dan Jaffee observed that the firm faces continued high energy and transportation costs, but said, "Our ability to raise prices has allowed us to partially offset these cost increases and rebuild our profit margins." The firm has raised its average selling price in each of the past 16 quarters through a combination of general price increases and selling higher value-added products. Assuming the firm doesn't come under pressure to reduce prices now that energy costs are falling, this could set Oil-Dri up for better profits in quarters to come.

What management does:
That would be a welcome change. As you can see in the table below, rolling gross and operating margins have been falling -- despite the price increases -- for more than a year now.

Margins %

1/05

4/05

7/05

10/05

1/06

4/06

Gross

22.9

22.0

21.5

20.4

19.4

19.2

Op.

5.4

5.5

5.3

4.7

4.5

4.2

Net

2.7

2.8

3.5

3.3

3.1

2.6
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Taking a closer look at Oil-Dri's income statement, you can clearly see the company's problems -- and its potential. In the last two quarters, for example, sales rose an average of 8%. Cost of goods sold, however, rose faster at 11%. This supports Jaffee's argument that the surge in raw materials costs is solely responsible for weighing on profits.

Meanwhile, the company has managed to not just keep its operating costs in line with sales growth, but also reduce them by more than 1% compared to last year. That kind of fiscal discipline should bear fruit in coming years, when the energy cycle eventually reminds us why it's called a "cycle," and Oil-Dri's input costs begin to wane.

Competitors:

  • Amcol International (NYSE:ACO)
  • Church & Dwight (NYSE:CHD)

Customers:

  • Bayer (NYSE:BAY)
  • Clorox (NYSE:CLX)
  • Kroger (NYSE:KR)
  • Wal-Mart (NYSE:WMT)

Wall Street may not be watching, but you know we are. Read more about Oil-Dri in:

Wal-Mart is a Motley Fool Inside Value pick. To see more of Philip Durell's Foolish finds from the depths of Wall Street's bargain bin, try a free 30-day subscription.

Fool contributor Rich Smith does not own shares of any company named above.