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OMNOVA Costs Rise, Income Plummets

Thursday, September 30, 2010

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Strong Performance Chemical sales were not enough to offset losses and expenses for OMNOVA Solutions, leaving the company with a 65% drop in net income for the quarter that ended Aug. 31.

The producer of specialty chemicals, emulsion polymers and wallcoverings attributed the losses primarily to $6.7 million in one-time expenses, including a strike at one of its manufacturing plants and its impending acquisition of Eliokem International. However, the company also reported sharp increases in the cost of its goods sold.

Sales, Costs Increase

Although OMNOVA’s third-quarter net sales increased to $227.9 million in 2010 from $186.1 million during the same quarter last year, its cost of goods sold skyrocketed, from $142.1 million in the third quarter of 2009 to $188.8 million in Q3 2010.

The result: The company reported $39.1 million in gross profit for the third quarter of 2010, compared to $44 million for the same quarter of 2009. OMNOVA also reported that its net income for the quarter fell 65%, to $3.5 million, or eight cents a share, from $10.1 million, or 23 cents a share, in last year's third quarter.

‘Significant Progress’

OMNOVA Chairman and CEO Kevin McMullen said the company’s “underlying business continued to post strong operating performance, considering that results were adversely impacted by nearly $7 million of non-recurring expenses. Cash flow was strong, and our balance sheet continues to improve.” 

“We have made significant progress on many fronts, including the introduction of numerous innovative products, penetration into new, adjacent markets, the continued globalization of our business and aggressive productivity gains and cost reductions," said McMullen.

Performance Chemicals

Third-quarter net sales of Performance Chemicals increased 39.2%, to $145.3 million, compared to $104.4 million in the third quarter of 2009. The improvement was primarily driven by volume increases of $7.5 million, or 7.2%, and higher selling prices of $34.1 million, partially offset by unfavorable foreign currency translation effects of $0.7 million, OMNOVA said. Segment operating profit was $15.2 million for the third quarter of 2010, as compared to $14.8 million in the third quarter of 2009, an increase of $0.4 million.

During the quarter, specialty and paper market volumes increased as compared to a year ago, while carpet volumes were down. August was the 13th consecutive month of year-over-year volume growth as the general markets continued to recover, OMNOVA reported. Several customers are now operating production lines that had been idled in 2009, the company said.

Decorative Products

Net sales were $82.6 million during the third quarter of 2010, an increase of $0.9 million, or 1.1%, compared to the third quarter of 2009. Sales improved in decorative laminates, coated fabrics and the Asian businesses, while commercial wallcovering declined.

Segment operating loss was $4.9 million in the third quarter of 2010, compared to income of $0.6 million for the third quarter of 2009.  However, the company said, excluding one-time expenses of $4.8 million, “Decorative Products was nearly breakeven” for the quarter.

Eliokem Acquisition

On Sept. 22, OMNOVA announced that it would acquire specialty chemicals manufacturer Eliokem International, giving OMNOVA a strong global presence in Performance Chemicals and its first chemical manufacturing assets outside the United States. The $300 million transaction is expected to close by the end of 2010. Eliokem had sales of about $277 million for the 12-month period ending Aug. 31.

The acquisition “will significantly enhance and grow our Performance Chemicals business," McMullen said.

“This acquisition will transform OMNOVA Solutions into a much larger, more diverse specialty chemical and functional surfaces company with significantly enhanced global capability.  It is an excellent fit with OMNOVA's strategy to grow in existing markets, penetrate new adjacent markets, and globalize our company," said McMullen.

   

Tagged categories: Decorative coatings; Earnings reports; Finance; Omnova Solutions; Wallcovering

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