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OM Group Inc. Reports Operating Results (10-Q)

November 04, 2010 | About:
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10qk

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OM Group Inc. (OMG) filed Quarterly Report for the period ended 2010-09-30.

Om Group Inc. has a market cap of $1.03 billion; its shares were traded at around $33.97 with a P/E ratio of 12.8 and P/S ratio of 1.2. OMG is in the portfolios of David Dreman of Dreman Value Management, John Buckingham of Al Frank Asset Management, Inc., Chuck Royce of Royce& Associates, Kenneth Fisher of Fisher Asset Management, LLC, Jeremy Grantham of GMO LLC, Steven Cohen of SAC Capital Advisors, George Soros of Soros Fund Management LLC.

Highlight of Business Operations:

On a sequential basis, from the second to the third quarter of 2010, Advanced Materials operating profit improved to $28.3 million in the third quarter of 2010 from $17.3 million in the second quarter of 2010 primarily due to increased cobalt volume and favorable product mix. Specialty Chemicals experienced unfavorable pricing and product mix in the key end markets of Electronic Chemicals, decreased volume in Electronic Chemicals primarily due to inventory de-stocking in the PCB end-market and decreased volume in the Advanced Organics business due in part to increased orders in the second quarter of 2010 in advance of the closure of the Manchester, England facility. As discussed above, the Company completed the acquisition of EaglePicher Technologies on January 29, 2010. Battery Technologies operating profit was $3.1 million in the three months ended September 30, 2010 compared to $0.4 million in the three months ended June 30, 2010. This sequential increase in operating profit was primarily due to timing of deliveries in Defense and Aerospace, commencement of new and delayed government programs in Aerospace, and $1.6 million of charges in the second quarter of 2010 related to purchase price accounting for acquired inventories and deferred revenue that did not recur in the third quarter of 2010.

Net sales increased $62.0 million, or 26%, primarily due to favorable selling price, higher product volume and the EaglePicher Technologies acquisition. The average cobalt reference price increased from $17.30 in the third quarter of 2009 to $18.10 in the third quarter of 2010, which together with favorable product mix resulted in higher product selling prices ($10.8 million) in Advanced Materials. Net sales were also positively affected by higher cobalt volume in Advanced Materials ($8.9 million) and higher product volume in Specialty Chemicals ($3.1 million). Advanced Materials also benefited from an increase in cobalt metal resale ($3.8 million) due to the increase in the average cobalt reference price on decreased volume. Favorable selling prices and mix positively affected Specialty Chemicals in the third quarter of 2010 compared to the third quarter of 2009 ($2.8 million). These increases to net sales were partially offset by a $2.1 million decrease in copper by-product sales in the third quarter of 2010 compared to the third quarter of 2009. Battery Technologies (which reflects the results of EaglePicher Technologies from the January 29, 2010 acquisition date) net sales were $35.7 million for the third quarter of 2010. Excluding Battery Technologies, net sales increased $26.3 million, or 11%, in the third quarter of 2010 compared with the third quarter of 2009.

Gross profit increased to $74.3 million in the third quarter of 2010 compared with $42.7 million in the third quarter of 2009. The largest factor affecting the $31.6 million increase in gross profit was the increase in the average cobalt reference price and favorable product mix that resulted in higher Advanced Materials selling prices and increased gross profit by $17.7 million in the third quarter of 2010 compared with the third quarter of 2009. Also impacting the Advanced Materials segment gross profit was increased cobalt volume ($5.5 million) in the third quarter of 2010 compared to the third quarter of 2009. These improvements to gross profit in the Advanced Materials segment were partially offset by an $8.6 million increase in manufacturing and distribution expenses. In the Specialty Chemicals segment, gross profit was favorably affected by higher volume ($2.4 million) and lower manufacturing and distribution expenses ($1.8 million), partially offset by unfavorable pricing/mix ($3.3 million). Gross profit in the third quarter of 2009 was affected by an $11.4 million restructuring charge compared with the third quarter of 2010 restructuring charge of $1.1 million. Battery Technologies contributed $6.6 million of gross profit in the third quarter of 2010. The increase in gross profit as a percentage of net sales (25.0% in the third quarter of 2010 versus 18.1% in the third quarter of 2009) was primarily due to the increase in the average cobalt reference price, favorable volume in both Advanced Materials and Specialty Chemicals and favorable manufacturing and distribution expenses in Specialty Chemicals in the third quarter of 2010 compared with the third quarter of 2009.

The Company recorded income tax expense of $9.2 million on income from continuing operations before income tax expense of $33.1 million for the three months ended September 30, 2010, resulting in an effective income tax rate of 27.7%. This rate is lower than the U.S. statutory tax rate primarily due to income earned in tax jurisdictions with lower statutory rates than the U.S. (primarily Finland) and a tax holiday in Malaysia, partially offset by losses in certain jurisdictions with no corresponding tax benefit (including the U.S.). In the three months ended September 30, 2010, there is no U.S. tax expense related to the planned repatriation of foreign earnings during 2010 due to the ability to utilize foreign tax credits and current year U.S. losses. The Company recorded income tax expense of $0.9 million on income from continuing operations before income tax expense of $10.0 million for the three months ended September 30, 2009, resulting in an effective income tax rate of 9.2%. The third quarter of 2009 includes a discrete tax benefit of $1.2 million, comprised primarily of a $2.8 million discrete tax benefit related to amending prior year U.S. tax returns to claim foreign tax credits and tax expense of $1.1 related to GTL in the DRC, of which the Companys share is 55%. Excluding the tax benefit items, the Companys effective income tax rate would have been 20.8% for the three months ended September 30, 2009, which differs from the U.S. statutory tax rate primarily due to income in certain foreign jurisdictions with tax rates lower than the U.S. statutory rate and the Malaysian tax holiday.

Income from continuing operations attributable to OM Group, Inc. was $23.2 million, or $0.76 per diluted share, in the third quarter of 2010 compared with $9.6 million, or $0.32 per diluted share, in the third quarter of 2009. The increase was due primarily to the aforementioned factors.

Net income attributable to OM Group, Inc. was $24.2 million, or $0.79 per diluted share, in the third quarter of 2010 compared with $11.4 million, or $0.38 per diluted share, in the third quarter of 2009. The increase was due primarily to the aforementioned factors.

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