Seth Klarman Reducing Stake In Omnova Solutions (OMN)

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May 10, 2009
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(GuruFocus.com, May 10, 2009) Investment Guru Seth Klarman has reduced his stake in Construction & Materials company Omnova Solutions (OMN, Financial). According to GuruFocus Data, on April 30, 2009, Seth Klarman sold 45.23% of his holdings in OMN at $2.38 per share. He held more than 5.9 million shares in 4Q08. After the sale, he still holds 3.2 million shares, or 7.4% of the company’s total number of 43.84 million shares outstanding.


OMN is a long time Seth Klarman holding. Back in May 2007, GuruFocus reported Seth Klarman reduced his holdings in the company to 5.6 million shares. His holding since increased to 5.9 million shares and now is down to 3.2 million shares.


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Business at Omnova Solutions Inc.


Omnova Solutions Inc.develops, manufactures and markets emulsion polymers, specialty chemicals and decorative and building products for a variety of industrial commercial and consumer markets. It conduct business in two business unit: The Performance Chemicals and Decorative Chemicals.


On March 16, the company reported quarterly results for the quarter ended on February 28, 2009.reported a net loss of $0.1 million, or $0.00 per diluted share, for the first quarter ended February 28, 2009, compared to a net loss of $3.0 million, or $0.07 per diluted share, for the first quarter of 2008. Included in the first quarter of 2009 were restructuring, severance and other charges of $0.9 million. Net sales decreased $30.4 million, or 15.9%, to $160.2 million, for the first quarter of 2009 compared to $190.6 million during the first quarter of 2008. The first quarter decrease was primarily the result of weaker volumes as customers took significant downtime to reduce inventories early in the quarter, which began December 1. Gross profit improved to $31.7 million, with margins of 19.8% in the first quarter of 2009, compared to $30.5 million and margins of 16.0%, in the first quarter of 2008. The margin improvement was due primarily to lower raw material costs. . "We are encouraged by our improved performance in the first quarter despite what was obviously a very challenging global economy," said Kevin McMullen, OMNOVA Solutions' Chairman and Chief Executive Officer. "Our first quarter is seasonally our weakest, and while we benefited from significant raw material cost declines, we also aggressively managed our controllable costs and cash flow to generate improved financial results and increased financial flexibility. Looking forward, though the economic environment remains difficult, there are a number of positive fundamental improvements occurring at OMNOVA which we expect will drive significant year-over-year improvement during the first half of 2009 in earnings and cash flow from operations, as well as substantial debt reduction," McMullen added, citing the following:

-- After a decade of unprecedented increases in the Company's raw materials, costs began to decline in November 2008. A strengthened global sourcing team is positioned to drive increased value.


-- Structural industry consolidation is occurring in both segments with the exit of some competitors and the closing of manufacturing capacity by others. -- The Company has its lowest operating cost structure in history, including previously implemented actions which are expected to provide $19.0 million of cost reductions in 2009. Employee headcount has declined 12% over the last twelve months.


-- The Company has taken necessary pricing actions to improve its operating margins. -- The Company has low-cost, long-term financing which provides ample liquidity and maturities in 2012 and 2014.


-- 85% of domestic business is now on a common ERP platform, contributing to operating efficiencies.


Valuation of Omnova Solution Inc.


OMNOVA Solutions Inc. has a market cap of $110.5 million. The GuruFocus Valuation Channels of OMN is as follows.