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OMNOVA Solutions Inc. Reports Operating Results (10-Q)

July 02, 2009 | About:

OMNOVA Solutions Inc. (OMN) filed Quarterly Report for the period ended 2009-05-31.

Omnova Solutions Inc. develops manufactures and markets emulsion polymersspecialty chemicals and decorative and building products for a variety ofindustrial commercial and consumer markets. The Performance Chemicals unit's broad range of emulsion polymers and specialty chemicals are used as coatings binders adhesives and additives for paper carpet textile and various other industries. OMNOVA Solutions Inc. has a market cap of $160 million; its shares were traded at around $3.65 with a P/E ratio of 14.7 and P/S ratio of 0.2. OMNOVA Solutions Inc. had an annual average earning growth of 2.1% over the past 5 years.

Highlight of Business Operations:

Performance Chemicals net sales decreased $38.2 million, or 30.5%, to $87.0 million in the second quarter of 2009 compared to $125.2 million in the second quarter of 2008. The decrease in sales was driven by lower volume of $20.8 million due to weak market conditions, a reduction of selling prices of $15.6 million as a result of lower raw material costs and unfavorable foreign exchange translation of $1.8 million. Net sales for the Paper and Carpet chemicals product line decreased to $52.0 million during the second quarter of 2009 compared to $79.8 million during the second quarter of 2008. Net sales for the Specialty Chemicals product line decreased to $35.0 million during the second quarter of 2009 compared to $45.4 million during the second quarter of 2008.

This segment generated an operating profit of $11.4 million and segment operating profit margin of 13.1% in the second quarter of 2009 compared to $1.9 million and segment operating margin of 1.5% in the second quarter of 2008. The increase in segment operating profit was due to lower raw material costs of $27.4 million and improved manufacturing and other costs of $0.8 million, partially offset by lower pricing of $15.6 million, a reduction in volumes of $4.5 million and asset write-offs of $0.7 million. Included in the second quarter of 2009 is a reduction of the LIFO inventory reserve of $2.4 million and a net pension plan curtailment charge of $0.3 million.

This segment generated an operating profit of $19.2 million in the first half of 2009 compared to $4.5 million in the first half of 2008. The improvement in segment operating profit was due to a reduction in raw material costs of $26.9 million partially offset by lower volumes of $11.5 million, a reduction in selling prices of $5.9 million, asset write-offs of $0.7 million and favorable manufacturing and other costs of $1.3 million. Included in the first half of 2009 is a reduction of the LIFO inventory reserve of $5.0 million, a net pension plan curtailment charge of $0.3 million and restructuring and severance charges of $0.1 million.

This segment generated operating profit of $0.2 million in the second quarter of 2009 compared to an operating profit of $1.1 million in the second quarter of 2008. The decrease was primarily due to lower volumes of $5.1 million, unfavorable manufacturing costs of $1.2 million and an increase in the LIFO inventory reserve of $0.1 million partially offset by lower raw material costs of $2.0 million, price increases of $0.7 million and improved profit at the Asian businesses of $2.9 million. The segment operating loss for 2009 also included restructuring and severance charges of $0.8 million due to workforce reductions and a pension plan curtailment gain of $0.7 million.

Decorative Products net sales decreased by 15.8% to $139.9 million in the first half of 2009 from $166.2 million in the first half of 2008 primarily due to lower volumes of $32.9 million and unfavorable foreign exchange translation of $7.9 million partially offset by $2.1 million of favorable pricing. The first six months of 2008 includes four months of consolidated sales from the Asian businesses, which were acquired in January 2008, while the first half of 2009 includes six months of consolidated sales. The additional two months of 2009 sales amounted to $12.4 million. Commercial Wallcovering and Coated Fabrics net sales were $101.5 million during the first half of 2009 compared to $116.9 million in the first half of 2008. Net sales for the Decorative Laminates and Performance Films product line decreased to $38.4 million during the first half of 2009 compared to $49.3 million during the first half of 2008.

The segment operating loss was $2.7 million for the first half of 2009 compared to operating profit of $1.0 million for the first half of 2008. The decrease was primarily due to lower volumes of $9.4 million and unfavorable manufacturing costs of $2.6 million partially offset by a reduction in raw material costs of $3.2 million, improved profit on Asian businesses of $3.8 million and higher pricing of $2.1 million. The segment operating profit for 2009 also included restructuring and severance charges of $1.5 million due to workforce reductions and a pension plan curtailment gain of $0.7 million.

Read the The complete ReportOMN is in the portfolios of Seth Klarman of The Baupost Group.

Rating: 3.3/5 (3 votes)

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