OMNOVA Q3 profit declines
OMNOVA Solutions Inc reported net income of $3.1 million, or $0.07 per diluted share, for the third quarter ended August 31, 2008, compared to net income of $4.5 million, or $0.11 per diluted share, for the third quarter of 2007. Included in the third quarter of 2008 were restructuring and severance charges of $0.4 million, compared to restructuring and severance charges of $0.1 million in the third quarter of 2007.
Net sales increased $42.7 million, to $239.5 million, for the third quarter of 2008 compared to $196.8 million during the same quarter a year ago. Contributing to the third quarter increase were sales of $28.1 million from the Decorative Products Asian businesses acquired in the first quarter of 2008 and favorable pricing of $31.9 million, partially offset by net volume declines of $17.1 million. Excluding the Decorative Products Asian businesses, the Company's sales grew $14.6 million, or 7.4%.
Gross profit was $39.5 million, with margins of 16.5% in the third quarter of 2008 compared to $36.8 million, or margins of 18.7%, in the third quarter of 2007. Cost of goods sold increased $40.0 million, to $200.0 million, for the third quarter of 2008 as compared to the third quarter of 2007.
The increase was the result of higher manufacturing costs of $26.7 million, primarily from the inclusion of the Decorative Products Asian businesses, and $26.5 million of higher raw material costs, less lower volumes.
"Pricing actions late in the second quarter and throughout the third quarter enabled us to achieve significant improvement in profitability as compared to the first half of the year. During the quarter, we experienced new record high costs for OMNOVA's major raw materials, along with higher utility and transportation costs, which required us to respond with critical pricing actions," said Kevin McMullen, OMNOVA Solutions' Chairman and Chief Executive Officer.
"Several end-use markets experienced declining demand as customers reduced inventory. However, we believe that in several key end uses, especially paper chemicals and wallcovering, we successfully leveraged leading technology and design to outperform the market.
"Despite the recent decline in oil prices, our raw material costs, including butadiene, continue to rise as we begin our fourth quarter," McMullen said. "As a result, everyone in our organization is keenly focused on productivity improvements and pricing actions critical to achieving our most important priority, which is restoration of margins to acceptable levels."
Selling, general and administrative expense as a percentage of sales fell to 11.1% in the third quarter of 2008 as compared to 12.2% a year ago. Expenses in the third quarter of 2008 were $26.7 million, including $1.9 million from the Asian businesses, as compared to $24.0 million last year.
Interest expense decreased $0.5 million, to $3.0 million, for the third quarter of 2008 due to significantly lower average interest rates as a result of the Company's refinancing actions in 2007, which were partially offset by higher average debt levels. Total debt at the end of the third quarter of 2008 was $200.4 million, up $40.8 million from the third quarter of 2007.