2009 cost reductions now expected to exceed $23 mn - OMNOVA
OMNOVA Solutions Inc reported net income of $10.1 million, or $0.23 per diluted share, for the third quarter ended August 31, 2009, compared to net income of $3.1 million, or $0.07 per diluted share, for the third quarter of 2008. Included in the third quarter of 2009 were restructuring and severance charges of $0.3 million and flood-related expenses of $0.6 million.
Net sales decreased $53.4 million, or 22.3%, to $186.1 million for the third quarter of 2009, compared to $239.5 million for the third quarter of 2008. The third quarter decrease in sales was the result of lower selling prices and weak market demand, which were partially offset by market share gains and penetration into new adjacent markets. Gross profit improved to $44.0 million, with margins of 23.6%, in the third quarter of 2009, compared to $39.1 million, and margins of 16.3%, in the third quarter of 2008. The margin improvement was due primarily to lower raw material costs and reduced manufacturing expenses.
"Our improved third quarter performance reflects the impact from a number of positive ongoing actions being taken by the Company, including broad-based cost reductions now totaling more than $23 million for the year, effective raw material sourcing and commercialization of innovative new products," said Kevin McMullen, OMNOVA Solutions' Chairman and Chief Executive Officer. "Our Performance Chemicals segment and Decorative Products Asian businesses led the Company's overall improvement. The actions taken by the Company led to significantly higher earnings and positive cash flow from operations, which allowed us to further reduce our debt and increase the Company's financial flexibility.
"Entering our fourth quarter, overall market demand in Decorative Products appears to be bottoming. Volumes in Performance Chemicals are expected to be up year-over-year for the fourth quarter but down modestly on a sequential basis, as is typical, compared to the third quarter. Because of the initiatives we have taken and continue to take, the Company expects to continue to generate significantly improved year-over-year earnings in the fourth quarter," McMullen added.
Selling, general and administrative expense in the third quarter of 2009 fell to $25.7 million, compared to $26.7 million in the third quarter of 2008. Interest expense in the third quarter of 2009 was $2.0 million, a decrease of $1.0 million compared to the third quarter of 2008, as a result of lower average interest rates and debt. The weighted average cost of borrowing during the third quarter of 2009 was 4.6%, an improvement from 5.5% in the third quarter of 2008. The Company's tax benefit and expense for the third quarter of 2009 and 2008 is substantially lower than its statutory rate primarily due to the Company's available net operating loss carryforwards.
The Company's Net Debt was $122.7 million at August 31, 2009, a decline of $18.3 million during the quarter and a reduction of $67.4 million over last year. Debt of $144.6 million was comprised of a term loan facility with $142.7 million outstanding which matures in 2014, and $1.9 million in short-term debt, primarily in Asia. As of August 31, 2009, the Company's revolving asset-based credit facility was not being used and available borrowing capacity was $65.6 million. The quarter-end consolidated cash balance grew to $29.6 million.