OMNOVA reports significantly improved Q2 earnings & cash flow

25 Jun '09

6 min read

EBITDA, as defined in the Company's borrowing agreements for the calculation of the net leverage ratio, was $11.5 million for the second quarter of 2009, compared to $9.7 million for the second quarter of 2008. EBITDA for the twelve months ended May 31, 2009 was $50.3 million, compared to $47.8 million for the twelve months ended November 30, 2008. OMNOVA's leverage ratio of Net Debt-to-EBITDA improved for the fourth consecutive quarter, ending at 2.8 on May 31, 2009. The loan covenant requires a ratio of 5.5 or less.

Performance Chemicals - Net sales during the second quarter of 2009 decreased 30.5%, to $87.0 million, compared to $125.2 million in the second quarter of 2008. The decrease was driven primarily by weaker market conditions, which led to volume decreases of $20.8 million, or 16.6%, lower selling prices of $15.6 million and unfavorable currency translation effects of $1.8 million. Segment operating profit was $11.4 million for the second quarter of 2009, up from $1.9 million for the second quarter of 2008. The year-over-year operating profit improvement was driven by cost reduction actions in both manufacturing and SG&A, improved contribution margin per pound and lower raw material costs, which were partially offset by lower volumes.

While volumes were weaker on a year-over-year basis, the daily sales run rate in the second quarter of 2009 was better than the prior quarter. Additionally, the Company's industry-leading technology won new business in several markets.

Decorative Products - Net sales were $74.3 million during the second quarter of 2009, a decrease of $20.2 million, or 21.4%, compared to the second quarter of 2008. Sales were lower due to volume decreases of $16.7 million and an unfavorable currency translation effect of $4.2 million, which were offset by price increases of $0.7 million.

Segment operating profit for the second quarter of 2009 was $0.2 million, compared to $1.1 million for the second quarter of 2008, but is a sequential improvement over the first quarter 2009 loss of $2.9 million. The improvement in the second quarter of 2009 versus the first quarter of 2009 was due to significant cost reduction actions and lower raw material costs. This quarter's operating profit includes restructuring and severance charges of $0.8 million.

Included in Decorative Products' results for the quarter are sales of $23.4 million from its Asian businesses, compared to $24.0 million in the second quarter of 2008. The Asian businesses generated operating profit of $1.9 million during the second quarter of 2009 as compared to a loss of $0.9 million for last year's second quarter. This improvement was driven by lower raw material costs, significant cost reduction actions and improved productivity.

OMNOVA continues to offer an ever-broader selection of innovative products serving core and adjacent markets, including recyclable and 30% recycled-content wallcovering, pool liner films and health care products.

Pension - During the quarter, the Company froze future pension plan benefit accruals for all salary and non-union hourly employees, as well as employees at one union hourly location, resulting in a consolidated net pension plan curtailment gain of $0.7 million. The impact in the second quarter of 2009 was an increase in manufacturing costs of $0.7 million and a reduction in SG&A expense of $1.4 million. The impact on segment operating profit for Performance Chemicals was an expense of $0.3 million while Decorative Products recorded a benefit of $0.7 million and Corporate Expense included a benefit of $0.3 million in the quarter.

OMNOVA Solutions Inc

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