OMNOVA reports significantly improved Q2 earnings & cash flow

25 Jun '09

6 min read

OMNOVA Solutions Inc reported net income of $5.1 million, or $0.12 per diluted share, for the second quarter ended May 31, 2009, compared to a net loss of $3.1 million, or $0.07 per diluted share, for the second quarter of 2008. Included in the second quarter of 2009 were restructuring and severance charges of $0.8 million and a net pension plan curtailment gain of $0.7 million resulting from the suspension of the accrual of future service benefits for all salary and non-union hourly employees and certain union hourly employees.

Net sales decreased $58.4 million, or 26.6%, to $161.3 million for the second quarter of 2009 compared to $219.7 million for the second quarter of 2008. The second quarter decrease 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 $40.0 million, with margins of 24.8%, in the second quarter of 2009 compared to $33.8 million, and margins of 15.4%, in the second quarter of 2008. The margin improvement was due primarily to lower raw material and manufacturing costs.

"Our improved second quarter performance reflects the impact from a number of positive actions by the Company, including broad-based cost reductions, structurally improved pricing and the introduction of innovative new products, as well as lower raw material costs," said Kevin McMullen, OMNOVA Solutions' Chairman and Chief Executive Officer.

"Despite weak market conditions, we achieved significantly improved earnings and cash flow from operations which allowed us to further reduce our debt and increase the Company's financial flexibility. This was the fourth consecutive quarter that the Company reduced its Net Debt-to-EBITDA leverage ratio, ending the quarter at 2.8, and the second consecutive quarter of year-over-year earnings improvement. Though the overall economic environment remains uncertain, because of the fundamental improvements occurring at OMNOVA we expect the second half of 2009 to be profitable and cash flow positive." McMullen added.

Selling, general and administrative expense in the second quarter of 2009 fell to $25.7 million, compared to $27.5 million in the second quarter of 2008. Second quarter 2009 interest expense was $2.0 million, a decrease of $1.5 million as compared to the second quarter of 2008, due to lower average interest rates and debt. The weighted average cost of borrowing during the second quarter of 2009 was 4.4%, a significant improvement from 6.6% in the second quarter of 2008.

The Company's Net Debt declined $26.1 million during the quarter to $141.0 million as compared to $167.1 million at the end of the first quarter of 2009. Since November 30, 2008, debt has been reduced by $38.0 million. Debt is comprised of a term loan facility with $143.1 million outstanding which matures in 2014, a revolving asset-based credit facility with $9.1 million outstanding which matures in 2012 and $4.4 million in short-term debt, primarily in Asia, which matures in 2009. Unused and available borrowing capacity under the Company's revolving asset-based credit facility grew to $46.4 million at May 31, 2009. Cash on hand, primarily in foreign operations, increased $8.4 million in the quarter.

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