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OM Group Announces Record Results for 2007 Fourth Quarter and Full-Year

Published on 2008-03-04. Author : SpecialChem

CLEVELAND -- OM Group, Inc. has announced record results for the fourth quarter and full year periods ended December 31, 2007. Net sales for the fourth quarter of 2007 were $309.4 million, compared with $172.1 million in the corresponding period of 2006. Excluding the impact of the Borchers acquisition, which added $12.7 million in the fourth quarter of 2007, revenue grew 72 percent. Increased product selling prices, strong demand across most of the company's end markets, and the re-sale of cobalt metal drove the increase in sales. The average cobalt reference price in the fourth quarter of 2007 was $32.68 compared with $18.66 in the 2006 period.

"We are quite pleased with the company's financial performance in 2007," said Joseph M. Scaminace, chairman and chief executive officer. "As was the case consistently throughout the year, we enjoyed strong customer demand for our products in nearly every end market we serve, most notably battery, chemical, powder metallurgy, and tire. Similarly, we benefited from favorable pricing for our products, which resulted in higher gross profit. And, thanks to our ongoing operational excellence initiatives, we were able to leverage operating expenses to achieve operating profit nearly five times greater than the same period last year."

Gross profit increased to $84.2 million in the fourth quarter of 2007 versus $46.8 million in the comparable 2006 quarter. The increase was primarily attributable to a higher cobalt reference price, greater volume, and an unrealized gain on cobalt forward purchase contracts. As a percentage of net sales, gross margin was flat due to an increase in low-margin cobalt metal resale. Operating profit in the fourth quarter of 2007 was $55.5 million versus $11.8 million in the prior-year quarter.

Income from continuing operations was $46.4 million, or $1.53 per diluted share, in the fourth quarter of 2007, compared with a loss of $17.0 million, or $0.58 per diluted share, in the 2006 period. The significant increase is attributable to the higher operating profit, lower interest expense due to the redemption of the company's long-term Notes earlier this year, higher interest income as a result of the company's higher cash balance, and favorable foreign currency exchange gains.

Income from discontinued operations was $1.5 million in the 2007 fourth quarter, compared to income from discontinued operations in the 2006 period of $73.8 million, related primarily to the operations of the Nickel business that was sold in the first quarter of 2007.

Net income in the fourth quarter of 2007 was $48.0 million, or $1.58 per diluted share, compared to last year's fourth quarter net income of $56.8 million, or $1.93 per diluted share. The decrease was due to the income of the discontinued Nickel business in the 2006 period.

Selling, general and administrative (SG&A) expenses fell to $28.7 million in the fourth quarter of 2007, compared with $35.0 million in the fourth quarter of 2006. Corporate expenses, a component of overall SG&A expenses, declined to $11.4 million in the 2007 fourth quarter from $12.6 million in the comparable quarter a year ago. The overall decline in SG&A was due primarily to expenses in the fourth quarter of 2006 that did not repeat in 2007 such as $4.2 million in environmental charges and $3.2 million related to the former CEO's termination.

FULL-YEAR RESULTS

Net sales for 2007 were $1.02 billion versus $660.1 million for 2006. Income from continuing operations was $111.5 million, or $3.68 per diluted share, compared to $23.6 million, or $0.80 per diluted share, a year ago. Net income was $246.9 million, or $8.15 per diluted share, in 2007 compared with net income of $216.1 million, or $7.31 per diluted share, in 2006.

Gross profit rose to $313.2 million in 2007, compared with $184.7 million in 2006. As a percentage of net sales, gross profit increased to 31 percent from 28 percent. Operating profit increased to $196.2 million in 2007 from $75.3 million in 2006. The increases reflected higher cobalt prices and higher-priced sales of finished products manufactured with cobalt raw materials purchased at lower prices. Higher sales volumes across all three product line groupings also contributed to the more favorable 2007 results.

SG&A expenses were $117.0 million in 2007, compared with $109.4 million one year-ago. The increase was due to higher selling expenses as a result of higher net sales and SG&A expenses of the acquired businesses that were not included in full-year results for 2006.

OUTLOOK

"While the company's record-setting financial performance is impressive, I believe it was our operational success during the year that makes 2007 a watershed year in the transformation of OM Group," said Scaminace. "From the acquisitions of the electronics businesses of Rockwood Holdings and Borchers to our unwavering financial discipline, this is already a much different company from even one year ago. We enter 2008 with tremendous momentum, a portfolio more appropriately balanced, true financial flexibility and exciting, long-term growth opportunities before us."

According to Scaminace, despite the mixed opinions and indicators concerning global economies, "We remain resolute that the company is on the right track. We continue to believe that our efforts will result in a company with consolidated revenues of $2 billion to $4 billion by 2010 and a ranking in the top quartile of specialty chemicals and specialty materials companies in terms of EBITDA margins and other financial metrics."

About OM Group, Inc.:

OM Group, Inc. is a diversified global developer, producer and marketer of value-added specialty chemicals and advanced materials that are essential to complex chemical and industrial processes. Key technology-based end-use applications include affordable energy, portable power, clean air, clean water and proprietary products and services for the microelectronics industry. Headquartered in Cleveland, Ohio, OM Group operates manufacturing facilities in the Americas, Europe, Asia and Africa.

FORWARD-LOOKING STATEMENTS

The foregoing discussion may include forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon specific assumptions and are subject to uncertainties and factors relating to the company's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the company. These uncertainties and factors could cause actual results of the company to differ materially from those expressed or implied in the forward-looking statements contained in the foregoing discussion. Such uncertainties and factors include: the direction and pace of our strategic transformation, including our use of proceeds from the sale of our Nickel business on March 1, 2007 and identification of potential acquisitions; the successful integration of certain Electronics businesses of Rockwood Holdings, Inc.; the operation of our critical business facilities without interruption; the speed and sustainability of price changes in cobalt; the potential for lower of cost or market write-downs of the carrying value of inventory necessitated by decreases in the market price of cobalt or the selling prices of the Company's finished products; the availability of competitively priced supplies of raw materials, particularly cobalt; the risk that new or modified internal controls, implemented in response to the Company's examination of its internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, are not effective and need to be improved; the demand for metal-based specialty chemicals and products in the Company's markets; the impact of environmental regulations on our operating facilities and the impact of new or changes to current environmental, health and safety laws on our products and their use by our customers; the effect of fluctuations in currency exchange rates on the Company's international operations; the effect of non-currency risks of investing and conducting operations in foreign countries, including political, social, economic and regulatory factors; the effect of changes in domestic or international tax laws; and the general level of global economic activity and demand for the Company's products.

Source: OM Group


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