OK
The Universal Selection Source:
Coatings Ingredients
Industry News

Omnova Solutions Achieves Anticipated Results in Q4

Published on 2015-01-23. Author : SpecialChem

OMNOVA Solutions Inc. announced net income of $5.1 million, or $0.11 per diluted share, for the fourth quarter ending November 30, 2014, compared to net income of $7.9 million, or $0.17 per diluted share, for the fourth quarter of 2013. Adjusted Income from Continuing Operations was $4.5 million, or $0.10 per diluted share for the fourth quarter of 2014, compared to fourth quarter 2013 Adjusted Income From Continuing Operations of $5.5 million, or $0.12 per diluted share.

"Overall, fourth quarter results were in line with our anticipated performance," said Kevin McMullen, OMNOVA Solutions' Chairman and Chief Executive Officer.  "We have taken, and will continue to take, decisive actions to respond to recent market declines in our traditional core businesses, specifically those serving the North American paper and carpet markets.  We are focused on stabilizing those businesses and, in turn, driving margin expansion and improved cash generation, while simultaneously accelerating the growth of our specialty businesses.  We were encouraged to see volumes and profitability in our traditional core businesses stabilize in the quarter compared to last year.  Volumes in our higher margin specialty chemical businesses of oil & gas, specialty coatings, nonwovens and elastomeric modifiers were also favorable.  In December, we announced a $0.03 per pound price increase across all latex products sold in North America, to be implemented effective January 1, 2015, or as contracts allow.

"Our Engineered Surfaces segment continued to benefit from the strong progress made on the performance improvement initiatives that we started three years ago.  Sales were up 10.2% for the quarter due to the strength of the laminates and performance films product line, which was up 14%, and solid results in the coated fabrics product line, with sales up 4.8%. Engineered Surfaces recorded Adjusted Segment Operating Profit of $6.6 million or 10.7% operating profit margin for the quarter, and $18.5 million or 7.7% for the full year," said McMullen.

"We are pleased that the restructuring actions taken in the Engineered Surfaces segment are driving strong margin expansion and improved cash generation - in fact, in 2014 Engineered Surfaces reported its highest level of profitability on an adjusted basis in over a decade.  Over the last three years, we sold the commercial wallcovering business, consolidated capacity by closing the Columbus, Mississippi manufacturing facility, prioritized our target markets, enhanced new product development, entered new adjacent markets and bolstered our management talent. We are encouraged by this performance and expect improvement to continue," said McMullen.

Consolidated Results for the Fourth Quarter of Fiscal 2014 

Net sales increased $8.6 million, or 3.7%, to $243.0 million for the fourth quarter of 2014, compared to $234.4 million for the fourth quarter of 2013. The sales increase was the result of $8.5 million from increased volume and $2.0 million of increased pricing and mix, partially offset by $1.9 million of unfavorable currency translation effects, primarily from a decline of the Euro. Encouragingly, there were volume increases in Performance Chemicals' traditional core paper and carpet lines of business.  In addition, volumes were up in oil & gas chemicals, specialty coatings and nonwovens, and in Engineered Surfaces' laminates and coated fabrics.

Gross profit in the fourth quarter of 2014 was $48.5 million, or 20.0%, compared to $51.7 million and 22.0% in the fourth quarter of 2013. The decline in gross profit was due primarily to an unfavorable inventory valuation adjustment associated with falling raw material prices, which was partially offset by margin increases.  Selling, general and administrative expense (SG&A) in the fourth quarter of 2014 was $28.2 million, or 11.6% of sales, compared to $27.9 million, or 11.9% of sales, in the fourth quarter of 2013, reflecting increased investments in sales and marketing resources for OMNOVA's specialty lines of business to support growth.

Interest expense in the fourth quarter of 2014 was $9.7 million, up $2.1 million from the fourth quarter of 2013.  The increase was due to a $2.0 million one-time call premium incurred during the fourth quarter of 2014 to pre-pay $50 million of the Company's outstanding senior notes, which will result in a savings of $4.0 million in interest expense for 2015.

Income tax benefit was $3.2 million for the fourth quarter of 2014, compared to an expense of $0.7 million in the fourth quarter of 2013. The benefit recorded during the fourth quarter of 2014 was from the reversal of a capital loss carryforward valuation allowance as a result of a change to OMNOVA's corporate structure in Asia.  Cash tax payments in the U.S. over the next few years are expected to be minimal as the Company has approximately $115.1 million of U.S. federal net operating loss carryforwards and $113.9 million of state and local tax net operating loss carryforwards with expiration dates between 2021 and 2034.

Net income for the fourth quarter of 2014 was $5.1 million or $0.11 per diluted share.  This is compared to net income of $7.9 million or $0.17 per diluted share for the fourth quarter of 2013.

Adjusted Income from Continuing Operations was $4.5 million, or $0.10 per diluted share, for the fourth quarter of 2014, compared to Adjusted Income from Continuing Operations of $5.5 million, or $0.12 per diluted share, in the fourth quarter of 2013.

Performance Chemicals Segment Results 

Net sales during the fourth quarter of 2014 increased $2.9 million, or 1.6%, to $181.4 million, compared to $178.5 million in the fourth quarter of 2013. The increase in net sales compared to the prior year is due to increased volume of $2.4 million or 1.3%, driven primarily by carpet, oil & gas, specialty coatings and nonwovens.  Pricing and mix were favorable by $1.7 million or 1%, with increases in both the Performance Materials and Specialty Chemicals product lines, despite declining raw material prices.  Net sales also were impacted by unfavorable currency translation effects of $1.2 million during the fourth quarter of 2014.

Specialty Chemicals product line sales decreased $1.7 million or 1.7%, to $100.3 million, for the fourth quarter of 2014, compared to $102.0 million for the fourth quarter of 2013, driven primarily by the unfavorable currency translation effects of $1.2 million.  Lower volumes of $0.8 million were partially offset by higher pricing and mix of $0.3 million.  Certain higher growth product lines, including specialty coatings, oil & gas and nonwovens, generated increased sales volume.

Performance Materials (paper, carpet and tire cord chemicals) product line sales increased $4.6 million, to $81.1 million, for the fourth quarter of 2014, compared to $76.5 million for the fourth quarter of 2013.  The increase was due to higher volumes of $3.2 million and higher pricing and mix of $1.4 million. Volumes for the quarter were encouraging, with favorability in all three lines of business compared with last year.

Overall, Performance Chemicals' margins on products sold expanded by $2.5 million in the quarter, marking the first expansion in the past 8 quarters.  The prices of styrene and butadiene (SB), two key raw material inputs, continued to fall throughout the quarter, with the year-end values for each at their lowest points of the year. The Company recognized an unfavorable inventory valuation adjustment of $3.8 million as a result of the raw material declines during the fourth quarter.  The net impact of expanded margins on products sold was more than offset by the inventory valuation adjustment in the quarter and resulted in a net unfavorable $1.3 million impact on the quarterly operating profit.  Unfavorable inventory valuation adjustments will continue as long as raw material prices decline.

Performance Chemicals' Adjusted Segment Operating Profit was $10.6 million in the fourth quarter of 2014, compared to $13.9 million in the fourth quarter of 2013.  Adjusted Segment Operating Profit declined due primarily to the $3.8 million unfavorable inventory valuation adjustment as well as higher freight costs and costs associated with the new expansion of capacity in the Company's Caojing operation, partially offset by increased margins on products sold during the quarter and the favorable volume effect from increased sales.

The consolidation of emulsion polymer manufacturing from the Company's Akron, Ohio plant into its Mogadore, Ohio plant was mechanically complete at the end of 2014, with customer qualifications to occur during the first half of 2015.  Following completion mid-year 2015, the Akron polymer manufacturing operation will be permanently closed.  Simultaneously, the Company has been permanently repurposing certain of its styrene butadiene latex capacity at Mogadore into specialty acrylic manufacturing capabilities to support growth in OMNOVA's specialty businesses.  This action will result in a reduction of 80 million pounds of under-utilized styrene butadiene manufacturing capacity in Mogadore, with an estimated annual operating savings of $4.0 million beginning in mid-2015. Combined with prior actions, 120 million pounds of capacity has been permanently repurposed from the Company's North American SB operations, which is approximately 15% of the total.

During the quarter, the Company introduced a number of new products including a new hydrophilic finishing treatment that imparts softness and superior wicking to nonwoven fabrics for improved fluid management in applications such as disposable hygiene products and medical gowns. OMNOVA also completed development of a new coating latex that provides excellent adhesion to decking, introduced a high performance elastomeric modifier for food contact applications, and launched its new environmentally preferred water-based release coating for film tape which has superior performance to solvent-based coatings.  Additionally, the Company is in the final plant qualification phase of a new offering in oil & gas that improves the manufacturing process of premium proppants that are a key component in the hydraulic fracturing market.

Engineered Surfaces Segment Results 

Net sales were $61.6 million during the fourth quarter of 2014, an increase of $5.7 million or 10.2%, compared to $55.9 million in the fourth quarter of 2013. Both lines of business increased compared to last year, with Laminates and Performance Films up 14% and Coated Fabrics up 4.8%.  Favorable volume drove $6.1 million of the increase while pricing was favorable by $0.3 million and foreign currency translation was unfavorable by $0.7 million.
Laminates and Performance Films product line sales were $37.5 million in the fourth quarter of 2014, an increase of $4.6 million compared to the fourth quarter of 2013.  Opening new opportunities for growth, OMNOVA successfully secured business in a new market segment during the quarter for laminates used in food service/restaurant applications, and expanded its position in the RV (recreational vehicles) market with new, high performance surfaces that lower cost and reduce weight, helping improve fuel efficiency.  The business also saw solid growth in retail store fixtures and flooring.

Global Coated Fabrics product line sales were $24.1 million in the fourth quarter of 2014, up $1.1 million compared to the fourth quarter of 2013.  In the quarter, Coated Fabrics benefitted from a favorable year-over-year comparison, as sales in the 2013 fourth quarter were adversely impacted by a flood in China, partially offset by unfavorable foreign exchange and the Company's decision to exit certain low margin applications.  For the full year, Coated Fabrics sales were negatively impacted by approximately $7.8 million as a result of the decision to exit those low margin applications.

Adjusted Segment Operating Profit increased to $6.6 million or 10.7% of sales in the fourth quarter of 2014 , compared to $6.0 million or 10.7% of sales for the fourth quarter of 2013. Sales, mix and pricing contributed favorably to profitability but were partially offset by higher manufacturing costs and an unfavorable inventory valuation adjustment, which was the result of lower raw material prices.

About Omnova Solutions


OMNOVA’s core competencies are a novel blend of the aesthetic and the practical. It  designs, develops and manufactures most of the products it offers, serving a global marketplace for a variety of commercial, industrial and residential end uses. Creativity, Vision and Design its brands carry strong customer recognition and a reputation for quality and service. As a result, OMNOVA enjoys leadership positions in key market categories.

Source:Omnova Solutions  



FEICA 2018 European Adhesive and Sealant Conference and EXPO
Back to Top