OMNOVA Solutions Reports Third Quarter 2004 Results - Sales
increased 14.4% versus last year FAIRLAWN, Ohio, Sept. 22
/PRNewswire-FirstCall/ -- OMNOVA Solutions Inc. (NYSE:OMN) today
reported a loss of $4.2 million or $(0.10) per diluted share for
the third quarter of 2004, compared to a loss of $10.6 million or
$(0.27) per diluted share during the third quarter of 2003.
Included in the third quarter of 2003 were restructuring and
severance charges of $6.2 million or $(0.16) per share primarily
related to the Company's decision to exit its heat transfer product
line. Excluding these charges, the Company reported a loss of
$(0.11) per diluted share for the third quarter of 2003. Sales
increased 14.4%, or $25.5 million, to $202.3 million for the third
quarter of 2004 as compared to $176.8 million during the same
period a year ago. Contributing to the sales increase in the
quarter were volume improvements of $16.7 million and additional
pricing of $6.7 million. Cost of goods sold for the third quarter
of 2004 increased $24.7 million to $159.5 million versus the same
quarter last year, driven primarily by $12.0 million of higher raw
material costs. Gross profit improved to $42.8 million in the third
quarter of 2004 as compared to $42.0 million in 2003. However,
gross profit margins declined to 21.2% versus 23.8% a year ago due
to higher raw material cost inflation in oil and natural gas based
raw materials, and higher pension, utilities, and freight expenses.
Selling, general and administrative costs increased $1.4 million to
$35.4 million, or 17.5% of sales, in the third quarter of 2004
versus $34.0 million, or 19.2% of sales, in the third quarter of
2003. Interest expense decreased slightly to $5.2 million for the
third quarter of 2004 as compared to $5.3 million for the same
period a year ago, due to lower average debt levels. The Company's
total debt at the end of the third quarter of 2004 was $185.4
million, a decrease of $8.2 million from the second quarter of
2004, and $26.1 million lower than last year. "I am encouraged by
the volume pick-up in our markets and the additional pricing
achieved in the quarter, which translated into solid top line sales
growth. We are also realizing the approximately $16 million in
annualized benefits we projected from actions taken in 2003 to
reduce our fixed cost structure," said Kevin McMullen, OMNOVA
Solutions' Chairman and Chief Executive Officer. "While our
operating profit improved slightly versus the third quarter of last
year, the raw material environment remains extremely challenging
with the costs for styrene, butadiene, polyvinyl chloride resins
and acrylic monomers having increased rapidly during the quarter.
We made progress in the third quarter in implementing price
increases to partially offset this swift escalation and we have
announced further increases for September and October of this year.
In addition to pricing initiatives, we are taking other actions to
help offset future raw material risk including new volume
opportunities created by innovative new products, continued focus
on discretionary spending, and LEAN SixSigma programs to eliminate
waste and improve customer satisfaction. As a result of our cash
flow actions, debt at the end of the third quarter was at its
lowest point since the Company's spin-off in October 1999."
Performance Chemicals -- Net sales during the third quarter of 2004
increased 17.2% to $100.2 million versus $85.5 million in the third
quarter of 2003, led by stronger customer demand, new customer wins
and higher average unit selling price. Segment operating profit was
$2.9 million in the third quarter of 2004 as compared to $5.4
million in the third quarter of 2003. As compared to last year, raw
material costs were up $11.8 million during the quarter, primarily
related to higher styrene costs driven by high oil and natural gas
based feedstock costs, especially benzene which has continued to
increase and has been at record levels for the last 4 months.
Increased pricing to customers totaled $5.6 million versus the same
period a year ago. During the Company's fourth quarter of 2004, raw
material prices are expected to increase by approximately $8 to $10
million as compared to the third quarter of 2004. In response to
the continuing raw material inflation, Performance Chemicals has
achieved year-to-date price increases across all product lines
totaling $12.5 million and has announced additional price
increases, which if fully implemented, would total over $50 million
annualized. The carpet latex product line generated strong sales
during the quarter driven by an improved market and increased
market penetration through new account wins. The North American
coated paper market continues to improve, driven by higher print ad
spending and lower imports, and the Company's RohmNova paper
chemicals joint venture has captured new business at several
accounts with new High Performance Platinum Pt coating products.
Decorative Products -- Net sales were $67.1 million during the
third quarter of 2004, an increase of $4.7 million versus 2003.
Last year's sales included $1.5 million related to the heat
transfer product line that the Company exited in late 2003, while
favorable foreign exchange conversion benefited third quarter 2004
sales by $1.2 million. Coated fabrics sales increased versus last
year with higher volume due to new product introductions and
increased customer penetration in the marine and automotive
aftermarket areas. Coated fabrics also benefited from higher sales
in industrial films as several competitors exited the business.
Wallcovering sales increased due to the recovery in the hospitality
market while the corporate market remained weak due to persistently
high corporate office vacancy rates. Decorative Products' operating
loss totaled $(0.3) million for the third quarter of 2004, an
improvement of $3.0 million versus the third quarter of last year,
primarily due to cost reduction initiatives from 2003. Headcount
was down 12% versus the third quarter of 2003, and quality costs
improved as a result of LEAN SixSigma initiatives. During the
quarter, sales and operating profit improved in all domestic
product lines, partially offset by weaker results in the Company's
European operations, where the U.K. office market remains very
weak. Year-to-date operating profit is up $7.6 million as compared
to 2003. Sales in our unconsolidated Asian joint ventures for the
year improved 23.2% versus last year as the operations gained
market share while serving an increasingly global customer base.
Also, the Company entered into a new three-year labor agreement at
its Columbus, MS manufacturing plant. Building Products -- Net
sales of the Company's single-ply commercial roofing membrane
products were $35.0 million during the third quarter of 2004, an
increase of 21.1% compared to $28.9 million in the third quarter of
2003. Refurbishment sales, representing over 60% of Building
Products' volume, continued to be strong as many building owners
increased their spending on maintenance requirements after several
years of delays. The segment generated operating profit of $0.7
million for the third quarter of 2004 which was $0.4 million lower
than last year. Higher sales volumes and improved margins from new
product introductions were offset by higher warranty and raw
material costs. Price increases of approximately 5% were
implemented in the single-ply membrane market, effective July 1,
with additional price increases announced for October 2004 and
April 2005. These price increases are needed to offset the rising
costs of raw materials, including EPDM membrane, resins,
plasticizer, ISO insulation and steel-based accessories. Building
Products, which was awarded a 2004 NORTECH Innovation award for its
Peel & Stick(TM) thermoplastic roofing system, had its largest
Peel & Stick order in the quarter. The job, at a government
facility in Washington, DC, was over 100,000 square feet and was
awarded to the Company because of the Peel & Stick system's
significant advantages in installation ease, time and cost, and
environmental benefits. Earnings Conference Call -- OMNOVA
Solutions has scheduled its Earnings Conference Call on Thursday,
September 23, 2004, at 11:00 a.m. EDT. The live audio event will be
hosted by OMNOVA Solutions' Chairman and Chief Executive Officer,
Kevin McMullen. It is anticipated to be approximately one hour in
length and may be accessed by the public from the Company website (
http://www.omnova.com/ ). Webcast attendees will be in a
listen-only mode. Following the live webcast, OMNOVA will archive
the call on its website until noon EDT, September 30, 2004. A
telephone replay will also be available beginning at 2:30 p.m. EDT
on September 23, 2004, and ending at 11:59 p.m. EDT on September
30, 2004. To listen to the telephone replay, callers should dial:
(USA) 800-475-6701 or (Int'l) 320-365-3844. The Access Code is
745164. Non-GAAP and Other Financial Measures - This earnings
release includes a non-GAAP financial measure, as defined by the
Securities and Exchange Commission. Specifically, the net loss and
net loss per diluted share excluding restructuring and severance
costs and deferred financing cost write- off (excluded items) is a
non-GAAP financial measure. Management believes that presenting
this information provides a more accurate basis for investors to
compare the financial results year over year. Set forth below is a
reconciliation of this non-GAAP financial measure to the most
directly comparable GAAP financial measure. Three Months Ended Nine
Months Ended Dollars in millions, except August 31, August 31, per
share data 2004 2003 2004 2003 Net loss $(4.2) $(10.6) $(9.7)
$(22.5) Excluded items (net of tax) - (6.2) (.4) (10.4) Loss before
excluded items (net of tax) $(4.2) $(4.4) $(9.3) $(12.1) Loss per
diluted share $(.10) $(.27) $(.24) $(.56) Loss per diluted share
for excluded items (net of tax) - (.16) (.01) (.26) Loss per
diluted share before excluded items (net of tax) $(.10) $(.11)
$(.23) $(.30) Number of diluted shares outstanding 40.2M 40.0M
40.1M 39.9M Effective tax rate -% -% -% -% Management reviews the
information below in assessing the performance of the business
segments and in making decisions regarding the allocation of
resources to the business segments. Management believes that this
information is essential to providing the investor with an
understanding of the Company's business and operating performance.
The following is a reconciliation of segment sales to consolidated
sales and segment operating profit (loss) to consolidated loss
before taxes. Three Months Ended Nine Months Ended August 31,
August 31, Dollars in millions 2004 2003 2004 2003 Performance
Chemicals $100.2 $85.5 $272.0 $243.2 Decorative Products 67.1 62.4
196.7 194.6 Building Products 35.0 28.9 83.0 69.0 Total Sales
$202.3 $176.8 $551.7 $506.8 Performance Chemicals Operating profit
$2.9 $5.4 $9.5 $9.1 Restructuring and severance - - - (.4)
Performance Chemicals segment operating profit 2.9 5.4 9.5 8.7
Decorative Products Operating (loss) profit $(.3) $(3.3) $2.5
$(5.1) Restructuring and severance - (6.2) (.4) (6.7) Decorative
Products segment operating (loss) profit (.3) (9.5) 2.1 (11.8)
Building Products Operating profit $.7 $1.1 $2.1 $1.6 Restructuring
and severance - - - (.1) Building Products segment operating profit
.7 1.1 2.1 1.5 Total Segment Operating Profit (Loss) $3.3 $(3.0)
$13.7 $(1.6) Interest expense (5.2) (5.3) (15.5) (10.2) Corporate
expense (2.3) (2.1) (7.8) (7.5) Restructuring and severance - - -
(.1) Deferred financing cost write-off - - - (3.1) Loss Before
Taxes $(4.2) $(10.4) $(9.6) $(22.5) Capital expenditures $3.3 $1.7
$7.1 $6.3 This earnings release contains statements concerning
trends and other forward-looking information affecting or relating
to the Company and its industries. These statements are intended to
qualify for the protections afforded forward-looking statements
under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may generally be identified by the use
of forward-looking terms such as "could," "may," "should," "will,"
"expects," "believes," "anticipates," "plans," "intends,"
"estimates," "projects," "targets," "forecasts," "seeks," "likely,"
"would" or similar terms. Forward-looking statements address the
Company's business, results of operations, financial condition and
significant accounting policies and management judgments, and
include statements based on current expectations, estimates,
forecasts and projections about the economies and markets in which
the Company operates and management's beliefs and assumptions about
these economies and markets. There are many risks and uncertainties
that could cause actual results or outcomes to differ materially
from those described in the forward-looking statements, some of
which are beyond the Company's control, including inherent economic
risks and changes in prevailing governmental policies and
regulatory actions. Some important factors that could cause the
Company's actual results or outcomes to differ from those expressed
in its forward-looking statements include, but are not limited to,
the following: general economic trends affecting OMNOVA Solutions'
end-use markets; raw material prices for petrochemicals and
chemical feedstocks including styrene, butadiene, and polyvinyl
chloride; acts of war or terrorism; competitive pressure on
pricing; ability to develop successful new products; customer
and/or competitor consolidation; customer ability to compete
against increased foreign competition; operational issues at the
Company's facilities; availability of financing to fund operations
at anticipated rates and terms; ability to successfully implement
productivity enhancement and cost reduction initiatives; a
prolonged work stoppage; governmental and regulatory policies;
rapid increases to health care costs; risks associated with foreign
operations including fluctuations in exchange rates of foreign
currencies; the Company's strategic alliance and acquisition
activities; and substantial debt and leverage and the ability to
service that debt. The Company disclaims any obligation, other than
imposed by law, to publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise. OMNOVA Solutions Inc. is a technology-based company
with 2003 sales of $683 million and 2,100 employees worldwide.
OMNOVA is an innovator of emulsion polymers and specialty
chemicals, decorative and functional surfaces, and single-ply
roofing systems for a variety of commercial, industrial and
residential end uses. Web Site: http://www.omnova.com/ OMNOVA
SOLUTIONS INC. Condensed Consolidated Statements of Operations
(Dollars in Millions, Except Per-Share Data) (Unaudited) Three
Months Ended Nine Months Ended August 31, August 31, 2004 2003 2004
2003 Net Sales $202.3 $176.8 $551.7 $506.8 Costs and Expenses Cost
of goods sold 159.5 134.8 421.5 383.3 Selling, general and
administrative 35.4 34.0 104.5 102.9 Depreciation and amortization
5.7 6.7 17.2 20.3 Interest expense 5.2 5.3 15.5 10.2 Other expense
.7 .2 2.2 2.2 Restructuring and severance - 6.2 .4 7.3 Deferred
financing cost write-off - - - 3.1 206.5 187.2 561.3 529.3 Loss
Before Income Taxes (4.2) (10.4) (9.6) (22.5) Income tax expense -
.2 .1 - Net Loss $(4.2) $(10.6) $(9.7) $(22.5) Basic Loss Per Share
Net Loss Per Basic Share $(.10) $(.27) $(.24) $(.56) Diluted Loss
Per Share Net Loss Per Diluted Share $(.10) $(.27) $(.24) $(.56)
OMNOVA SOLUTIONS INC. Condensed Consolidated Balance Sheets
(Unaudited) August 31, November 30, 2004 2003 ASSETS: (Dollars in
millions) Current Assets Cash and cash equivalents $13.3 $14.1
Accounts receivable, net 107.6 97.4 Inventories 54.1 45.1 Deferred
income taxes 4.2 4.2 Prepaid expenses and other 2.6 3.8 Total
Current Assets 181.8 164.6 Property, plant and equipment, net 166.3
174.3 Trademarks and other intangible assets, net 14.2 15.4 Prepaid
pension 57.3 57.5 Other assets 24.4 27.1 Total Assets $444.0 $438.9
LIABILITIES AND SHAREHOLDERS' EQUITY: Current Liabilities Current
portion of long-term debt $.2 $- Accounts payable 97.9 72.1 Accrued
payroll and personal property taxes 14.3 12.8 Accrued interest 4.8
9.7 Other current liabilities 17.6 20.4 Total Current Liabilities
134.8 115.0 Long-term debt 185.2 192.2 Postretirement benefits
other than pensions 48.1 48.8 Deferred income taxes 4.2 4.2 Other
liabilities 10.8 11.0 Shareholders' Equity Preference stock - $1.00
par value; 15 million shares authorized; none outstanding - -
Common stock - $0.10 par value; 135 million shares authorized; 42.3
million and 41.9 million shares issued in August and November,
respectively; 40.5 million and 40.0 million shares outstanding in
August and November, respectively 4.2 4.2 Additional contributed
capital 310.1 309.3 Retained deficit (241.5) (231.8) Treasury stock
at cost; 1.8 million and 1.9 million shares in August and November,
respectively (12.0) (12.7) Accumulated other comprehensive gain
(loss) .1 (1.3) Total Shareholders' Equity 60.9 67.7 Total
Liabilities and Shareholders' Equity $444.0 $438.9 DATASOURCE:
OMNOVA Solutions Inc. CONTACT: Sandi Noah, Communications,
+1-330-869-4292, or Michael Hicks, Investor Relations,
+1-330-869-4411, both of OMNOVA Solutions Inc. Web site:
http://www.omnova.com/ Company News On-Call:
http://www.prnewswire.com/comp/143306.html
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