OMNOVA Solutions Inc. (OMN) reported fiscal 2009 fourth-quarter results on Monday. The company recorded earnings of $11.1 million or 25 cents per share, compared to $0.8 million, or 2 cents per share in the year-ago period. The quarterly result also surpassed the Zacks Consensus Estimate of 15 cents. The strong performance was primarily driven by robust gross margins amid lower raw material costs and management efforts to reduce manufacturing expenses.
OMNOVA designs, develops, produces and markets emulsion polymers, specialty chemicals, and decorative and functional surfaces for a variety of commercial, industrial and residential end-uses. The company’s solutions offer distinctive performance and aesthetic attributes to products that people use daily. OMNOVA reports operating results under two business segments: Performance Chemicals, which is the flagship division, and Decorative Products.
During the quarter, net sales declined 14.0% to $188.8 million, compared to $219.6 million in the year-ago quarter. The decrease was primarily caused by lower selling prices and unfavorable foreign currency translations partially offset by improved volumes. In terms of segments, Performance Chemicals posted a reduction of 16.1% to $110.8 million, while Decorative Products declined 11.0% to $78.0 million.
OMNOVA’s gross profit rose by 27.2% year over year to $44.0 million, while gross margin grew by 750 basis points (bps) to 23.3%. The strong growth was mainly attributable to lower raw material costs and reduced manufacturing expenses. Selling, general and administrative expenses remained essentially flat at $25.6 million. Accordingly, OMNOVA’s earnings before interest and income taxes (EBIT) more than quadrupled to $12.2 million from $3.0 million in the year-ago period, while EBIT margin rose by 510 bps to 6.5%.
At the end of the quarter, OMNOVA’s cash and cash equivalents of $41.5 million and total debt of $144.1 million, compared to $17.4 million of cash and $188.3 million of total debt in the year-ago period. During the quarter, the company also deployed $5.0 million towards capital expenditure, compared to $3.7 million in the year-ago period.
Looking ahead, OMNOVA expects further improvement in demand conditions across most markets in 2010, though inflationary pressures on raw materials may affect results.
The Zacks Consensus Estimate, derived from 3 covering analysts, on the company’s earnings for the fiscal year ending Nov 2010 is currently pegged at 72 cents per share, which has slipped by 5 cents over the past month. However, the most accurate estimate is more bullish at 75 cents per share.
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