LONDON, UK / ACCESSWIRE / September 27, 2016 / Active Wall St. announces its post-earnings coverage on OMNOVA Solutions Inc. (NYSE: OMN). The company released its third quarter fiscal 2016 financial results on September 22nd, 2016. The chemical maker posted an 8.5% improvement in earnings; yet this was not enough to outperform market expectations. Register with us now for your free membership at: http://www.activewallst.com/register/.
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Earnings Reviewed
For the three months ended on August 31st, 2016, Omnova reported net income of $4.7 million or $0.10 per diluted share, compared to net income of $0.4 million, or $0.01 per diluted share, in the prior year’s period. Adjusted net income was $6.4 million, or $0.14 per share, up 8.5% from $5.9 million, or $0.13 per share, in Q3 2015. The results were below Wall Street’s expectations of $0.17 per share. Both EPS and adjusted EPS were negatively impacted, by approximately $0.03, due to country-wide labor strikes unrelated to the Company which caused industrial shutdowns in France.
For Q3 2016, Omnova’s sales declined $15.3 million, or 7.3%, to $195.6 million compared to $210.9 million for the comparable quarter last year. The largest contributor to the sales decline was $6.4 million, or 3.0%, from the divestiture of the non-strategic, break-even operation in India in February 2016. Volume declined $4.6 million, or 2.2%, primarily related to Latin American nonwovens, coated fabrics for the Chinese automotive market and unfavorable conditions in the paper and carpet markets, partially offset by improved volumes in North American specialty coatings, oil & gas additives, construction chemicals, and elastomeric modifiers. Pricing accounted for $2.7 million, or 1.3% of the decline, driven by index pricing tied to lower costs for certain raw materials.
Segment Results
Performance Chemicals segment: During Q3 2016, net sales from Omnova’s Performance Chemicals segment dropped 6.6% to $143.5 million compared to $153.6 million in Q3 2015. Specialty Chemicals product line sales increased 2.0% to $72.0 million from $70.6 million last year. Performance Materials product line sales decreased $11.5 million, or 13.9%, to $71.5 million compared to $83.0 million in Q3 2015.
Performance Chemicals segment operating profit for Q3 2016 rose to $17.3 million from $7.5 million in Q3 2015. Adjusted segment operating profit rose 15.9%, to $17.5 million compared to $15.1 million in last year’s third quarter. This was Performance Chemicals’ sixth consecutive quarter of y-o-y improvement in adjusted segment operating profit.
Engineered Surfaces Segment: Net sales for the Engineered Surfaces segment were $52.1 million during Q3 2016, a drop 9.1% compared to $57.3 million in Q3 2015. Laminates and Performance Films product line sales were $35.0 million in Q3 2016, falling $0.6 million on y-o-y basis. The overall decline was due to the delayed timing of customer plant start-ups in flooring and customer refurbishment projects in retail store fixtures. In the reported quarter, Global Coated Fabrics product line sales were $17.1 million, down $4.6 million from last year. The decline was due primarily to lower sales into the China automotive market. The Company is transitioning from a previous private label arrangement to expanding its business with local OEM’s and Tier I suppliers in China. For Q3 2016, Engineered Surfaces segment reported operating profit of $3.9 million compared to $5.2 million last year. Adjusted operating profit for the segment came in at $4.1 million compared to $6.1 million in Q3 2015.
Operating Metrics
In Q3 2016, gross profit soared 220 basis points to $52.1 million, or 26.6% of net sales, compared to $51.5 million, or 24.4% of net sales, reported last year; the increase was attributed to cost reduction initiatives, lower raw material costs, mix improvement from favorable volume in higher-margin businesses, and pricing actions, partially offset by the decline in volumes.
Balance Sheet
Cash provided by operations in Q3 2016 was $21.6 million compared to $27.3 million last year; the drop was attributable to an increase in the Company’s pension plan contribution and lower working capital realization. Net leverage improved to 3.5x at the end of Q3 2016 from 3.8x at the end of Q3 2015. During the quarter, the Company also completed a refinancing of its long-term debt, which lowers its interest expense by approximately $2 million per year, and also extends its maturities to 2023.
Stock Performance
On Monday, The stock closed the trading session at $7.92, falling 3.30% from its previous closing price of $8.19. A total volume of 557.96 thousand shares have exchanged hands, which was higher than the 3-month average volume of 366.21 thousand shares. OMNOVA Solutions’ stock price rallied 28.99% in the last three months, 44.79% in the past six months, and 47.76% in the previous twelve months. %. Furthermore, on a year to date basis, the stock surged 29.20%.
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