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Omnova Solutions earnings increased to $0.10 per share

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Staff Writer | September 23, 2016
Omnova Solutions announced that earnings increased to $0.10 per diluted share for the third quarter ended August 31, 2016. The company reported $0.01 per diluted share in the prior year period.
Omnova Solutions
Omnova Solutions   Net sales decreased $15.3 million
On an adjusted basis, earnings per share were $0.14 for the third quarter of 2016, compared with $0.13 in the 2015 third quarter.

As anticipated, both EPS and Adjusted EPS for the quarter were negatively impacted, by approximately $0.03, due to country-wide labor strikes unrelated to the company, which caused industrial shutdowns in France.

Net sales decreased $15.3 million, or 7.3%, to $195.6 million, compared with $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. Excluding this divestiture, sales would have been down $8.9 million, or 4.3%.

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. There were unfavorable currency translation effects of $1.6 million, or 0.8%, primarily from the Thai baht.

Gross profit in the third quarter of 2016 was up 220 basis points to $52.1 million, or 26.6% of net sales, compared to $51.5 million, or 24.4% of net sales, last year.

Driving this increase were 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.

SG&A in the third quarter improved to $29.3 million, from $29.9 million last year, primarily reflecting the impact from the cost reduction initiatives, partially offset by higher accruals for incentive and variable deferred compensation expense driven by improved company performance.

Interest expense was $5.9 million, a year-over-year improvement of $0.9 million, reflecting lower average debt levels.

Other expense (income), net, was expense of $1.0 million, compared to expense of $1.2 million in the third quarter of last year. Included in the 2016 and 2015 results were expenses of $0.6 million and $1.6 million, respectively, related to the company's operational and key process improvement initiatives.

Income tax was an expense of $1.9 million in the third quarter of 2016, compared to a benefit of $0.5 million in the third quarter of 2015.

The tax expense in the third quarter of 2016 was due primarily to the increased income in the period. Cash tax payments in the 2016 third quarter amounted to $1.4 million, compared to $0.8 million in the third quarter of 2015.

Cash tax payments in the U.S. over the next few years are expected to be minimal as the company has approximately $107.7 million of U.S. federal net operating loss carryforwards and $112.4 million of state and local tax net operating loss carryforwards.

Net income for the quarter was $4.7 million, compared to $0.4 million in the prior year period. Adjusted Net Income was $6.4 million, up 8.5% from $5.9 million in the third quarter of 2015, despite the approximately $1.2 million after-tax impact from the country-wide labor strikes in France.

Cash provided by operations in the third quarter of 2016 was $21.6 million, compared to $27.3 million last year. The decrease of $5.7 million year-over-year was primarily due to an increase in the company's pension plan contribution and lower working capital realization

The company remains on track to meet its overall goals for working capital days. Working capital improved by 7 days at quarter-end to 59 days, compared with 66 days at the end of the 2015 third quarter.

Net leverage improved to 3.5x at the end of the third quarter of 2016 from 3.8x at the end of the third quarter of 2015.