OMNOVA Solutions Q2 net income $3.9 millionStaff writer ▼ | July 1, 2015
OMNOVA Solutions announced net income of $3.9 million, or $0.09 per diluted share, for the second quarter ending May 31, 2015, compared to net income of $3.4 million, or $0.07 per diluted share, for the comparable period last year.
OMNOVA Solutions The sales decrease was the result of 9.8% reduced pricing
The increase was driven primarily by year-over-year margin expansion in both the Performance Chemicals and Engineered Surfaces segments, and favorable net inventory valuation adjustments in Performance Chemicals.
Net sales decreased $46.2 million, or 17.3%, to $220.2 million for the second quarter of 2015, compared to $266.4 million for the comparable quarter last year.
The sales decrease was the result of $26 million or 9.8% of reduced pricing, driven primarily by contract-based index pricing in certain markets tied to raw material price declines; $8.1 million or 3% of unfavorable currency translation effects, primarily from the decline of the Euro; and lower sales volume of $12.2 million or 4.6%, primarily in paper, carpet, oil & gas and coated fabrics.
These declines were partially offset by increasing volumes in nonwovens, laminates, tire cord, specialty rubber and home & personal care.
Gross profit in the second quarter of 2015 increased to $52.9 million, or 24.0% of net sales, compared to $52.6 million, or 19.7% of net sales, in the comparable quarter last year. The increase in gross profit was due primarily to expanding margins and favorable net inventory valuation adjustments, partially offset by the unfavorable volume and foreign exchange.
Selling, general and administrative expense (SG&A) in the second quarter of 2015 was $32.0 million, compared to $31.5 million in the second quarter of 2014, reflecting successful expense management efforts as well as increased investments in sales and marketing resources for OMNOVA's specialty lines of business.
Interest expense in the second quarter of 2015 was $6.8 million, down $0.9 million from the comparable quarter last year, reflecting the lower outstanding debt balance resulting from the $50 million prepayment of the company's outstanding Senior Notes in November 2014.
Other Expense (Income), net was $1.4 million expense for the second quarter of 2015, compared to income of $1.4 million in the comparable quarter last year.
Included in the second quarter of 2015 are expenses of $1.5 million related to the company's operational improvement programs, and included in the second quarter of 2014 was the gain of $0.7 million related to the settlement of a note receivable.
Income tax expense was $0.6 million for the second quarter of 2015, compared to $1.5 million in the second quarter of 2014. The effective tax rate for the second quarter of 2015 was 16.7%, compared to 28.3% in the second quarter of 2014. The reduction in the effective tax rate for the second quarter of 2015 as compared to 2014 results from a changing mix of jurisdictional income, whereby the income in the U.S. compared to worldwide income is reduced in 2015.
This reduction primarily relates to expected restructuring and other costs to be incurred in the U.S. during 2015 related to the manufacturing footprint and SG&A initiatives. 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.
Cash flow from operations provided $17.9 million in the second quarter of 2015 as compared to $3.8 million used in the same period last year, reflecting the effect of lower raw material costs and internal initiatives to reduce working capital.
Working capital days were 55 days compared to 60.2 days in May of last year, down 5.2 days. The company has begun implementing its working capital reduction initiative designed to consistently reduce the amount of working capital deployed in the business.
Through the end of fiscal 2016, the company expects to incur total charges of approximately $16 million to $20 million to secure the $14 million to $17 million of annual savings from the manufacturing realignment and SG&A restructuring, of which approximately $7 million to $9.0 million will be non-cash charges related to manufacturing assets that will no longer be used.
Severance charges ranging from $5 million to $6 million and production transition, facility conversion, and other associated costs ranging from $4 million to $5 million are expected to result in cash expenditures of $9 million to $11 million. These charges will be excluded from reported Adjusted Segment Operating Profit and Adjusted Income From Continuing Operations. ■