Omnova Solutions Q3 adjusted income $5.9 millionStaff writer ▼ | September 25, 2015
Omnova Solutions announced adjusted income from continuing operations increased to $5.9 million, or $0.13 per diluted share, for the third quarter ended August 31, 2015.
Omnova Solutions $0.13 per diluted share
Net sales for the third quarter decreased $41.2 million, or 16.3%, to $210.9 million, compared with $252.1 million for the comparable quarter last year.
The decrease was the result of $15.3 million, or 6.1%, of reduced pricing, driven primarily by contract-based index pricing in certain markets tied to raw material price declines; $7.1 million, or 2.8%, of negative currency translation effects; and lower sales volume of $18.8 million, or 7.4%, primarily related to the unfavorable market conditions in paper and oil & gas.
These year-over-year declines were partially offset by increasing volumes in nonwovens, laminates, specialty coatings and tire cord adhesives.
Gross profit in the third quarter of 2015 increased to $51.5 million, or 24.4% of net sales, compared to $49.2 million, or 19.5% 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, which were partially offset by the volume declines.
Selling, general and administrative expense (SG&A) in the third quarter of 2015 was $29.9 million, flat with the third quarter of 2014, reflecting a disciplined approach to expense management as OMNOVA increases investments in sales and marketing resources for its higher margin specialty lines of business. Overall, the company expects to realize future SG&A benefits as the impact of the restructuring actions is realized.
Interest expense in the third quarter of 2015 was $6.8 million, down $1.0 million from the comparable quarter last year, reflecting lower outstanding debt balances.
Other expense was $1.2 million for the third quarter of 2015, compared to $0.4 million in the comparable quarter last year. Included in the third quarter of 2015 are expenses of $1.6 million related to the company's operational and key process improvement initiatives.
Income tax was a benefit of $0.5 million in the third quarter of 2015, compared with an expense of $0.3 million in the third quarter of 2014. The third quarter 2015 tax benefit 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, along with a one-time discrete tax benefit.
Cash tax payments in the U.S. over the next few years are expected to be minimal as the company has approximately $116 million of U.S. federal net operating loss carryforwards and $114 million of state and local tax net operating loss carryforwards with expiration dates between 2021 and 2034.
Cash provided by operations increased to $27.3 million in the third quarter of 2015, compared to $23.8 million last year, reflecting the effect of lower raw material costs and internal initiatives to reduce working capital.
Working capital days improved to 53.8 at quarter end, compared with 55.6 a year ago, demonstrating the company's continued progress on its initiatives to reduce the amount of working capital deployed in the business.
Consolidated Net Debt improved by $11.6 million in the third quarter of 2015, which, along with the growth in adjusted EBITDA, resulted in an improved Leverage Ratio of 3.8x as compared to 4.1x in the second quarter of 2015. ■