Omnova Solutions’ Q3 results 'disappointing,' debt refinancing eyed

By Lisa Kerner

Charlotte, N.C., Sept. 25 – Omnova Solutions Inc.’s third-quarter was “disappointing, as positive performance [of] several of our specialty growth product lines was masked by several unique items we don’t think are structural, and greater than anticipated weakness in our traditional core product lines,” said chief financial officer Paul DeSantis.

“As such the top line and profitability were disappointing,” DeSantis said during the company’s earnings conference call on Thursday.

Chairman and chief executive officer Kevin McMullen said the company is taking actions to optimize its manufacturing infrastructure, reduce production costs and improve utilization to support growth in key business lines, targeting overall double-digit operating margins. In addition, the management team “is aligned and focused on taking actions to create longer-term shareholder value,” he said.

“Lastly, we are looking at our capital structure to ensure it is as flexible as possible and at the lowest cost to support growth required in our businesses.”

At Aug. 31, Omnova had debt totaling $449 million. The debt included $7 million of foreign debt, a $192 million term loan B at Libor plus 300 basis points maturing in 2018 and $250 million of senior notes due 2018.

The company is considering refinancing its existing high yield debt in November as it becomes callable, according to McMullen.

“Our notes carry a 7.875% interest rate,” McMullen said. “Our plan is to refinance those notes at rates that are currently at around the low to mid 6% range, which we anticipate would be EPS and cash accretive.”

Omnova plans to leave its term loan and asset-backed revolver in place, to protect its liquidity.

“Our balance sheet shows approximately $150 million of cash of which about half is permanently invested overseas,” McMullen said. “Liquidity exceeded $220 million at the end of the quarter.”

According to the earnings presentation, liquidity included $78 million available under the $80 million revolver.

“We are also considering reducing our cash balance by using some U.S. cash to lower the amount of our total gross outstanding debt,” the CEO said.

The company’s current net debt to EBITDA is about 3.5 to 1.

Net income, sales decline

Omnova’s third-quarter net income was $1.8 million, or $0.04 per diluted share, compared to net income of $9 million, or $0.19 per diluted share, for the third quarter of 2013.

Adjusted income from continuing operations was also down year over year at $2.2 million, or $0.05 per diluted share, compared to $8.7 million, or $0.19 per diluted share.

Net sales decreased 3.5% to $9.1 million year over year.

Third-quarter gross profit was $49.2 million, or 19.5%, compared to $54.7 million and 20.9% in the prior-year period.

Based in Fairlawn, Ohio, Omnova provides emulsion polymers, specialty chemicals, and decorative and functional surfaces for commercial, industrial and residential end uses.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.