OMNOVA Reports First Quarter Earnings on Strong Volume Growth

OMNOVA Solutions Inc. has reported net income of $7.8 million, or $0.17 per diluted share, for the first quarter ended Feb. 28, 2010, compared to a net loss of $0.1 million, or breakeven per diluted share, for the first quarter of 2009.  Included in the first quarters of 2010 and 2009 were restructuring and severance charges of $0.3 million and $0.9 million, respectively.

Net sales increased $23.7 million, or 14.8%, to $183.9 million for the first quarter of 2010, compared to $160.2 million for the first quarter of 2009.  The first quarter increase in sales was the result of improved volumes of $18.7 million, higher selling prices of $3.1 million and foreign currency translation effects of $1.9 million. Gross profit improved to $40.0 million, with margins of 21.8%, in the first quarter of 2010, compared to $31.7 million, and margins of 19.8%, in the first quarter of 2009.  The increase in gross profit was primarily due to higher volumes.

"OMNOVA's strong first quarter, which began Dec. 1 and seasonally is our weakest, is indicative of the fundamental improvements we have made in our company and the consolidation that is occurring in our industries,” said Kevin McMullen, OMNOVA Solutions' chairman and chief executive officer. “Our first-quarter performance continues a very positive trend which began in the second half of 2008. The company has made significant progress on many fronts, including the introduction of numerous innovative products; penetration into new, adjacent markets; and the continued globalization of our business along with aggressive productivity gains and cost reductions."

"This is the fifth consecutive quarter of earnings improvement and the second consecutive quarter of volume improvement,” McMullen added. “The volume expansion was broad based as both of our segments achieved volume growth in the quarter, and our growth has accelerated over the last few months as the economy begins to rebound. After spending several years improving our cost structure in the face of reduced market demand, we expect to have strong operating leverage moving forward as volumes continue to outpace last year's levels."

Selling, general and administrative expenses in the first quarter of 2010 were $24.0 million, or 13.1% of sales, compared to $23.0 million, or 14.4% of sales, in the first quarter of 2009. The $1.0 million increase was driven by variable selling expenses and higher incentive accruals. Interest expense in the first quarter of 2010 was $1.8 million, a decrease of $0.4 million compared to the first quarter of 2009, as a result of lower average debt. The weighted average cost of borrowing during the first quarter of 2010 was 4.5% compared to 4.4% during the first quarter of 2009. The company's tax expense for the first quarter of 2009 was $0.7 million compared to $0.2 million in the first quarter of 2009. The increase was due primarily to domestic alternative minimum tax and increased foreign taxes as a result of higher profitability in foreign operations. The consolidated tax rate is substantially lower than the statutory rate due mainly to the utilization of domestic federal net operating loss carryforwards.  The remaining balance, as of Feb. 28, 2010, for domestic federal net operating loss carryforwards was $131.8 million, with expiration dates between 2021 and 2030.

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