OMNOVA Solutions Inc. (OMNOVA) has reported net sales of $869.4 million for the fiscal 2008, up 17%, compared with the net sales of $745.5 million in the previous year-end. It has also reported a net loss of $2.2 million, or $0.05 loss per share, for the fiscal 2008, compared with the net loss of $6.7 million, or $0.16 loss per share, in the previous year-end.
OMNOVA has reported net income of $0.8 million, or $0.02 per diluted share, for the fourth quarter ended November 30, 2008, compared to net income of $3.7 million, or $0.09 per diluted share, for the fourth quarter of 2007. Included in the fourth quarter of 2008 were restructuring, severance and other charges of $0.3 million, compared to a net gain of $0.2 million in the fourth quarter of 2007 comprised of gains from an asset sale and discontinued operations, partially offset by restructuring, severance and other charges.
Net sales increased $23.7 million, or 12.1%, to $219.6 million, for the fourth quarter of 2008 compared to $195.9 million during the fourth quarter of 2007. The fourth quarter increase was attributable to sales of $26.2 million from the Decorative Products Asian businesses acquired in the first quarter of 2008 and favorable pricing of $40.7 million, partially offset by net volume declines of $39.6 million and foreign currency translation loss of $3.6 million. Cost of goods sold for the fourth quarter of 2008 increased $25.2 million, to $185.0 million, as compared to the fourth quarter of 2007. The increase was primarily the result of $25.2 million from the inclusion of the Decorative Products Asian businesses, $28.3 million of higher raw material costs (excluding Asia) and $2.0 million higher health care expenses, which were partially offset by lower volumes and lower domestic manufacturing expenses. Gross profit was $34.6 million, with margins of 15.8%, in the fourth quarter of 2008 compared to $36.1 million, or margins of 18.4%, in the fourth quarter of 2007.
During the fourth quarter, we were profitable in what was obviously a challenging environment, said Kevin McMullen, OMNOVA Solutions’ Chairman and Chief Executive Officer. Our raw material prices continued to climb through October to record highs, despite a reduction in oil prices several months earlier. Overall manufacturing output in North America was very weak in November as companies took extended shutdowns around the Thanksgiving holiday. OMNOVA Solutions responded with continued aggressive cost reduction actions, improved pricing and new customer wins during November and early in our first quarter of 2009. As a result, despite the challenging economic environment, we were profitable both in the month of November and the fourth quarter of 2008, generating cash flow from operations to reduce our debt by $12.1 million.
Looking forward, though the economic environment remains difficult, there are a number of positive developments occurring at OMNOVA Solutions, McMullen added, citing the following:
After a decade of unprecedented increases in the company’s raw material costs, prices began to decline in November and are continuing to drop in the first quarter of 2009.
Major inventory de-stocking by customers appears to be slowing as chemical volumes have increased in January compared to the last two months of 2008.
OMNOVA has recent customer wins, promising new products and encouraging ongoing customer trialing activities.
As previously announced, the company has completed actions which are expected to provide $19.0 million of cost reductions in 2009.
Structural industry consolidation is occurring in both businesses with the exit of some competitors and the closing of manufacturing capacity by others.
We expect that these five developments will drive first half 2009 year- over-year improved operating profit and debt reduction, McMullen said.
Selling, general and administrative expense as a percentage of sales fell to 11.6% in the fourth quarter of 2008 as compared to 12.6% in the fourth quarter of 2007. Expenses in the fourth quarter of 2008 were $25.5 million, including $1.9 million from the acquired Asian businesses, compared to $24.6 million in the fourth quarter of 2007.
Interest expense decreased $0.2 million, to $3.1 million, for the fourth quarter of 2008 due to lower average interest rates as a result of the company’s refinancing actions in 2007, which were partially offset by higher average debt levels. The weighted average cost of borrowing during the fourth quarter of 2008 was 5.0%, a significant improvement from 7.5% during the fourth quarter of 2007.
Debt was reduced $12.1 million during the fourth quarter of 2008. Total debt at the end of the fourth quarter of 2008 was $188.3 million, compared to $200.4 million at August, 31, 2008 and $149.9 million at November 30, 2007. Debt increased during the 2008 fiscal year primarily as a result of $32.4 million in borrowings and assumed debt in connection with the Decorative Products Asian business acquisitions in January 2008. The debt is primarily comprised of a term loan facility with $143.9 million outstanding which matures in 2014, and a revolving asset-based credit facility with $39.7 million outstanding which matures in 2012. There was $34.7 million of unused and available liquidity under the company’s revolving asset-based credit facility at November 30, 2008.
EBITDA, as defined in the company’s borrowing agreements for the calculation of the net leverage ratio, grew 24%, to $16.5 million, for the fourth quarter of 2008 compared to $13.3 million for the fourth quarter of 2007. EBITDA for the twelve months ended November 30, 2008 was $47.8 million compared to $48.9 million for the twelve months ended November 30, 2007. OMNOVA’s leverage ratio of Net Debt to EBITDA was 3.7 at November 30, 2008, well under the covenant limit of 5.5, and a significant improvement compared to 4.3 as of the third quarter of 2008.