OMNOVA Reports 43% year-over-year growth in Specialty Segment profitability in Q1 2018
BEACHWOOD, Ohio, March 28, 2018 /PRNewswire/ --
First Quarter 2018 Highlights
- Earnings per Diluted Share for Q1 of 2018 were $0.16 compared to $0.08 last year.
- Adjusted Diluted Earnings per Share for the quarter were $0.09 compared to $0.05 last year.
- Specialty Solutions segment operating profit for the quarter was $13.6 million compared to $9.5 million last year. Adjusted Segment Operating Profit for Specialty Solutions was $14.7 million, up 52% from $9.7 million last year, driven by higher volumes, stronger margins and favorable foreign exchange.
- Net Debt to Adjusted EBITDA improved to 3.3x from 3.6x at the end of last year's first quarter.
- In December 2017, the Company pre-paid $40 million of Term Loan B debt.
- In March 2018, the Company refinanced its Term Loan B debt reducing the rate spread by 100 basis points.
- The Company's 2018 full year performance expectations are unchanged - the fourth consecutive year of adjusted diluted earnings per share growth.
OMNOVA Solutions Inc. (NYSE: OMN) Chief Executive Officer Anne Noonan, commenting on the first quarter of fiscal 2018, said, "We were pleased to record another quarter of sales and profit growth in our Specialty Solutions segment. We saw particular volume strength in our Oil & Gas business, and good volume growth across other Specialty Solutions businesses, including home & personal care, adhesives & sealants, elastomeric modifiers and laminates & films. Oil & Gas is benefiting from investments we made during the downturn to diversify its product portfolio and geographic offerings, which accelerated its improvement over last year's relatively weak first quarter results. In addition to improved volumes, Specialty Solutions profitability was also driven by stronger margins and favorable foreign exchange. At the end of the first quarter, Specialty Solutions accounted for 61% of total Company net sales and 87% of segment profitability as our specialization strategy continues to gain momentum.
"Performance Materials volume was down 11% excluding the impact of the sale of China Coated Fabrics in July of 2017. As expected, the paper market was the largest driver of the decline as we transition out of the commodity-like portions of this market. The volume declines were partially offset by another quarter of volume growth in the carpet business. Margins were unfavorably impacted by increases in raw material prices and a slower start in several of our higher margin lines of business including antioxidants, coated fabrics and reinforcing resins. We expect raw material pricing to stabilize with some pricing recovery over the remainder of the year.
"For 2018 our guidance remains unchanged; we continue to expect our fourth consecutive year of Adjusted EPS growth. The momentum in our specialization strategy should offset the headwinds we have been facing as we reposition Performance Materials away from its paper-focused heritage. We expect volume growth in specialties to continue, but not at the pace seen in the first quarter," concluded Noonan.
Consolidated Results for the First Quarter of Fiscal 2018
Earnings per diluted share for the first quarter ended February 28, 2018 was $0.16, compared to $0.08 last year. In the first quarter of 2018, the Company recorded charges of $2.9 million primarily for restructuring and severance and costs associated with prepaying $40 million on the Company's Term Loan B credit facility. In the first quarter of 2017, the Company recorded charges of $1.0 million related to restructuring and severance.
Adjusted Diluted Earnings per Share (Adjusted EPS) was $0.09 for the first quarter of 2018, compared with $0.05 last year. The increase in Adjusted EPS was the result of the strong performance in Specialty Solutions partially offset by Performance Materials.
Net sales for the first quarter were $178.7 million, up 2.3% from last year's $174.6 million. China Coated Fabrics (CCF), which was sold in July 2017, accounted for $5.7 million of sales in last year's first quarter. Excluding the effect of CCF, sales increased 5.8% compared to the first quarter last year. Net sales in Specialty Solutions increased 16.5% to $109.2 million, while sales in Performance Materials decreased 14%, or 7.6% excluding the effect of CCF. Overall volume was favorable by $6.3 million, or 3.6%, as strong growth in Specialty Solutions more than offset the planned declines in paper. Mix was unfavorable by $4.1 million, or 2.4%. Currency translation was favorable by $7.4 million, or 4.3%, primarily reflecting the strengthening of the Euro.
SG&A in the first quarter was $28.7 million, down from $29.2 million in the same quarter last year. The primary drivers of the decrease were benefits from the "One OMNOVA" cost reduction initiatives and the sale of CCF partially offset by unfavorable foreign exchange.
Interest expense for the quarter was $5.1 million compared to $5.2 million last year reflecting lower borrowing balances resulting from the December debt pre-payment, offset by increasing interest rates.
Income tax benefit in the first quarter of 2018 was $5.1 million compared to $1.6 million in 2017. The increase in the first quarter tax benefit compared to 2017 relates to U.S. Tax Reform and French legislative impacts, both of which reduced statutory tax rates. U.S. cash tax payments were minimal as the Company has approximately $91.1 million of U.S. federal net operating loss carryforwards and $86.8 million of state and local tax net operating loss carryforwards.
Working capital days at the end of February 2018 were 67.3, 1.8 days favorable compared to last February. In spite of the favorable working capital days, cash used by operations in the first quarter of 2018 was $8.0 million, compared to $4.7 million last year, reflecting an increase in accounts receivable due to the higher sales and higher inventory levels. Trailing 12 month adjusted EBITDA increased to $87.4 million from $81.6 million in the comparable period. Adjusted net leverage improved to 3.3x adjusted EBITDA as compared to 3.6x last year (see Tables C and D), reflecting the increases in earnings.
Specialty Solutions Segment Results
Net sales for Specialty Solutions during the first quarter of 2018 increased $15.5 million, or 16.5%, to $109.2 million, compared with $93.7 million last year. The improvement was driven by strong volume increases of $15.2 million, or 16.1%, partially offset by mix decreases of $4.0 million, or 4.3%. Foreign currency translation had a favorable effect of $4.3 million, or 4.5%. Volumes were exceptionally strong in Oil & Gas compared to last year's relatively modest results. Volumes were also improved across a number of the other specialty businesses including laminates & films, elastomeric modifiers, home & personal care and adhesives & sealants.
Segment Operating Profit was $13.6 million compared with $9.5 million last year. Adjusted Segment Operating Profit grew 52% to $14.7 million, or 13.5% of net sales, compared to $9.7 million or 10.4% of net sales last year. (See Tables A and B.) Increased volume and the benefits of cost controls drove the improvement in operating profit.
Performance Materials Segment Results
Net sales for Performance Materials during the first quarter of 2018 were $69.5 million compared to $80.9 million last year. The divested CCF business accounted for $5.7 million of net sales in the first quarter of 2017. Volume, excluding CCF was down $8.9 million, or 11%, primarily driven by sales into the coated paper market. The Company is transitioning out of the commodity portions of this market and expects continued volume declines as a result. In addition to paper, volume was seasonally soft in tire cord, antioxidants and reinforcing resins. Sales into the carpet market, which are benefiting from new product initiatives, were strong.
Performance Materials' segment operating profit for the quarter was $2.1 million, compared with $4.7 million last year. Adjusted Segment Operating Profit was $2.3 million or 3.3% of net sales, compared to $5.1 million, or 6.3% of net sales, last year. (See Tables A and B.) In addition to the impact from the volume declines, margins were unfavorably impacted by increases in raw material prices and the slower start in several of our higher margin Performance Materials businesses.
Earnings Conference Call - OMNOVA Solutions has scheduled its Earnings Conference Call for March 28, 2018, at 11:00 a.m. ET. OMNOVA Solutions' President and Chief Executive Officer, Anne Noonan will host the live audio event. The call is anticipated to be approximately one hour in length and may be accessed by the public from the investor relations section of the Company's website (www.omnova.com). Webcast attendees will be in a listen-only mode. Following the live webcast, OMNOVA will archive the call on its website until noon ET, April 11, 2018. A telephone replay also will be available beginning at 1:00 p.m. ET on March 28, 2018, and ending at 11:59 p.m. ET on April 11, 2018. To listen to the telephone replay, callers should dial: (USA) 800-475-6701, access code 446094 or (International) 320-365-3844, access code 446094.
Non-GAAP and Other Financial Matters
This Earnings Release includes Adjusted Segment Operating Profit, Adjusted Income, Adjusted Diluted Earnings Per Share, Adjusted EBIT, Net Debt and Adjusted EBITDA which are non-GAAP financial measures as defined by the Securities and Exchange Commission. Management reviews the adjusted financial measures in assessing the performance of the business segments and in making decisions regarding the allocation of resources to the business segments. Management also believes that the adjusted information is useful for providing investors with an understanding of the Company's business and operating performance. Management excludes the items shown in the tables below because Management does not consider them to be reflective of normal operations. These adjusted financial measurements are not measurements of financial performance under GAAP and such financial measures should not be considered as an alternative to Segment Operating Profit, Net Income, Diluted Earnings Per Share or other measures of financial performance determined in accordance with GAAP. These non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. Presented on Tables C and D is the Company's Net Leverage Ratio calculation (Net Debt / Adjusted EBITDA). Presented on Table E is the Company's Adjusted Return on Invested Capital calculation (Adjusted Net Operating Profit After Tax / Total Debt and Equity). The tables below provide the reconciliation of these financial measures to the comparable GAAP financial measures.
| Reconciliation of Reported Segment Net Sales and Operating Profit to Net Sales and Net Income |
| Three Months Ended |
|||||||
| February 28 |
|||||||
| (In millions) |
2018 |
2017 |
|||||
| Net Sales: |
|||||||
| Specialty Solutions |
$ |
109.2 |
$ |
93.7 |
|||
| Performance Materials |
69.5 |
80.9 |
|||||
| Total Net Sales |
$ |
178.7 |
$ |
174.6 |
|||
| Segment Operating Profit: |
|||||||
| Specialty Solutions |
$ |
13.6 |
$ |
9.5 |
|||
| Performance Materials |
2.1 |
4.7 |
|||||
| Interest expense |
(5.1) |
(5.2) |
|||||
| Corporate expense |
(8.4) |
(7.0) |
|||||
| Income (Loss) Before Income Taxes |
2.2 |
2.0 |
|||||
| Income tax expense (benefit) |
(5.1) |
(1.6) |
|||||
| Income from continuing operations |
7.3 |
3.6 |
|||||
| Discontinued operations, net of tax |
— |
— |
|||||
| Net Income (Loss) |
$ |
7.3 |
$ |
3.6 |
|||
| Depreciation and amortization |
$ |
7.2 |
$ |
6.7 |
|||
| Capital expenditures |
$ |
3.2 |
$ |
3.7 |
|||
| OMNOVA SOLUTIONS INC. |
||||||||||||||||||||
| Non-GAAP and other Financial Matters (Continued) |
||||||||||||||||||||
| Three Months Ended February 28, 2018 |
||||||||||||||||||||
| Table A |
||||||||||||||||||||
| (In millions except per share data) |
Specialty |
Performance Materials |
Combined |
Corporate |
Consolidated |
|||||||||||||||
| Net Sales |
$ |
109.2 |
$ |
69.5 |
$ |
178.7 |
$ |
— |
$ |
178.7 |
||||||||||
| Segment Operating Profit / Corporate Expense |
$ |
13.6 |
$ |
2.1 |
$ |
15.7 |
$ |
(8.4) |
$ |
7.3 |
||||||||||
| Interest expense |
— |
— |
— |
(5.1) |
(5.1) |
|||||||||||||||
| Income (Loss) Before Income Taxes |
$ |
13.6 |
$ |
2.1 |
$ |
15.7 |
$ |
(13.5) |
$ |
2.2 |
||||||||||
| Management Excluded Items |
||||||||||||||||||||
| Restructuring and severance |
.7 |
— |
.7 |
.6 |
1.3 |
|||||||||||||||
| Environmental costs |
— |
.2 |
.2 |
— |
.2 |
|||||||||||||||
| Write-off of debt issuance costs |
— |
— |
— |
.8 |
.8 |
|||||||||||||||
| Acquisition and integration related expense |
.4 |
— |
.4 |
.2 |
.6 |
|||||||||||||||
| Subtotal for management excluded items |
1.1 |
.2 |
1.3 |
1.6 |
2.9 |
|||||||||||||||
| Adjusted Segment Operating Profit / Corporate |
$ |
14.7 |
$ |
2.3 |
$ |
17.0 |
$ |
(11.9) |
$ |
5.1 |
||||||||||
| Tax expense (25% rate)* |
(1.2) |
|||||||||||||||||||
| Adjusted Income (Loss) |
$ |
3.9 |
||||||||||||||||||
| Adjusted Diluted Earnings Per Share from |
$ |
0.09 |
||||||||||||||||||
| *Tax rate is based on the Company's estimated normalized annual effective tax rate |
||||||||||||||||||||
| Adjusted Segment Operating Profit As A % Of |
13.5 |
% |
3.3 |
% |
9.5 |
% |
||||||||||||||
| Segment / Corporate Capital Expenditures |
$ |
2.4 |
$ |
.8 |
$ |
3.2 |
$ |
— |
$ |
3.2 |
||||||||||
| Adjusted Segment Operating Profit / Corporate |
$ |
14.7 |
$ |
2.3 |
$ |
17.0 |
$ |
(11.9) |
$ |
5.1 |
||||||||||
| Unallocated corporate interest expense |
— |
— |
— |
5.1 |
5.1 |
|||||||||||||||
| Segment / Consolidated Adjusted EBIT |
14.7 |
2.3 |
17.0 |
(6.8) |
10.2 |
|||||||||||||||
| Depreciation and amortization |
4.1 |
3.0 |
7.1 |
.1 |
7.2 |
|||||||||||||||
| Segment / Consolidated Adjusted EBITDA |
$ |
18.8 |
$ |
5.3 |
$ |
24.1 |
$ |
(6.7) |
$ |
17.4 |
||||||||||
| Adjusted EBITDA as a % of sales |
17.2 |
% |
7.6 |
% |
13.5 |
% |
9.7 |
% |
||||||||||||
| OMNOVA SOLUTIONS INC. |
||||||||||||||||||||
| Non-GAAP and other Financial Matters (Continued) |
||||||||||||||||||||
| Three Months Ended February 28, 2017 |
||||||||||||||||||||
| Table B |
||||||||||||||||||||
| (In millions except per share data) |
Specialty |
Performance |
Combined |
Corporate |
Consolidated |
|||||||||||||||
| Net Sales |
$ |
93.7 |
$ |
80.9 |
$ |
174.6 |
$ |
— |
$ |
174.6 |
||||||||||
| Segment Operating Profit / Corporate Expense |
$ |
9.5 |
$ |
4.7 |
$ |
14.2 |
$ |
(7.0) |
$ |
7.2 |
||||||||||
| Interest expense |
— |
— |
— |
(5.2) |
(5.2) |
|||||||||||||||
| Income (Loss) Before Income Taxes |
9.5 |
4.7 |
14.2 |
(12.2) |
2.0 |
|||||||||||||||
| Management Excluded Items |
||||||||||||||||||||
| Restructuring and severance |
.2 |
.3 |
.5 |
.4 |
.9 |
|||||||||||||||
| Asset impairment, facility closure costs and other |
— |
.1 |
.1 |
— |
.1 |
|||||||||||||||
| Subtotal for management excluded items |
.2 |
.4 |
.6 |
.4 |
1.0 |
|||||||||||||||
| Adjusted Segment Operating Profit / Corporate |
$ |
9.7 |
$ |
5.1 |
$ |
14.8 |
$ |
(11.8) |
$ |
3.0 |
||||||||||
| Tax expense (30% rate)* |
(.9) |
|||||||||||||||||||
| Adjusted Income |
$ |
2.1 |
||||||||||||||||||
| Adjusted Diluted Earnings Per Share from |
$ |
0.05 |
||||||||||||||||||
| *Tax rate is based on the Company's estimated normalized annual effective tax rate |
||||||||||||||||||||
| Adjusted Segment Operating Profit As A % Of |
10.4 |
% |
6.3 |
% |
8.5 |
% |
||||||||||||||
| Segment / Corporate Capital Expenditures |
$ |
2.1 |
$ |
1.5 |
$ |
3.6 |
$ |
.1 |
$ |
3.7 |
||||||||||
| Adjusted Segment Operating Profit / Corporate |
$ |
9.7 |
$ |
5.1 |
$ |
14.8 |
$ |
(11.8) |
$ |
3.0 |
||||||||||
| Unallocated corporate interest expense |
— |
— |
— |
5.2 |
5.2 |
|||||||||||||||
| Segment / Consolidated Adjusted EBIT |
9.7 |
5.1 |
14.8 |
(6.6) |
8.2 |
|||||||||||||||
| Depreciation and amortization |
3.4 |
2.9 |
6.3 |
.4 |
6.7 |
|||||||||||||||
| Segment / Consolidated Adjusted EBITDA |
$ |
13.1 |
$ |
8.0 |
$ |
21.1 |
$ |
(6.2) |
$ |
14.9 |
||||||||||
| Adjusted EBITDA as a % of sales |
14.0 |
% |
9.9 |
% |
12.1 |
% |
8.5 |
% |
||||||||||||
| OMNOVA SOLUTIONS INC. |
||||||||||||||||||||
| Non-GAAP and other Financial Matters (Continued) |
||||||||||||||||||||
| Trailing Twelve Months Ended February 28, 2018 |
||||||||||||||||||||
| Table C |
||||||||||||||||||||
| (In millions except per share data) |
Specialty |
Performance |
Combined |
Corporate |
Consolidated |
|||||||||||||||
| Net Sales |
$ |
456.9 |
$ |
330.3 |
$ |
787.2 |
$ |
— |
$ |
787.2 |
||||||||||
| Segment Operating Profit / Corporate Expense |
$ |
64.0 |
$ |
(15.2) |
$ |
48.8 |
$ |
(31.3) |
$ |
17.5 |
||||||||||
| Interest expense |
— |
— |
— |
(21.4) |
(21.4) |
|||||||||||||||
| Income (Loss) Before Income Taxes |
$ |
64.0 |
$ |
(15.2) |
$ |
48.8 |
$ |
(52.7) |
$ |
(3.9) |
||||||||||
| Management Excluded Items |
||||||||||||||||||||
| Restructuring and severance |
1.1 |
1.4 |
2.5 |
3.1 |
5.6 |
|||||||||||||||
| Asset impairment, facility closure costs and other |
.3 |
33.5 |
33.8 |
1.8 |
35.6 |
|||||||||||||||
| Environmental costs |
— |
(1.8) |
(1.8) |
— |
(1.8) |
|||||||||||||||
| Write-off of debt issuance costs |
— |
— |
— |
.8 |
.8 |
|||||||||||||||
| Pension curtailment |
— |
— |
— |
.4 |
.4 |
|||||||||||||||
| Acquisition and integration related expense |
.4 |
— |
.4 |
.5 |
.9 |
|||||||||||||||
| Subtotal for management excluded items |
1.8 |
33.1 |
34.9 |
6.6 |
41.5 |
|||||||||||||||
| Adjusted Segment Operating Profit / Corporate |
$ |
65.8 |
$ |
17.9 |
$ |
83.7 |
$ |
(46.1) |
$ |
37.6 |
||||||||||
| Tax expense |
(11.0) |
|||||||||||||||||||
| Adjusted Income |
$ |
26.6 |
||||||||||||||||||
| Adjusted Diluted Earnings Per Share From Adjusted Income |
$ |
0.59 |
||||||||||||||||||
| Adjusted Segment Operating Profit as a % Of |
14.4 |
% |
5.4 |
% |
10.6 |
% |
||||||||||||||
| Segment / Corporate Capital Expenditures |
$ |
13.7 |
$ |
10.2 |
$ |
23.9 |
$ |
.7 |
$ |
24.6 |
||||||||||
| Adjusted Segment Operating Profit / Corporate |
$ |
65.8 |
$ |
17.9 |
$ |
83.7 |
$ |
(46.1) |
$ |
37.6 |
||||||||||
| Unallocated corporate interest |
— |
— |
— |
21.4 |
21.4 |
|||||||||||||||
| Segment / Consolidated Adjusted EBIT |
65.8 |
17.9 |
83.7 |
(24.7) |
59.0 |
|||||||||||||||
| Depreciation and amortization |
15.2 |
11.5 |
26.7 |
1.7 |
28.4 |
|||||||||||||||
| Segment / Consolidated Adjusted EBITDA |
$ |
81.0 |
$ |
29.4 |
$ |
110.4 |
$ |
(23) |
$ |
87.4 |
||||||||||
| Adjusted EBITDA as a % of sales |
17.7 |
% |
8.9 |
% |
14.0 |
% |
11.1 |
% |
||||||||||||
| Net Leverage |
||||||||||||||||||||
| Total short and long-term debt (excluding OID and deferred financing fees of $6.7M. ) |
$ |
320.8 |
||||||||||||||||||
| Less cash |
(36.1) |
|||||||||||||||||||
| Net Debt (Debt less Cash) |
$ |
284.7 |
||||||||||||||||||
| Net Leverage Ratio** |
3.3 x |
|||||||||||||||||||
| OMNOVA SOLUTIONS INC. |
||||||||||||||||||||
| Non-GAAP and other Financial Matters (Continued) |
||||||||||||||||||||
| Trailing Twelve Months Ended February 28, 2017 |
||||||||||||||||||||
| Table D |
||||||||||||||||||||
| (In millions except per share data) |
Specialty |
Performance |
Combined |
Corporate |
Consolidated |
|||||||||||||||
| Net Sales |
$ |
408.4 |
$ |
350.8 |
$ |
759.2 |
$ |
— |
$ |
759.2 |
||||||||||
| Segment Operating Profit / Corporate Expense |
$ |
58.0 |
$ |
14.1 |
$ |
72.1 |
$ |
(35.3) |
$ |
36.8 |
||||||||||
| Interest expense |
— |
— |
— |
(24.1) |
$ |
(24.1) |
||||||||||||||
| Income (Loss) Before Income Taxes |
$ |
58.0 |
$ |
14.1 |
72.1 |
$ |
(59.4) |
$ |
12.7 |
|||||||||||
| Management Excluded Items |
||||||||||||||||||||
| Restructuring and severance |
.3 |
2.1 |
2.4 |
5.3 |
7.7 |
|||||||||||||||
| Accelerated depreciation on production transfer |
— |
.2 |
.2 |
— |
.2 |
|||||||||||||||
| Operational improvements costs |
— |
(.4) |
(.4) |
— |
(.4) |
|||||||||||||||
| Asset impairment, facility closure costs and other |
.9 |
6.3 |
7.2 |
— |
7.2 |
|||||||||||||||
| Environmental costs |
— |
.3 |
.3 |
— |
.3 |
|||||||||||||||
| Write-off of debt issuance costs |
— |
— |
— |
4.9 |
4.9 |
|||||||||||||||
| Acquisition and integration related expense |
— |
1.1 |
1.1 |
.9 |
2.0 |
|||||||||||||||
| Vacation policy change |
(1.0) |
(1.2) |
(2.2) |
(.4) |
(2.6) |
|||||||||||||||
| Subtotal for management excluded items |
.2 |
8.4 |
8.6 |
10.7 |
19.3 |
|||||||||||||||
| Adjusted Segment Operating Profit / Corporate |
$ |
58.2 |
$ |
22.5 |
80.7 |
$ |
(48.7) |
$ |
32.0 |
|||||||||||
| Tax expense |
(9.6) |
|||||||||||||||||||
| Adjusted Income |
$ |
22.4 |
||||||||||||||||||
| Adjusted Diluted Earnings Per Share from Adjusted Income |
$ |
0.50 |
||||||||||||||||||
| Adjusted Segment Operating Profit as a % Of |
14.3 |
% |
6.4 |
% |
10.6 |
% |
||||||||||||||
| Segment / Corporate Capital Expenditures |
$ |
11.3 |
$ |
10.8 |
$ |
22.1 |
$ |
1.1 |
$ |
23.2 |
||||||||||
| Adjusted Segment Operating Profit / Corporate |
$ |
58.2 |
$ |
22.5 |
$ |
80.7 |
$ |
(48.7) |
$ |
32.0 |
||||||||||
| Unallocated corporate interest expense |
— |
— |
— |
22.1 |
22.1 |
|||||||||||||||
| Segment / Consolidated Adjusted EBIT |
58.2 |
22.5 |
80.7 |
(26.6) |
54.1 |
|||||||||||||||
| Depreciation and amortization |
13.6 |
12.7 |
26.3 |
1.2 |
27.5 |
|||||||||||||||
| Segment / Consolidated Adjusted EBITDA |
$ |
71.8 |
$ |
35.2 |
$ |
107.0 |
$ |
(25.4) |
$ |
81.6 |
||||||||||
| Adjusted EBITDA as a % of sales |
17.6 |
% |
10.0 |
% |
14.1 |
% |
10.7 |
% |
||||||||||||
| Net Leverage |
||||||||||||||||||||
| Total short and long-term debt (excluding OID and deferred financing fees of $9.0M. ) |
$ |
364.9 |
||||||||||||||||||
| Less cash and restricted cash |
(70.4) |
|||||||||||||||||||
| Net Debt (Debt less Cash and Restricted Cash) |
$ |
294.5 |
||||||||||||||||||
| Net Leverage Ratio** |
3.6 x |
|||||||||||||||||||
| ** The above calculation is not intended to be used for purposes of calculating debt covenant compliance. |
||||||||||||||||||||
| OMNOVA SOLUTIONS INC. |
|||||||||||
| Non-GAAP and other Financial Matters (Continued) |
|||||||||||
| February 28, 2018 |
|||||||||||
| Table E |
|||||||||||
| Adjusted Return on Invested Capital |
Trailing Twelve |
Twelve Months Ended |
|||||||||
| February 28, |
November 30, |
||||||||||
| 2018 |
2017 |
2016 |
|||||||||
| Adjusted Net Operating Profit After Tax |
(Dollars in Millions) |
||||||||||
| Adjusted income from continuing operations |
$ |
26.6 |
$ |
24.8 |
$ |
22.2 |
|||||
| Interest add back excluding debt premium |
21.4 |
21.5 |
22.7 |
||||||||
| Tax effect of interest add back* |
(5.4) |
(6.5) |
(6.8) |
||||||||
| Total Adjusted Net Operating Profit After Tax |
$ |
42.6 |
$ |
39.8 |
$ |
38.1 |
|||||
| Debt and Equity |
|||||||||||
| Short-term debt |
$ |
4.2 |
$ |
4.2 |
$ |
4.2 |
|||||
| Long-term debt |
309.9 |
349.8 |
352.5 |
||||||||
| Total shareholders' equity |
46.5 |
38.2 |
109.8 |
||||||||
| Total Debt and Equity |
$ |
360.6 |
$ |
392.2 |
$ |
466.5 |
|||||
| Adjusted Return on Invested Capital |
11.8 |
% |
10.1 |
% |
8.2 |
% |
|||||
| *Tax rate is based on the Company's estimated normalized annual effective tax rate of 25% for 2018, and 30% for 2017 and 2016. |
|||||||||||
Notice on Forward-Looking Statements
This press release includes descriptions of OMNOVA's current business, operations, assets and other matters affecting the Company, as well as "forward-looking statements" as defined by federal securities laws. All forward-looking statements by the Company, including verbal statements, are intended to qualify for the protections afforded forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect Management's current expectation, judgment, belief, assumption, estimate or forecast about future events, circumstances or results and may address business conditions and prospects, strategy, capital structure, debt and cash levels, sales, profits, earnings, markets, products, technology, operations, customers, raw materials, claims and litigation, financial condition, and accounting policies among other matters. Words such as, but not limited to, "will," "may," "should," "projects," "forecasts," "seeks," "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "optimistic," "likely," "would," "could," "committed," and similar expressions or phrases identify forward-looking statements.
All descriptions of OMNOVA's current business, operations and assets, as well as all forward-looking statements, involve risks and uncertainties. Many risks and uncertainties are inherent in business generally. Other risks and uncertainties are more specific to the Company's businesses and strategy, or to any new businesses the Company may enter into or acquire. There also may be risks and uncertainties not currently known to the Company. The occurrence of any such risks and uncertainties and the impact of such occurrences is often not predictable or within the Company's control. Such impacts could adversely affect the Company's business, operations or assets, as well as the Company's results and the value of your investment in the Company. In some cases, such impact could be material. Certain risks and uncertainties facing the Company are described below or in the Company's Quarterly Report on Form 10-Q and Annual Report on Form 10-K.
All written and verbal descriptions of OMNOVA's current business, operations and assets and all forward-looking statements attributable to the Company or any person acting on the Company's behalf are expressly qualified in their entirety by the risks, uncertainties, and cautionary statements contained or referenced herein. All such descriptions and any forward-looking statements speak only as of the date on which such description or statement is made, and the Company undertakes no obligation, and specifically declines any obligation, other than that imposed by law, to publicly update or revise any such description or forward-looking statements whether as a result of new information, future events or otherwise.
The Company's actual results and the value of your investment in OMNOVA may differ, perhaps materially, from expectations due to a number of risks and uncertainties including, but not limited to: 1) the Company's exposure to general economic, business, and industry conditions; (2) the risk of doing business in foreign countries and markets; (3) changes in raw material prices and availability; (4) the highly competitive markets the Company serves and continued consolidations among its competitors and customer base; (5) extraordinary events such as natural disasters, political disruptions, terrorist attacks and acts of war; (6) extensive and increasing governmental regulation, including environmental, health and safety regulations; (7) the Company's failure to protect its intellectual property or defend itself from intellectual property claims; (8) claims and litigation; (9) changes in accounting policies, standards, and interpretations; (10) the actions of activist shareholders; (11) the Company's inability to achieve or achieve in a timely manner the objectives and benefits of cost reduction initiatives; (12) the Company's ability to develop and commercialize new products at competitive prices; (13) the Company's use of purchase orders rather than long-term contracts for most of its business; (14) the disproportionate impact of certain product lines on the Company's operating profitability; (15) customer credit risk; (16) the Company's ability to identify and complete strategic transactions; (17) the Company's ability to successfully integrate acquired companies; (18) unanticipated capital expenditures; (19) risks associated with the use, production, storage, and transportation of chemicals; (20) information system failures and breaches in security; (21) continued increases in healthcare costs; (22) the Company's ability retain or attract key employees; (23) the Company's ability to renew collective bargaining agreements with employees on acceptable terms and the risk of work stoppages; (24) the Company's contribution obligations under its U.S. pension plan; (25) the Company's reliance on foreign financial institutions to hold some of its funds; (26) the effect of goodwill impairment charges; (27) the volatility in the market price of the Company's common shares; (28) the Company's substantial debt position; (29) a decision to incur additional debt; (30) the operational and financial restrictions contained in the Company's debt agreements; (31) the effects of a default under the Company's term loan or revolving credit facility; (32) the Company's ability to generate sufficient cash to service its outstanding debt; and (33) the Company's subsidiaries' ability to provide the Company with cash.
OMNOVA Solutions provides greater detail regarding these risks and uncertainties in its 2016 Form 10-K and subsequent filings, which are available online at www.omnova.com and www.sec.gov.
OMNOVA Solutions Inc. is a global innovator of performance-enhancing chemistries and surfaces used in products for a variety of commercial, industrial and residential applications. As a strategic business-to-business supplier, OMNOVA provides The Science in Better Brands, with emulsion polymers, specialty chemicals, and functional and decorative surfaces that deliver critical performance attributes to top brand-name, end-use products sold around the world. OMNOVA's sales for the last twelve months ended February 28, 2018 were approximately $787 million. The Company has a global workforce of approximately 1,800. Visit OMNOVA Solutions on the internet at www.omnova.com.
| OMNOVA SOLUTIONS INC. |
|||||||
| Consolidated Statements of Operations |
|||||||
| (In Millions, Except Per Share Data) |
|||||||
| (Unaudited) |
|||||||
| Three Months Ended |
|||||||
| February 28 |
|||||||
| 2018 |
2017 |
||||||
| Net sales |
$ |
178.7 |
$ |
174.6 |
|||
| Cost of goods sold (exclusive of depreciation) |
132.1 |
130.7 |
|||||
| Gross profit |
46.6 |
43.9 |
|||||
| Selling, general and administrative |
28.7 |
29.2 |
|||||
| Depreciation and amortization |
7.2 |
6.7 |
|||||
| Restructuring and severance |
1.3 |
1.0 |
|||||
| Interest expense |
5.1 |
5.2 |
|||||
| Debt issuance costs write-off |
.8 |
— |
|||||
| Acquisition and integration related expense |
.6 |
— |
|||||
| Other income (loss), net |
.7 |
(.2) |
|||||
| Total other costs and expenses |
44.4 |
41.9 |
|||||
| Income (loss) before income taxes |
2.2 |
2.0 |
|||||
| Income tax (benefit) expense |
(5.1) |
(1.6) |
|||||
| Net income (loss) |
$ |
7.3 |
$ |
3.6 |
|||
| Basic and diluted income (loss) per share |
$ |
.16 |
$ |
.08 |
|||
| Weighted average shares outstanding - basic |
44.6 |
44.3 |
|||||
| Weighted average shares outstanding - diluted |
45.0 |
44.7 |
|||||
| OMNOVA SOLUTIONS INC. |
|||||||
| Consolidated Balance Sheets |
|||||||
| (In Millions, Except Per Share Data) |
|||||||
| February 28, |
November 30, |
||||||
| 2018 |
2017 |
||||||
| (Unaudited) |
(Audited) |
||||||
| ASSETS: |
|||||||
| Current Assets |
|||||||
| Cash and cash equivalents |
$ |
36.1 |
$ |
88.0 |
|||
| Accounts receivable, net |
108.5 |
99.0 |
|||||
| Inventories, net |
83.7 |
76.5 |
|||||
| Prepaid expenses and other |
7.9 |
12.5 |
|||||
| Total Current Assets |
236.2 |
276.0 |
|||||
| Property, plant and equipment, net |
208.9 |
208.9 |
|||||
| Intangible assets, net |
55.7 |
56.0 |
|||||
| Goodwill |
68.2 |
66.3 |
|||||
| Other non-current assets |
5.6 |
5.6 |
|||||
| Total Assets |
$ |
574.6 |
$ |
612.8 |
|||
| LIABILITIES AND SHAREHOLDERS' EQUITY: |
|||||||
| Current Liabilities |
|||||||
| Amounts due banks |
$ |
4.2 |
$ |
4.2 |
|||
| Accounts payable |
80.7 |
78.3 |
|||||
| Accrued payroll and personal property taxes |
20.0 |
26.1 |
|||||
| Employee benefits |
3.1 |
2.9 |
|||||
| Other current liabilities |
8.1 |
5.1 |
|||||
| Total Current Liabilities |
116.1 |
116.6 |
|||||
| Long-term debt |
309.9 |
349.8 |
|||||
| Post-retirement benefits other than pensions |
6.2 |
6.3 |
|||||
| Pension liabilities |
69.8 |
70.5 |
|||||
| Deferred income taxes |
17.4 |
23.4 |
|||||
| Other non-current liabilities |
8.7 |
8.0 |
|||||
| Total Liabilities |
528.1 |
574.6 |
|||||
| Shareholders' Equity |
|||||||
| Common stock - $0.10 par value; 135 million shares authorized, 48.3 million |
4.8 |
4.8 |
|||||
| Additional contributed capital |
344.4 |
343.4 |
|||||
| Retained deficit |
(158.8) |
(159.2) |
|||||
| Treasury stock at cost; 3.5 million shares at February 28, 2018 and |
(26.0) |
(25.5) |
|||||
| Accumulated other comprehensive loss |
(117.9) |
(125.3) |
|||||
| Total Shareholders' Equity |
46.5 |
38.2 |
|||||
| Total Liabilities and Shareholders' Equity |
$ |
574.6 |
$ |
612.8 |
|||
| OMNOVA SOLUTIONS INC. |
|||||||
| Consolidated Statements of Cash Flows |
|||||||
| (Dollars in Millions) |
|||||||
| (Unaudited) |
|||||||
| Three Months Ended |
|||||||
| February 28, |
|||||||
| 2018 |
2017 |
||||||
| Operating Activities |
|||||||
| Net income |
$ |
7.3 |
$ |
3.6 |
|||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) |
|||||||
| Depreciation and amortization |
7.2 |
6.7 |
|||||
| Amortization and write-off of debt issuance costs |
1.1 |
.3 |
|||||
| Non-cash stock compensation expense |
.5 |
.5 |
|||||
| Provision for obsolete inventories |
.6 |
.4 |
|||||
| Deferred income taxes |
(5.8) |
— |
|||||
| Changes in operating assets and liabilities: |
|||||||
| Accounts receivable |
(8.2) |
(2.7) |
|||||
| Inventories |
(6.9) |
(13.4) |
|||||
| Other current assets |
(2.2) |
1.3 |
|||||
| Current liabilities |
(6.5) |
1.7 |
|||||
| Other non-current assets |
5.4 |
1.0 |
|||||
| Other non-current liabilities |
(.5) |
(4.1) |
|||||
| Net Cash Provided by (Used in) Operating Activities |
(8.0) |
(4.7) |
|||||
| Investing Activities |
|||||||
| Capital expenditures |
(3.2) |
(3.7) |
|||||
| Proceeds from notes receivable |
— |
3.8 |
|||||
| Business acquisitions |
(.1) |
— |
|||||
| Net Cash Provided by (Used In) Investing Activities |
(3.3) |
0.1 |
|||||
| Financing Activities |
|||||||
| Repayment of debt obligations |
(41.0) |
(1.0) |
|||||
| Employee tax withholding related to redemption of common shares |
(.5) |
(1.7) |
|||||
| Net Cash Provided by (Used In) Financing Activities |
(41.5) |
(2.7) |
|||||
| Effect of exchange rate changes on cash and cash equivalents |
.9 |
(.3) |
|||||
| Net Increase (Decrease) In Cash And Cash Equivalents |
(51.9) |
(7.6) |
|||||
| Cash and cash equivalents at beginning of period |
88.0 |
78.0 |
|||||
| Cash And Cash Equivalents At End Of Period |
$ |
36.1 |
$ |
70.4 |
|||
SOURCE OMNOVA Solutions Inc.
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