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June 29, 2017 02:00 AM

Omnova posts higher sales, net loss in 2nd quarter

Rubber & Plastics News Staff
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    BEACHWOOD, Ohio—Omnova Solutions Inc. reported growth in net sales but a net loss in the second quarter.

    Net sales for the second quarter increased 9.6 percent to $221.3 million, according to the company's statement.

    Omnova posted a net loss of $6.3 million, compared with a profit of $7.2 million in the prior-year quarter. Earnings before income tax were a loss of $3.9 million, complared with a profit of $10.4 million in 2016.

    In the second quarter, Omnova recorded an impairment loss of about $12.9 million related to China coated fabrics and charges of about $3.6 million related to the "One Omnova" restructuring initiative, compared to $1.1 million last year.

    "We are considering all options as we proactively address our unprofitable China coated fabrics business. We expect resolution before the end of July 2017," said Anne Noonan, Omnova president and CEO.

    Raw materials costs spiked, and then declined rapidly through the quarter, resulting in unfavorable gross profit margins of about $5.2 million, she said.

    "As we progress into the second half of the year, we expect margins to recover with pricing actions and some softening in raw materials," she said.

    Omnova has realigned its business and related reporting into two new segments with like businesses that share similar end-market characteristics: Specialty Solutions and Performance Materials. The businesses in Specialty Solutions include Omnova's coatings, adhesives, sealants and elastomers, non-wovens, laminates and films, and oil and gas. Performance Materials includes paper, carpet, tire cord, coated fabrics, antioxidants and reinforcing rubber.

    Net sales in Specialty Solutions increased to $121.5 million in the second quarter of 2017 over $106.2 million in 2016, an increase of 14.4 percent. The improvement was driven by volume increases of $6.7 million and pricing increases of $7.5 million, according to the statement. Foreign currency translation had a favorable effect of $1.2 million.

    Specialty Solutions' net profit for the quarter was $18 million, down from $19.4 million last year, a decrease of 7.2 percent. Favorable volume, increased pricing and lower selling, general and administrative costs almost completely offset increased raw materials costs.

    Sales in Performance Materials in the same period increased to $99.8 million from $95.8 million, an increase of 4.2 percent. The improvement was driven by pricing increases of $15.4 million and partially offset by volume declines of $12.7 million. Foreign currency translation had a favorable impact of $1.2 million. Growth in coated fabrics outside of China, tire cord and antioxidants remained strong, but was not enough to offset declines including China coated fabrics, according to the statement.

    The segment's operating loss for the quarter was $8 million, compared to an operating profit of $5.2 million last year, primarily reflecting the impairment charge of $12.8 million for the China coated fabrics. Favorable pricing and lower SG&A spending were offset by raw material costs increases and impact from lower volume.

    Overall volume declined by $6 million, primarily related to the China coated fabrics business and continued market conditions in paper and carpet, which were partially offset by improved overall volumes in Specialty Solutions, according to the statement.

    Pricing improved by $22.9 million, a change of 11.3 percent over last year, reflecting index pricing adjustments and the results of the company's non-indexed price increases. Currency translation increased sales by $2.4 million for the quarter, an increase of 1.2 percent.

    For the first six months of 2017, Omnova's sales rose 4.9 percent to $395.9 million, while posting a net loss of $2.8 million, which compared to net earnings of $6.1 million in 2016's first half.

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