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Article Excerpt
OPERATOR: Ladies and gentlemen, thank you for standing by and welcome to the OMNOVA Solutions first quarter earnings discussion. At this time all participants are in a listen-only mode and later we will conduct a question-and-answer session with instructions being given at that time. (Operator Instructions). As a reminder today's conference is being recorded.
And I would now like to turn the conference over your host, Chairman and Chief Executive Officer, Mr. Kevin McMullen. Please go ahead, sir.
KEVIN MCMULLEN, CHAIRMAN & CEO, OMNOVA SOLUTIONS, INC.: Thank you and good morning. Thanks for joining us for our conference call to discuss first quarter 2009 results. Joining me today is Mike Hicks, our Senior Vice President and Chief Financial Officer. I'd like to turn the call over to Mike to make comments on forward-looking statements.
MIKE HICKS, SVP & CFO, OMNOVA SOLUTIONS, INC.: Good morning. During this conference call OMNOVA representatives may make forward-looking statements as encouraged by the Private Securities Litigation Reform Act of 1995. All statements in this conference call and in subsequent discussions with the Company's management, other than historical information, are forward-looking statements. These statements represent managements' current judgment and expectations for future operations. A variety of risk factors highlighted in the Company's 2008 Form 10-K and in our most recent Earnings Release could cause business conditions and the Company's actual results to differ materially from those expected by the Company or expressed in the Company's forward-looking statements.
Kevin?
KEVIN MCMULLEN: Thanks, Mike. OMNOVA Solutions maintained the positive momentum from the second half of 2008 to enter a new year with a solidly improved year-over-year performance in our seasonally-weakest first quarter, which began December 1st. As with almost every other Company the global economic downturn is presenting numerous challenges, including a significant weakening of demand in the Company's end-use markets. But it is clear that the many actions OMNOVA has taken, combined with the changes that are occurring in our raw material situation and competitive landscape and our approach to serving customers, all have had a positive effect and contributed to first quarter results that significantly exceeded the prior year.
Though the weaker volumes drove sales down by nearly 16% year over year the Company was able to achieve solid improvement in gross profit and gross profit margins. This is the result of several factors, most significantly the decline in our oil-based raw material cost. After a decade of unprecedented increases in these costs, prices began to go down in November and continued to fall throughout the quarter. At the same time product pricing actions in both business units in the second half of 2008 also helped to provide necessary margin expansion in the first quarter of 2009.
The Company's operating with its lowest cost structure in history and the first quarter we remained relentless in managing controllable costs, cash flow and interest expense, and in reducing debt. In addition, $19 million in 2009 savings from a number of actions in late 2008 and early this year began to flow through to the bottom line. Actions have included a right-sizing of our global workforce, which is down 12% in the past 12 months; a hiring freeze; reduced work weeks and overtime at many of our plants; and lower costs related to freight, utility usage, outside services, travel, advertising and promotion. A reorganized global purchasing team, led by OMNOVA's new Vice President of strategic sourcing and logistics, has secured more favorable contracts for key raw materials and is working to drive further improvement across the global sourcing landscape. Additionally, OMNOVA has instituted improved processes for recycling some raw materials and production scrap.
Despite the very challenging economic environment we have been successful in leveraging our leading technology in design to grow at above market rates in key categories through innovative product introductions and the capture of new business in consolidating industries. This brings up an important point. Many competitors, particularly in our Decorative Products segment that don't have the diversification, capabilities and scale of OMNOVA Solutions, are really struggling in the current environment. As customers are looking to align themselves with those who have the strength to persevere through these difficult times more and more are choosing OMNOVA. They value our responsiveness, the depth of our capabilities, our ability to serve their needs on a global basis and the creative solutions we provide that can help differentiate them in very challenging market conditions.
In a moment I'll talk about some of those solutions and provide greater detail on individual business segment performance and opportunities, but first I'd like to summarize our first quarter financial results as reported in our earnings release. OMNOVA Solutions reported a net loss of $100,000, with breakeven earnings per share, compared to a net loss of $3 million, or a loss of $0.07 per share in the first quarter of 2008. This year's first quarter results included restructuring and severance charges of $900,000. On a continuing basis, including these charges OMNOVA earned $0.02 per share in the first quarter of 2009, an improvement of $0.09 versus the first quarter of last year. Selling, general and administrative expenses fell to $23 million compared to $25.1 million a year ago. This reduction occurred despite the fact that the 2009 first quarter numbers includes a full three months of SG&A from our Decorative Products Asian operations, which...
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