OMNOVA Solutions, Inc. :OMN-US: Earnings Analysis: Q1, 2017 By the Numbers : March 31, 2017

OMNOVA Solutions, Inc. reports financial results for the quarter ended February 28, 2017.

We analyze the earnings along side the following peers of OMNOVA Solutions, Inc. – Ferro Corporation, Trinseo SA, Masco Corporation and Celanese Corporation Class A (FOE-US, TSE-US, MAS-US and CE-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 174.60 million, Net Earnings of USD 3.60 million.
  • Gross margins narrowed from 21.39% to 21.31% compared to the same period last year, operating (EBITDA) margins now 8.42% from 9.01%.
  • Year-on-year change in operating cash flow of -176.47% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth due to contribution of one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-02-28 2016-11-30 2016-08-31 2016-05-31 2016-02-29
Relevant Numbers (Quarterly)
Revenues (mil) 174.6 187 195.6 202 175.3
Revenue Growth (%YOY) -0.4 -6.5 -7.25 -8.27 -15.27
Earnings (mil) 3.6 -11.3 4.7 7.2 -1.1
Earnings Growth (%YOY) 427.27 40.21 1075 140 65.63
Net Margin (%) 2.06 -6.04 2.4 3.56 -0.63
EPS 0.08 -0.25 0.11 0.16 -0.03
Return on Equity (%) 12.75 -37.64 14.69 23.96 -3.93
Return on Assets (%) 2.08 -5.81 2.41 4.18 -0.64

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Market Share Versus Profits

Revenues History
Earnings History

OMN-US‘s change in revenue this period compared to the same period last year of -0.40% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that OMN-US is holding onto its market share. Also, for comparison purposes, revenues changed by -6.63% and earnings by 131.86% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 21.31% to 21.39% for the same period last year, while operating margins (EBITDA margins) went from 8.42% to 9.01% over the same time frame.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

OMN-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 84.09 days, compared to last year’s level of 74.15 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

OMN-US‘s change in operating cash flow of -176.47% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s operating (EBIT) margins contracted from 5.13% to 4.58%. In spite of this, the company’s earnings rose. This was influenced primarily by one-time items, which improved pretax margins from -0.46% to 1.15%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

OMNOVA Solutions, Inc. is a technology-based company, which provides emulsion polymers, specialty chemicals and engineered surfaces for various commercial, industrial and residential end uses. It operates its business through the Performance Chemicals and Engineered Surfaces segments. The Performance Chemicals segment produces a broad range of emulsion polymers and specialty chemicals based primarily on styrene butadiene, styrene butadiene acrylonitrile, styrene butadiene vinyl pyridine, nitrile butadiene, polyvinyl acetate, acrylic, styrene acrylic, vinyl acrylic, glyoxal, phenolic and diphenylamine antioxidants, hollow plastic pigment, fluorochemicals, and bio-based chemistries. The Engineered Surfaces segment develops designs, produces and markets a broad line of functional and decorative surfacing products, including coated fabrics, vinyl, paper and specialty laminates, and performance films. The company was founded on October 1, 1999 and is headquartered in Beachwood, OH.

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