Omnova CEO: Industry weakness will continue into 2009
Omnova Solutions Inc. (NYSE:OMN) CEO Kevin McMullen said market weakness has masked improvements the firm has made to its cost structure, product lineups and pricing. McMullen made the comments during a midday conference call. However, he said the Fairlawn, Ohio-based company, which makes chemicals used in manufacturing carpets, textiles and paper, still expects continued industry weakness through 2009.
Industry sources report that the carpet market was down about 5% in the first quarter compared to a year earlier, McMullen said. New residential housing construction plunged about 20% during the quarter compared to the same three months of 2006, he said.
“Despite the market weakness, our sales in carpet were up slightly over last year,” McMullen said. “Unfortunately, the residential housing slowdown has been longer and deeper than we originally anticipated by our customers and industry experts.”
He said Omnova now expects residential housing weakness into 2009. McMullen said refurbishments have offset some of the residential housing decline. To combat rising material and transportation costs, Omnova announced price increases for the second quarter.
“To address the situation, we have announced price increases for the second quarter for nearly every chemical product line,” McMullen said. “We continue to focus on all actions that will improve margins in this challenging environment.”
The chief executive said Omnova lost future order volume of about 20 million pounds as a carpet customer closed a plan.
After Tuesday’s closing, Omnova said its first-quarter loss narrowed to $3 million, or $0.07 per share, compared with a loss of $5.1 million, or $0.12 per share, a year earlier. Wall Street analysts, on average, anticipated a loss of $0.05 per share. The firm said its profit margins were pressured by higher raw material and transportation costs.
Quarterly revenue increased 16% to $190.6 million from $164.8 million. Analysts expected $207 million in first-quarter revenue.
On Tuesday evening after Omnova’s press release, Laurence Alexander, an analysts for investment bank Jeffries & Co., kept his “hold” rating on Omnova but lowered his price target to $4.35 from $5.
In midday trading, OMN shares are down 3.47%, or $0.13, at $3.62. Shares have ranged between $3.04 and $6.50 over the last 52 weeks.
