Omnova Solutions Inc. (NYSE: OMN)’s F2Q Surprises

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It was a mixed F2Q2016 for Omnova Solutions Inc. (NYSE: OMN) as EPS handily beat expectations but revenue fell short of the target. But the management is keeping hopes alive with assurance that strategic initiatives that the company has launched will bear sweet and large fruits in the future.

Omnova Solutions Inc. (NYSE: OMN) has launched a number of initiatives aimed at maximizing long-term growth at both the topline and bottom-line levels. To boost revenue growth, the company is in the process of enhancing its R&D processes and realigning its selling and marketing activities. As for the bottom-line, Omnova is focused on reducing costs with the hope of lifting margins.

According to CEO, Kevin McMullen, the pursuit of strategic initiatives at Omnova is rapidly gaining momentum. McMullen said that the latest quarter marked the fifth time that the company has posted adjusted quarterly earnings growth.

What was the EPS in 1Q?

Omnova Solutions Inc. (NYSE: OMN) posted EPS of $0.18, exceeding the consensus estimate by 4 cents. Among others, the gain was attributed to the company’s war against runaway costs, which is part of its strategic initiatives. But revenue of $202 million not only pulled back 8.3% YoY but also missed the consensus estimate $205.4 million. Omnova blamed the decline in revenue on some recent reorganization measures in the company. For example, the company divested its nonstrategic operations in India, thus eliminating some revenue with it. If you adjust for the removal of the Indian operation, revenue dropped only 4.5%, the company said in a statement.

Besides the divesture of the nonstrategic Indian business, lower sales volume also contributed adverse impact on revenue growth. Sales volumes dropped by 2.9%. It appears economic slowdown in China is beginning to have serious adverse effect on Omnova’s business. The company said that the demand for its coated fabric and films in Chinese automotive market was soft during F2Q.

What about Omnova Solutions Inc. (NYSE: OMN) F3Q projection?

Omnova Solutions Inc. (NYSE: OMN) has warned that its EBITDA in F3Q2016 could be hit by a one-time unfavorable impact in the range of $2 to $3 million. That is due to strike in France that affected one of its suppliers, thus forcing the company to turn to an alternative supplier to keep its operations running.

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