OMNOVA Reports 43% year-over-year growth in Specialty Segment profitability in Q1 2018

Earnings per diluted share for the first quarter ended February 28, 2018 was $0.16, compared to $0.08 last year.  In the first quarter of 2018, the Company recorded charges of $2.9 million primarily for restructuring and severance and costs associated with prepaying $40 million on the Company's Term Loan B credit facility.  In the first quarter of 2017, the Company recorded charges of $1.0 million related to restructuring and severance.

Adjusted Diluted Earnings per Share (Adjusted EPS) was $0.09 for the first quarter of 2018, compared with $0.05 last year.  The increase in Adjusted EPS was the result of the strong performance in Specialty Solutions partially offset by Performance Materials.

Net sales for the first quarter were $178.7 million, up 2.3% from last year's $174.6 million.  China Coated Fabrics (CCF), which was sold in July 2017, accounted for $5.7 million of sales in last year's first quarter.  Excluding the effect of CCF, sales increased 5.8% compared to the first quarter last year.  Net sales in Specialty Solutions increased 16.5% to $109.2 million, while sales in Performance Materials decreased 14%, or 7.6% excluding the effect of CCF.  Overall volume was favorable by $6.3 million, or 3.6%, as strong growth in Specialty Solutions more than offset the planned declines in paper.  Mix was unfavorable by $4.1 million, or 2.4%.  Currency translation was favorable by $7.4 million, or 4.3%, primarily reflecting the strengthening of the Euro.

SG&A in the first quarter was $28.7 million, down from $29.2 million in the same quarter last year.  The primary drivers of the decrease were benefits from the "One OMNOVA" cost reduction initiatives and the sale of CCF partially offset by unfavorable foreign exchange.

Interest expense for the quarter was $5.1 million compared to $5.2 million last year reflecting lower borrowing balances resulting from the December debt pre-payment, offset by increasing interest rates.

Income tax benefit in the first quarter of 2018 was $5.1 million compared to $1.6 million in 2017.  The increase in the first quarter tax benefit compared to 2017 relates to U.S. Tax Reform and French legislative impacts, both of which reduced statutory tax rates.  U.S. cash tax payments were minimal as the Company has approximately $91.1 million of U.S. federal net operating loss carryforwards and $86.8 million of state and local tax net operating loss carryforwards.

Working capital days at the end of February 2018 were 67.3, 1.8 days favorable compared to last February.  In spite of the favorable working capital days, cash used by operations in the first quarter of 2018 was $8.0 million, compared to $4.7 million last year, reflecting an increase in accounts receivable due to the higher sales and higher inventory levels.  Trailing 12 month adjusted EBITDA increased to $87.4 million from $81.6 million in the comparable period.  Adjusted net leverage improved to 3.3x adjusted EBITDA as compared to 3.6x last year (see Tables C and D), reflecting the increases in earnings.

Specialty Solutions Segment Results

Net sales for Specialty Solutions during the first quarter of 2018 increased $15.5 million, or 16.5%, to $109.2 million, compared with $93.7 million last year.  The improvement was driven by strong volume increases of $15.2 million, or 16.1%, partially offset by mix decreases of $4.0 million, or 4.3%.  Foreign currency translation had a favorable effect of $4.3 million, or 4.5%.  Volumes were exceptionally strong in Oil & Gas compared to last year's relatively modest results.  Volumes were also improved across a number of the other specialty businesses including laminates & films, elastomeric modifiers, home & personal care and adhesives & sealants.

Segment Operating Profit was $13.6 million compared with $9.5 million last year.  Adjusted Segment Operating Profit grew 52% to $14.7 million, or 13.5% of net sales, compared to $9.7 million or 10.4% of net sales last year.  (See Tables A and B.)  Increased volume and the benefits of cost controls drove the improvement in operating profit.

Performance Materials Segment Results

Net sales for Performance Materials during the first quarter of 2018 were $69.5 million compared to $80.9 million last year.  The divested CCF business accounted for $5.7 million of net sales in the first quarter of 2017.  Volume, excluding CCF was down $8.9 million, or 11%, primarily driven by sales into the coated paper market.  The Company is transitioning out of the commodity portions of this market and expects continued volume declines as a result.  In addition to paper, volume was seasonally soft in tire cord, antioxidants and reinforcing resins.  Sales into the carpet market, which are benefiting from new product initiatives, were strong.

Performance Materials' segment operating profit for the quarter was $2.1 million, compared with $4.7 million last year.  Adjusted Segment Operating Profit was $2.3 million or 3.3% of net sales, compared to $5.1 million, or 6.3% of net sales, last year.  (See Tables A and B.)  In addition to the impact from the volume declines, margins were unfavorably impacted by increases in raw material prices and the slower start in several of our higher margin Performance Materials businesses.

Earnings Conference Call - OMNOVA Solutions has scheduled its Earnings Conference Call for March 28, 2018, at 11:00 a.m. ET.  OMNOVA Solutions' President and Chief Executive Officer, Anne Noonan will host the live audio event.  The call is anticipated to be approximately one hour in length and may be accessed by the public from the investor relations section of the Company's website (www.omnova.com).  Webcast attendees will be in a listen-only mode.  Following the live webcast, OMNOVA will archive the call on its website until noon ET, April 11, 2018.  A telephone replay also will be available beginning at 1:00 p.m. ET on March 28, 2018, and ending at 11:59 p.m. ET on April 11, 2018.  To listen to the telephone replay, callers should dial:  (USA) 800-475-6701, access code 446094 or (International) 320-365-3844, access code 446094.

Non-GAAP and Other Financial Matters

This Earnings Release includes Adjusted Segment Operating Profit, Adjusted Income, Adjusted Diluted Earnings Per Share, Adjusted EBIT, Net Debt and Adjusted EBITDA which are non-GAAP financial measures as defined by the Securities and Exchange Commission. Management reviews the adjusted financial measures in assessing the performance of the business segments and in making decisions regarding the allocation of resources to the business segments. Management also believes that the adjusted information is useful for providing investors with an understanding of the Company's business and operating performance. Management excludes the items shown in the tables below because Management does not consider them to be reflective of normal operations. These adjusted financial measurements are not measurements of financial performance under GAAP and such financial measures should not be considered as an alternative to Segment Operating Profit, Net Income, Diluted Earnings Per Share or other measures of financial performance determined in accordance with GAAP. These non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. Presented on Tables C and D is the Company's Net Leverage Ratio calculation (Net Debt / Adjusted EBITDA).  Presented on Table E is the Company's Adjusted Return on Invested Capital calculation (Adjusted Net Operating Profit After Tax / Total Debt and Equity). The tables below provide the reconciliation of these financial measures to the comparable GAAP financial measures.

OMNOVA SOLUTIONS INC.

Non-GAAP and other Financial Matters (Continued)

Three Months Ended February 28, 2018

Table A

(In millions except per share data)

Specialty Solutions

Performance Materials

Combined Segments

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