OMNOVA Slims Down

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If OMNOVA Solutions (NYSE: OMN) were ever to advertise on television, it could copy the old BASF advertisements with only minor changes: "At OMNOVA, we don't make the things you buy; we make the coatings that make the things you buy better."

This is perhaps an awkward slogan, but it's an apt description of what OMNOVA does. Whether for carpet, upholstery, paper, or tires, OMNOVA makes coatings that improve looks, durability, or performance.

OMNOVA reported greatly increased earnings for the most recent quarter -- up 36% from the year-ago quarter. This would be an incredible feat no matter what, but it's especially impressive in light of increased raw material costs. These have been hammering all chemical companies, even stalwarts such as Dow (NYSE: DOW) and DuPont (NYSE: DD). The problem that all chemical companies face is that most chemicals are derived from oil. As the price of oil has skyrocketed above $80 a barrel, the chemical companies such as Lyondell (NYSE: LYO) that make commodity chemicals such as ethylene and styrene have been forced to raise prices. In turn, the producers of performance chemicals (those that are added to improve a manufacturing process or an end product) have seen their costs rise.

Like other performance chemical companies, OMNOVA has not been able to raise prices enough to compensate for its rising costs. This has squeezed its gross margins, which fell to 18.7% from 21.6% in the year-ago quarter. Yet the company has more than compensated for this by winning new business, improving efficiency, and cutting costs. Its production volumes were up by 8% over the year-ago quarter. Its employee count is down by 30 (about 1.7% of its total workforce) despite the increasing production.

I'm impressed at the progress OMNOVA has made in becoming more efficient. But after four years of cost-cutting, I can't imagine there's much left to cut.

For related Foolishness:

• Dow Chemical's New Plans in the Sand
• Quick Take: Lyondell Goes Dutch
• DuPont's Small Miracle