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OMNOVA Solutions (NYSE:OMN)
Q2 2018 Earnings Conference Call
Jun. 28, 2018 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

[Operator instructions] Ladies and gentlemen, thank you for standing by and welcome to the OMNOVA Solutions' second-quarter 2018 earnings discussion. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator instructions]. As a reminder, today's conference is being recorded. And I would now like to turn the conference over to your CEO, Anne Noonan. Please go ahead.

Anne Noonan -- President and Chief Executive Officer

Thank you, Brian, and good morning, everyone. It's a great pleasure to speak with you this morning. In a moment, I will provide an overview of recent operational developments, progress on our strategic priorities and our outlook for the business. First, I will turn it over to Paul to make comments on forward-looking statements, non-GAAP measures and to summarize our financial performance in the second quarter.

Paul DeSantis -- Senior Vice President, Chief Financial Officer, and Treasurer

Thanks, Anne, and good morning, everyone. During this conference call, OMNOVA representatives may make forward-looking statements as encouraged by the Private Securities Litigation Reform Act of 1995. All statements in this conference call and in subsequent discussions with the company's management, other than historical information, are forward-looking statements. These statements represent management's current judgment on expectations for future results and other matters. A variety of risk factors highlighted in the company's Form 10-K and in our most recent earnings release could cause business conditions and the company's actual results to differ materially from those expected by the company or expressed in the company's forward-looking statements. In addition, certain financial measures referred to during this call are non-GAAP financial measures.

For an explanation and reconciliation of these non-GAAP measures, see our most recent earnings release and investor presentations published periodically on the company's website. Moving on to the results. Here's a quick snapshot of some second quarter highlights. Specialty sales growth chalked up another strong performance with volume up 2.4% and adjusted segment operating profit up 24%. This quarter, we saw exceptional growth again in our oil and gas, laminates and films and home and personal care businesses. Coatings was flat for the quarter as the season start was slowed by adverse weather.

Towards the end of May, our customers began to see signs that the coatings season was picking up picking up. Performance materials adjusted segment operating income was $600,000, compared to $4.2 million last year. Three factors affected the segment's profitability this quarter. The first factor is sustained competitive pressures in the declining North American commodity paper market, as well as in our carpet and global tire cord markets. As expected, the paper business was below last year as we move through our transition away from commodity products.

In carpet and tire cord, volume was favorable but margins have eroded in response to competitive pricing pressures. The second factor was butadiene pricing. Butadiene prices continued to increase, and during the quarter, our top two butadiene suppliers declared force majeure. This has put pressure on our butadiene-based businesses. This is particularly true for the tire cord business, where prices typically reset quarterly for the larger customers.

Recent quarterly pricing has been aligned to forecast, expecting a butadiene cost decline, which is yet to materialize. This has contributed to margin levels that are unsustainable. And lastly, we had several costs in the quarter that we don't expect to reoccur, the largest being a bad debt write-off for a customer bankruptcy in the paper market. Those costs in total amounted to approximately $700,000. Overall, we expect to see some performance materials profit recovery in the back-half of the year, as pricing mechanisms catch up with butadiene costs. We continue to press forward with plans to drive margin, which Anne will outline in a few minutes but in the near term, the overall segment will remain challenged as we transition away from the lower-margin commodity portions of the performance materials portfolio. Net leverage improved to three times adjusted EBITDA from 3.6 times in last year's second quarter, driven by increased adjusted EBITDA and stronger cash flows.

Cash flow from operations was $23.6 million for the quarter and $15.6 million through May, compared with $13.1 million and $8.3 million last year, respectively. Working capital was 2.6 days unfavorable year over year, primarily due to accounts receivable. We continue to expect improvement in working capital days as we drive inventory down with our enhanced SOIP capabilities. The company's 2018 full-year performance expectations are unchanged, the fourth consecutive year of growth in adjusted diluted earnings per share. We're expecting third quarter 2018 to be below 2017's third quarter, as last year's results had significant margin catch up from first-half 2017 raw material escalation. On the other hand, we're expecting 2018's fourth quarter to be above 2017's fourth quarter, as 2017 included the impact of a hurricane, bad debt write-offs, and the antioxidant plant issues. Thank you. And I will now turn the call back over to Anne.

Anne Noonan -- President and Chief Executive Officer

Thanks, Paul. Good morning, everyone. As always, I'm going to walk through the highlights of our 2018 second quarter in the context of our four overarching strategic priorities. As a reminder, our priorities are specialties growth; expanded margins and increased cash generation in mature businesses; portfolio optimization to accelerate our specialization strategy, while also strengthening the portfolio; and finally, progress on our One OMNOVA initiatives designed to make OMNOVA a more agile, efficient and lower-cost organization. First, I want to spend some time highlighting another strong quarter in our specialty solutions segment, which is our growth platform for the future. Through the second quarter, specialty solutions recorded a sixth consecutive quarter of year-over-year volume growth and is running ahead of internal expectations.

Overall, sales in specialty solutions were up 6%, with volume up 2.4%. In our laminates and films business, we have been making strategic investments to enhance the speed to market of our innovative designs, and as a result, we are seeing healthy increases in markets like RV and store fixtures. We saw continued strength in oil and gas, resulting from strategic actions taken during the market downturn, excluding last year's small bolt-on acquisition, which helped expand our product offerings. I'm also pleased with the strong volume growth we are experiencing in our home and personal care business. One of the drivers of success is winning new customer business in floor care with an innovative, more environmentally preferred product. Overall, we're pleased with the volume and profit growth delivered this year as our specialization strategy is beginning to deliver the kind of results we expected. Adjusted segment operating dollars and percent margins have increased, reaching $22 million, or 17.1% of sales, compared to $17.7 million, or 14.6% of sales, last year.

One of the key drivers of specialty growth is our innovation pipeline. The second quarter vitality index was 23%, consistent with our overall target of approximately 25%. Margins from the specialty solutions innovation pipeline continue to increase over prior year, helping to drive overall profit and margin increase in the specialty solutions segment. During the quarter, we introduced several new products that we expect to help drive specialty growth as they gain market acceptance. In oil and gas, we introduced Pexotrol 332, the latest addition to our fluid loss control product line.

It is designed to provide improved performance and more eco-friendly alternatives to asphaltite and black powders in a variety of drilling fluids. In coatings, we introduced Pliotec LEB20 at the Americans Coatings Show. Based on our proprietary low-exudation binder technology, this new environmentally friendly water-based resin for exterior masonry provides improved color fastness, superior resistance to streaking from rain exposure and dirt pickup resistance. In laminates and films, we introduced our surf(x) matte-look finish, a matte-finished, soft-touch surface with enhanced durability for manufacturing. This was designed as a value-engineered solution for painted cabinetry with improved aesthetics, performance, and cost advantages. In carpet, we introduced a new specialty binder designed to enable customers to meet strict fire safety regulations while also offering robust formulation flexibility. This new product offers a differentiated balance between performance and efficiency.

The innovation pipeline is well-positioned to fuel our growth today and in the future. In short, we are pleased with the continued progress of the specialty solutions segment. As you will recall, we began our specialization journey in 2015 with investments in innovation, marketing, and sales. We implemented new processes and metrics and upgraded and promoted talent to drive specialization. As a result, we are now seeing our specialty business perform ahead of expectations, allowing us to accelerate our transformation to a more pure-play specialty solutions company. I will now change gears and outline the next steps on our path to 10% operating profit margins for the performance materials segment.

This segment, which comprises our more mature, lower-growth businesses is going through a fundamental repositioning as we drive it toward being a smaller but more profitable part of the company. Several actions are underway to achieve 10% operating profit margins in the future. As discussed last quarter, we've been working on a comprehensive evaluation of our manufacturing footprint. This morning, we announced to our employees and to the markets that we will be closing our Green Bay, Wisconsin, facility. While the Green Bay facility has been a model of operational and safety excellence for us over the years, it was built for the purpose of supplying styrene-butadiene latex into high-volume markets such as commodity coated paper. Although we launched a successful restructuring in 2015, bringing capacity utilization up to more than 80%, secular declines in the coated paper market have accelerated.

As a result, capacity utilization declined across the entire North American styrene butadiene supply chain. Our reliance upon a high-capacity, asset-intensive footprint designed to support high-volume markets is decreasing in favor of a flexible, asset-light operating model that can support more specialty products. Today's actions will allow OMNOVA to continue specializing its business in styrene butadiene and other chemistries. This will drive performance materials to more acceptable margins as we realize the efficiency benefits through serving our customers' needs with a cost-competitive footprint. This plant closure, which we expect will be complete by June of 2019, will contribute annual savings of $7 million to $8 million through net cost reductions, with about half the benefit to be realized in fiscal 2019 and the full realization by fiscal 2020. We will work with our Green Bay customers over the coming months to begin serving them with available capacity in our Mogadore, Ohio facility. We plan to invest between $8 million to $10 million of capital in Mogadore to upgrade assets in support of the specialization strategy and accommodate the volume that will be transitioned from Green Bay, all while continuing to provide the highest level of service for our carpet, specialty paper, non-woven, and other SB latex customers.

Obviously, decisions like these have a real impact on our employees and their families, and we plan to provide assistance to help those affected as we work through this significant restructuring. Another key step toward 10% operating profit for the performance materials segment is the continued focus on profitable growth of the coated fabrics, reinforcing resins and antioxidants businesses through selective innovation and enhanced customer focus. We believe there are many opportunities to grow these businesses to be a more meaningful part of the sustainable performance materials portfolio. For example, in coated fabrics, we have recently won a significant piece of new business in the transportation sector and have introduced a new coated fabric product with superior durability for marine applications. Lastly, we are addressing profitability issues in our tire cord business. We announced a price increase effective July 1 or as contracts allow. This price increase is necessary to restore margins and assure the long-term viability of this business.

Our next step will be to evaluate our tire cord assets to identify opportunities for improved returns. To put the magnitude of the transformation of our overall portfolio in context, prior to 2010, the paper market accounted for more than half of our combined segment operating profit. By the end of fiscal 2019, paper will make up approximately 5% of total company sales. As a result of the acceleration of our specialization strategy, more than 80% of our segment profitability is now consistently coming from our Specialty segment.I'm proud of the team that we've put in place and what they have accomplished to date. We continue to realize wins in the specialization strategy, as well as in portfolio optimization and our One OMNOVA initiative, including delivering our sixth consecutive quarter of year-over-year volume growth in specialty solutions; continued expansion of adjusted segment operating profit margins and cash generation; net leverage improving to three times EBITDA; focus on portfolio optimizations, as evidenced by our 2017 oil and gas bolt-on acquisition, which has provided growth through an expanded portfolio. We have an active pipeline of inorganic growth opportunities, which we will lever to further accelerate our specialization strategy.

And finally, the realization of the full $3 million of annualized savings from our One OMNOVA initiatives during this year. Our journey is far from complete as we strive to consistently deliver across all elements of our strategy. We remain fully committed to drive increased shareholder value through specialty growth and increased cash and earnings over time in our performance materials segment, all supported by an agile, flexible and cost-effective foundation. Thank you. Paul and I are ready to answer your questions. 

Questions and Answers:

Operator

[Operator instructions]. And our first question today comes from the line of Edward Marshall with Sidoti & Company. Please go ahead.

Edward Marshall -- Sidoti & Company -- Analyst

Hi, Anne. Hi, Paul. How are you?

Paul DeSantis -- Senior Vice President, Chief Financial Officer, and Treasurer

Good morning, Ed.

Edward Marshall -- Sidoti & Company -- Analyst

Good morning. So I want to talk about performance materials for a second. You mentioned several initiatives that you're working on to get to that 10% and I appreciate that. You also called out some things that caused the margin degradation in the second quarter.

I'm curious could you kind of talk about the $3.1 million decline, 290 basis points? Could you quantify the components that were responsible, so I can get an idea of how much was pricing, how much was the weakness in the paper market, etc.?

Anne Noonan -- President and Chief Executive Officer

I'll let Paul address some of the numbers here but if you recall, when we talked last quarter, we talked about our exit away from commodity paper. What's different this quarter is that we had increased competitive intensity in carpet. We kept our volume because we need it for fixed cost coverage but our margins did erode with competitive pricing pressures. Tire cord, the butadiene increases in the face of us expecting decline did catch us with the force majeure of our two major suppliers. So that was an impact.

So if you look across the impact of those, we expect the last two a couple of millions as it impacts performance materials. And then we had the one-off items, which Paul talked about, which was about $700,000.

Edward Marshall -- Sidoti & Company -- Analyst

Right.

Paul DeSantis -- Senior Vice President, Chief Financial Officer, and Treasurer

Yes, yes. So I quantified the $700,000. The other two items, we're expecting in the back half of the year. We're going to get back a couple of million dollars of the shortfall. We're not going to get all of it back based on the competitive pricing pressure.

Edward Marshall -- Sidoti & Company -- Analyst

OK. So we should see a progressive walk through the remainder of the year. Is that kind of what you're pointing to in the performance materials, or is this the new baseline for that business?

Paul DeSantis -- Senior Vice President, Chief Financial Officer, and Treasurer

So this is not a new baseline for the business but part of what's happened is butadiene, for example, is up 78% from the beginning of the year to now. And so as we've been trying to catch up with that, obviously, that has an impact, and the pricing mechanisms will ultimately reset and capture that. On the competitive side, we take action to raise prices, particularly on the tire cord side of the business and that will go into effect July 1. So we'll start to see that, that kind of benefit through July and August. Some of it's going to depend on when this butadiene breaks and comes down because we do expect it to come down. So it will be at the end of the third quarter or it'll be in the fourth quarter but we don't believe the pricing is going to stay up this high and continue increasing like it has all year.

Edward Marshall -- Sidoti & Company -- Analyst

Great. Two questions on the pricing: 1) is it on orders placed on July 1, or is it on shipments starting July 1? And 2) can you talk about the percentage increase that you put across the board?

Anne Noonan -- President and Chief Executive Officer

When I look at the orders versus shipments, it really is dependent on what region we're shipping in as to how we receive. Generally, we price right at the time of order, because that's when we accept the invoice but as you know, with different customers and their different contractual arrangements, that will vary, Ed.

Edward Marshall -- Sidoti & Company -- Analyst

OK.

Anne Noonan -- President and Chief Executive Officer

The total price increase was --

Paul DeSantis -- Senior Vice President, Chief Financial Officer, and Treasurer

And the total price increase, we've gone out and I'm looking for the announcement right now. So there was a variety of increases depending on where we are and some customers are contracted. Let me just find the letter real quick. So we're doing it as a $1 per wet pound. So we're looking at a $0.10 increase per wet pound. So that will be hard for you to triangulate into actual percent price increase.

Edward Marshall -- Sidoti & Company -- Analyst

Do you have a kind of estimate for that?

Anne Noonan -- President and Chief Executive Officer

About 10%.

Paul DeSantis -- Senior Vice President, Chief Financial Officer, and Treasurer

Yes, it will be somewhere in that range.

Edward Marshall -- Sidoti & Company -- Analyst

Ten percent. OK, great.

Paul DeSantis -- Senior Vice President, Chief Financial Officer, and Treasurer

And to 20% just depending on where the currency is.

Edward Marshall -- Sidoti & Company -- Analyst

OK. And then on the oil and gas as it relates to specialty now. Could you kind of talk about maybe the growth rates that you've seen there year over year, and I don't know if that's a fair comparison? I do think that last year was a tougher comparison related to maybe the second quarter of last year. And then maybe also with the percentage of weighting now in specialty chemicals or specialty solutions as it relates to oil and gas?

Paul DeSantis -- Senior Vice President, Chief Financial Officer, and Treasurer

So I'll take a shot at that. So oil and gas growth year over year was good and strong, good, strong double-digit growth. A lot of that growth is coming from the investments we had made to broaden the portfolio. So that's the additional cementing products that we expanded into last year, as well as onshore drilling, which is an area that we were not strong and historically that we're starting to expand. And so we're seeing good growth in those areas.

Oil and gas are, it will be a larger percentage of the company. I can calculate that and we'll update the investor deck with that, Ed, when we update the percent of sales coming from the segments.

Anne Noonan -- President and Chief Executive Officer

Yes, I would say, one of the things into our specialty solutions, we were really quite pleased to see nearly all of our markets grew this quarter. And so that's what we've been looking for as we've talked about in the past. So laminates and films had a very strong quarter as well when you look at the year-on-year comp.

Edward Marshall -- Sidoti & Company -- Analyst

Perfect, thanks. Thanks so much for your comments.

Anne Noonan -- President and Chief Executive Officer

Thanks, Ed.

Operator

[Operator instructions] And we do have a question from the line of David Begleiter with Deutsche Bank. Please go ahead.

Christine Besselman -- Deutsche Bank -- Analyst

Hi, this is Christine Besselman on for David. Good morning, guys.

Paul DeSantis -- Senior Vice President, Chief Financial Officer, and Treasurer

How are you, Christine?

Christine Besselman -- Deutsche Bank -- Analyst

Good. I just wanted to talk a little bit about the pricing power that you guys are seeing in the non-indexed portion of the styrene-butadiene latex business?

Anne Noonan -- President and Chief Executive Officer

OK. Well, we have, as you know, 80% of our styrene-butadiene latex business is indexed, right? So the non-indexed portion goes across mostly our specialties. So in our specialty businesses, we are able to pass those price increases along, because we have value-added products, and our customers recognize that. We work with our customers to get the timing, right, so they can pass that through their value chain.I n the case of tire cord, that's a butadiene price increase and that's the one area that we price quarterly.

And so in that case, we've had increased competitive pressures but the whole industry is suffering from butadiene increases. So that's why we went ahead with the price increase here as of July 1.

Christine Besselman -- Deutsche Bank -- Analyst

OK. And then how long on the non-indexed side, are the price lags typically?

Anne Noonan -- President and Chief Executive Officer

Typically, they're not very long at all maybe a month.

Christine Besselman -- Deutsche Bank -- Analyst

OK.

Anne Noonan -- President and Chief Executive Officer

Most of our customers know that these raw materials are going up, Christine, and we work with them through this. So the price increases are usually about a month lag.

Christine Besselman -- Deutsche Bank -- Analyst

OK, perfect. That's all for me. Thanks, guys.

Anne Noonan -- President and Chief Executive Officer

Thank you.

Paul DeSantis -- Senior Vice President, Chief Financial Officer, and Treasurer

Thanks.

Operator

And we do have a question from the line of Laurence Alexander with Jefferies. Please go ahead.

Daniel Rizzo -- Jefferies -- Analyst

Hi, guys. It's Dan Rizzo on for Laurence. How are you?

Anne Noonan -- President and Chief Executive Officer

Hi, Dan.

Paul DeSantis -- Senior Vice President, Chief Financial Officer, and Treasurer

Hey, Dan. It's good. How are you?

Daniel Rizzo -- Jefferies -- Analyst

Good. As you look at the tire cord and other assets, I mean, do you have the ability to do more asset rationalization within different product lines or more within SB emulsifiers?

Anne Noonan -- President and Chief Executive Officer

Our tire cord, it's in two of our specialty plants, so our European and our Chinese plant is where we produce tire cord today. As you recall in 2015, we did take tire cord capacity out of Calhoun, Georgia, so that was our first step here. Tire cord covers a lot of fixed costs, Dan, and it's only really this year that's become a drag on the business because of this butadiene sharp increase and the force majeure. So we kind of got caught in a bad headwind there is the way I would describe it. We have no decisions made at this time to do anything with our tire cord assets but we always look at opportunities to repurpose assets to more profitable materials as they go and we will continue to do that.

Daniel Rizzo -- Jefferies -- Analyst

OK. And then if we look at the Mogadore plant, what's the utilization rate going to be there once everything is kind of shifted over. I know you're doing some changes over there but I was wondering what capacity utilization will be? And if there's, I mean, if you're going to need to do more brownfield expansions?

Anne Noonan -- President and Chief Executive Officer

So the Mogadore facility, as you know, is built for specialty our acrylates we put in place last year and our styrene-butadiene latex. With the addition of all this volume that we will move from Green Bay, we anticipate and it's still work in progress but we anticipate it being in the 70% to 80% capacity utilization for the SB latex. Now I will say, our other specialties by design have more headroom to grow as we did that back in 2016. And so there's a lot of operational leverage. I do not see us adding Greenfield capacity in the near to even mid-term future.

Daniel Rizzo -- Jefferies -- Analyst

OK, that's helpful. Thank you. And then one final question, I think you mentioned in the comments that in specialty solutions, there's slight downtick in price and mix. I was just wondering if you could just provide color on what that is. And I mean, if it was just kind of a blip and what to expect going forward?

Paul DeSantis -- Senior Vice President, Chief Financial Officer, and Treasurer

Yes. I mean, overall, specialty solutions had a great quarter of growth and now 24% margins look great. So part of it was oil and gas didn't grow probably as strongly as some of the other components in there. So that just causes us a little bit of a mix differential but we had really good margins in that business this quarter and well up from last year.

Anne Noonan -- President and Chief Executive Officer

And, Dan, the portfolio has gone three, we'll see some mix effects going forward. An example probably there is oil and gas. We traditionally had the fluid loss control additives. Now we've expanded to cement additives.

They have different profitability profile. Similarly, in our coatings businesses, as we move from solvent-based to water-based, they're different types of pricing. So we'll try and keep you updated on that but there are a lot of mix changes happening in the specialty portfolio as it grows.

Daniel Rizzo -- Jefferies -- Analyst

Thank you very much.

Operator

And we do have a question from the line of Jon Tanwanteng with CJS Securities. Please go ahead.

Jon Tanwanteng -- CJS Securities -- Analyst

Good morning. Thank you for taking my questions.

Anne Noonan -- President and Chief Executive Officer

Good morning, Tanwanteng.

Jon Tanwanteng -- CJS Securities -- Analyst

Can you just give us a little more detail or color about what's actually going on in the butadiene markets and what your expectations are for going forward?

Anne Noonan -- President and Chief Executive Officer

Well, we have two suppliers, both under force majeure. To date, we've been able to not have any supply disruptions. However, the pricing has increased consistently just beginning of the year. To Paul's point, it's been up 78% in the U.S. and across all our regions it's been up. Our forecast has it continuing to go up at least in the next quarter but we anticipate, it will go down but we've said that and heard that. So we're planning our processes around having butadiene increases at this point though those forecasts are for it to go down as the year progresses.

Jon Tanwanteng -- CJS Securities -- Analyst

OK. And your competitors are feeling same pressures, right?

Anne Noonan -- President and Chief Executive Officer

Yes, absolutely.

Jon Tanwanteng -- CJS Securities -- Analyst

Got it. What's going to be the sales or revenue impact of closing Green Bay, if any at all? And kind of, as you transition, do you expect a disruption?

Anne Noonan -- President and Chief Executive Officer

Well, as we've discussed last quarter, we will have the $50 million to $60 million of impact on revenue for existing commodity paper. There is some volume in Green Bay right now that was transition volume as our major customer in the paper market transitions to other competitors. There has been a little bit of a delay in some of those transitions. So we've actually got some volume in there that won't repeat itself in Mogadore. However, we do not anticipate losing any customers as we transition.

We're allowing plenty of time for requalification. We have some history doing this from the Calhoun transition. And in fact, during that transition, we actually gained business. So our team is very strong on technical service and we'll work very closely with our customers to make sure this is a seamless transition for our customers.

Jon Tanwanteng -- CJS Securities -- Analyst

Got it, that's helpful. And then, Paul, do you have a handle on what the cash cost of closing Green Bay down will be and if you'll be selling a property or anything like that, or is it leased, or what do you feel?

Paul DeSantis -- Senior Vice President, Chief Financial Officer, and Treasurer

Yes. So we do own the property. We did issue an 8-K that has this but we think that the cash cost in total will be somewhere in the $5 million to $8 million range offset by the sale of the lands in the $2 million to $4 million range. So somewhere in there would be where we would expect the cash cost to ultimately end up.

And those cash costs are primarily for severance and retention and the costs associated with transitioning the volume.

Jon Tanwanteng -- CJS Securities -- Analyst

Great. And then one final one for Anne. You've been talking about growing specialties more consistently. You did a great comp versus what was pretty tough comparison last year. Did you think you've achieved that goal? Is there more that needs to be done? How should we think of the growth rates here going forward?

Anne Noonan -- President and Chief Executive Officer

Well, I always tell my team there's more needs to be done, Jon but we are definitely encouraged. I'm very encouraged by seeing it across all of our segments, our Specialty segments with the exception of two segments. One, coatings, as Paul referenced, had a slow start but we're seeing that pickup. And then we just had one customer in nonwoven applications, it was a very specific reason why it was behind but then, the outperformance in all of our other Specialty segments is something that's very encouraging.

And I honestly believe, it's from the investment. We'll start to see that traction from that investment we made in 2015. I'll never declare victory yet but I will tell you, it's starting to really pick up and the team feels the success of the specialty area.

Jon Tanwanteng -- CJS Securities -- Analyst

Got it. Thank you.

Operator

[Operator instructions]. And at this time, it does appear there are no further questions from the phone line. Please continue.

Anne Noonan -- President and Chief Executive Officer

All right, thank you for your questions. I would like to leave you with the following summary thoughts. Our specialty segment delivered its sixth consecutive quarter of volume growth. Adjusted profitability increased 24% and margins reached 17.1%. Performance materials is going through a transitional year, as we exit the commodity coated paper market. We are taking decisive actions to keep this segment on the path to 10% operating profit margin. And we are reaffirming our 2018 outlook of adjusted EPS growth for the full year. Thank you for taking the time to participate in our second quarter earnings call. We look forward to speaking with you next quarter to review continued progress against our strategic objectives and driving the business to a premier global specialty solutions company.

Thank you.

Operator

Ladies and gentlemen, today's conference will be available for digitized replay and it will be available today at 1 p.m. until July 12 at 11:59 p.m. Eastern. Also, an audio replay will be available on the OMNOVA Solutions website, which is www.omnova.com, until noon Eastern on the 12th of July 2018. And that does conclude your conference for today. Thank you for your participation and for using the AT&T Executive Teleconference service.

You may now disconnect.

Duration: 32 minutes

Call Participants:

Anne Noonan -- President and Chief Executive Officer

Paul DeSantis -- Senior Vice President, Chief Financial Officer, and Treasurer

Edward Marshall -- Sidoti & Company -- Analyst

Christine Besselman -- Deutsche Bank -- Analyst

Daniel Rizzo -- Jefferies -- Analyst

Jon Tanwanteng -- CJS Securities -- Analyst

More OMN analysis

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