Commodities will give companies and their investors a wild ride, even when they're so-called "specialty" commodities like the cobalt sold by OM Group
Even though the company warned us about this quarter not so long ago, it still hurt. Sales dropped about 22%, gross profits fell 59%, and operating profits dropped about 57%. It's true that there were several items impacting results in both this quarter and the year-ago period, but the basic fact remains that it was a tough end to a tough year.
Both the cobalt and nickel businesses saw rough quarters because of lower prices. In cobalt, a price drop of nearly one-third per pound mitigated growth in refining volume, and operating income fell notably. In nickel, it was more of a one-two punch, as both pricing and volume trailed year-ago levels. In nickel's case, it looks like uncertainty in the stainless steel market was at least partially to blame for the lower volume produced.
It'll be interesting to watch this company over the next year or two. Its relatively new management team will attempt to improve free cash flow, and turn OM Group into more of a specialty materials/chemicals business and less of a nickel-and-cobalt company. Today's announcement of the purchase of a small Singapore-based chemicals company is just a small part of what could be a much larger effort to transform the company over time.
I think there's a case to be made that OM Group is undervalued relative to others like Inco
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).