Can OMNOVA Profit in DuPont and Dow's Shadow?

OMNOVA Solutions (OMN) will release its quarterly report on Monday, and the specialty chemical maker has seen shares rise back to its highest levels in recent years. So far, the company has been able to thrive by serving very focused niche needs, but changes in the industry have affected giants Dow Chemical (DOW) and DuPont (DD) and could end up having a substantial impact on OMNOVA as well.

OMNOVA makes emulsion polymers and other chemicals that find their way into many industries, ranging from furniture, carpet, and textiles to paint and specialty products for the energy industry. With roots going back nearly a century to originally being part of General Tire and Rubber, OMNOVA has a global reach even as it seeks to broaden its product lines further. Let's take an early look at what's been happening with OMNOVA Solutions over the past quarter and what we're likely to see in its report.

Stats on OMNOVA Solutions

Source: Yahoo! Finance.

How will OMNOVA earnings do this quarter?
In recent months, analysts have pulled back on their expectations of OMNOVA earnings, cutting $0.03 per share from estimates for the quarter that ended in August and $0.02 per share from their full-year projections for fiscal 2013 and 2014. The stock has nevertheless climbed 10% since late June.

OMNOVA's results for the quarter ending in May reveaed a lot of what's been going on at the company lately. Net income dropped almost 60% from the year-ago quarter, with charges related to the company's restructuring efforts weighing on the bottom line. Sales fell 12% overall, with weaker pricing power and lower volumes hitting revenue. But adjusting for the one-time charges, earnings came in better than expected, and gross margins rose as OMNOVA managed to cut its costs and optimize its mix of products for better profits. That helped send the stock broadly higher after the announcement.

Throughout the industry, much larger players are taking a critical look at their chemicals businesses. DuPont made big waves recently by announcing it would explore selling off its performance chemicals segment, which hasn't performed nearly as well as its agricultural businesses. Similarly, Dow Chemical said it could seek to sell its paint, construction, and chlorine businesses in order to control costs that rise and fall with volatile commodity price changes. OMNOVA's restructuring, though obviously smaller in scope, is motivated by the same needs to define its strongest business lines and cut losing operations.

The big question for OMNOVA is how it can benefit from the trends that are helping its customers thrive. Beyond its core textile business, OMNOVA serves the oil and gas industry with custom chemicals for drilling. The company lists Schlumberger (SLB -1.17%) and Halliburton (HAL -1.04%) among its customers in the segment, giving OMNOVA indirect access to some of the biggest oil-services customers that those two companies serve. As their presence around the world builds in a growing energy market, Schlumberger and Halliburton could help OMNOVA grow faster.

In the OMNOVA earnings report, watch to see what comments the company makes about the housing market's prospects. OMNOVA's engineered surfaces segment relies on a healthy housing market to boost sales of products such as cabinetry and flooring, and so continued strength could produce more growth opportunities for the specialty chemical maker even as its bigger rivals step away from their chemicals units.

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