OM Group, Inc. (OMG)

OMG 
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OM Group Inc. (OMG)

Q1 2010 Earnings Call

May 07, 2010 10:00 am ET

Executives

Troy Dewar - IR

Joe Scaminace - Chairman and CEO

Ken Haber - CFO

Steve Dunmead - VP and GM, Specialties Group

Analysts

Mike Harrison - First Analysis

Rosemarie Morbelli - Ingalls & Snyder

Saul Ludwig - Northcoast Research

Mike Harrison - First Analysis

Chris Kapsch - BDR Research Group

Rosemarie Morbelli - Ingalls & Snyder

Presentation

Operator

Good morning. My name is [Durie] and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2010 results conference call. (Operator Instructions).

Thank you. I would now like to turn the call over to Mr. Troy Dewar. Sir, you may begin your conference.

Troy Dewar

Thank you, [Durie]. Good morning, everyone, and welcome to our review of OM Group's 2010 first quarter results. Joining me this morning are Joe Scaminace, Chairman and Chief Executive Officer, Ken Haber, Chief Financial Officer, Steve Dunmead, Vice-President and General Manager Specialties, and Greg Griffith, Vice-President Strategic Planning Development and Investor Relations.

A copy of the press release was issued earlier this morning as well as the presentation materials that accompany our discussion can be found on the investor relations' portion of our website at investor.OMGI.com. As a reminder, comments made this morning by any of the participants on the call may include forward-looking statements based on specific assumptions and subject to uncertainties and factors which are difficult to predict. Actual results could differ materially from those expressed or implied. A more complete disclosure regarding forward-looking statements can be found at the bottom of our press release or in our Form 10-K and applies to this call.

At this time, I will turn the call over to Joe Scaminace.

Joe Scaminace

Thank you, Troy, and good morning, everyone. Today, we reported stronger first quarter results, reflecting a continuation of positive trends in our business. In addition to our cost reductions and cash generation, we experienced higher demand for our products and improved cobalt fundamentals. We also completed the acquisition of EaglePicher Technologies at the end of January. Revenue increased 58% from the first quarter of last year and 26% from the fourth quarter of 2009.

Operating profit of $32 million was a significant improvement from the $11 million loss last year. We were once again successful in generating positive cash flow from operations. At the end of the first quarter, our cash balance was $366 million. Coupled

with available liquidity from our new credit revolver, we are in a strong financial position to fund our growth initiatives.

This is an exciting time to be associated with OMG. Our focus on product innovation, organic growth and acquisitions is starting to pay off, and we're seeing evidence that our long term growth strategy is working. For example, our advanced materials unit supplies high quality cobalt to world markets. We continue to move up this channel with value added products such as mixed metal precursors, supporting new applications in rechargeable batteries. These actions move us up the supply channel and closer to our customers and closer to end markets. Within the electronic chemicals market, we're seeing strong end market demand. More importantly, we have the products and services to grow significantly in memory disk, printed circuit board and the very strong semiconductor accounts right now.

Finally, our battery technologies business offers differentiated products and solutions for energy storage. In EaglePicher, we have acquired broad technical expertise in batteries for the defense, aerospace and medical industries. Obviously, adding EaglePicher certainly gives us exposure to growth in the medical and alternative energy markets. Now, what may not be immediately obvious is the fact that this acquisition was not totally about pulling material forward in the supply chain and just selling more cobalt to EaglePicher. We were attracted to the idea of pulling technology and knowhow backward into the value chain. We can now leverage this knowhow in our battery and material business and become better specialty material suppliers.

Now you can begin to see that we are not just a commodity cobalt company supplying only cobalt to a growing world market. We provide specialized value added materials and technologies, which enable our customers to meet their product and process performance requirements.

The performance bars we've set for this company are high. And while we've made progress, we know that there is still much work to be done. Now, we still can't mitigate the swings in our earnings resulted from changes in cobalt prices. However, I remain confident that we are headed in the right direction to stabilize our results. With the momentum we've created and the continued performance of our great employees, we are well on our way to delivering on our strategy.

At this time, I'll ask Ken Haber to walk you through the details of our financial performance. Ken?

Ken Haber

Thank you, Joe, and good morning, everyone. Please refer to the presentation materials from our website and turn to page three. Revenue in the first quarter of 2010 increased 58% compared with the same period last year. Growing end market demand led to higher volumes in both advanced materials and specialty chemicals. Volumes grew in nearly all end markets - most notably, battery materials, powder metallurgy, printed circuit board, memory disk and tire.

In addition to volume growth, the advanced materials segment benefited from higher selling prices due to higher cobalt reference prices. Battery technologies, a new segment for us this quarter, reported revenue of $19 million, all due to the January 29th acquisition of EaglePicher Technologies. The results of this business are included in our results for the two months since the date of acquisition.

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