OM Group, Inc. (OMG)

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OM Group Inc. (OMG)

Q3 2010 Earnings Call

November 04, 2010 10:00 am ET

Executives

Troy Dewar - Director, IR

Jose Scaminace - Chairman and CEO

Ken Haber - CFO

Steve Dunmead - VP and GM, Specialties

Greg Griffith - VP, Strategic Planning, Development and IR

Analysts

Mike Harrison - First Analysis

Douglas Chudy - KeyBanc Capital Markets

Saul Ludwig - Northcoast Research

Jeffrey Gendell - Tontine Associates

Chris Kapsch - BDR Research

Mike Harrison - First Analysis

Presentation

Operator

Good morning. My name is Jeree and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2010 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions)

Thank you. At this time I would like to turn the call over to Mr. Troy Dewar. Sir, you may begin.

Troy Dewar

Welcome everyone to our review of OM Group’s 2010 third quarter results. Joining me this morning are Jose Scaminace, Chairman and Chief Executive Officer, Ken Haber, Chief Financial Officer, Steve Dunmead, Vice President and General Manager, Specialties; and Greg Griffith, Vice President of Strategic Planning, Development and Investor Relations.

A copy of the press release we 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. During the course of this call, we will be discussing certain non-GAAP financial measures; I refer you to the company presentation materials for the reconciliation of those measures to GAAP financial measures.

Comments made this morning by any of the participants on the call may include forward-looking statements based upon 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 the forward-looking statements can be found at the bottom of our press release or in our Form 10-K and applied to this call.

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

Jose Scaminace

I am pleased to report this morning that OMG had another solid quarter marked by continued organic growth, improved acquisition performance and strong cash flow generation.

Third quarter revenue climbed 26% as we continue to successfully harness the steady recovery in most of our end-markets. Higher pricing and acquisitions also contributed to our top line.

End market recovery drove volume across many of our end markets, including Powder Metallurgy, Memory Disk, Printed Circuit Board, Semiconductor and other Chemical applications. While growth rates have returned to more moderate levels, we still see many positive signs for growth in both the near and longer term and we have gained market share with many of our customers, which is the true testament of the quality and reliability of our products.

Favorable pricing also contributed to our revenue growth, primarily in Advanced Materials. This is due to favorable supply and demand fundamental in the cobalt market. Finally, our acquisition of EaglePicher Technologies added $36 million to our top line. This is the 26% better performance than in the second quarter of 2010.

We saw sequential growth across all of its end markets, which further excites us about the long-term growth potential of EaglePicher Technologies. The addition of this company allows us to participate in the battery space more directly. We know that there will be ups and downs in the space, but I am very confident in its long-term potential and once again we were successful in growing earnings as we continue to reap the benefits of the profit enhancement actions we implemented last year.

We were successful in lowering our cost structure during the downturn and as our volume grows we want to expand the benefit for those tough decisions that we made. Cash flow was also strong in the quarter. We not only improved our cash balance through outstanding cash flow from operations but we also lowered our debt. We have now posted 10 consecutive quarters of positive cash flow from operations, a period that includes the recent downturn. Producing strong free cash flow is a priority as we continue to reshape OMG.

Our goal, as we have talked about, is to produce predictable and profitable results by providing higher value products and services to our markets. While I acknowledge that one of our challenges is how to effectively deploy this cash for optimal value creation.

I must admit that this is not a bad problem to have in today's economic environment that still contains some degree of uncertainty. Realize, however, and this is important, that we are continually evaluating every potential use of cash as we balance funding our long term growth objectives against more immediate means available of creating value for our shareholders.

We have emerged stronger from the recent economic downturn with an efficient cost structure positioned to benefit from growth in end market demand. We have demonstrated the resiliency of our business model despite fluctuations in cobalt price consistently generating cash from operations, and we have grown the non-cobalt parts of our business to lessen the impact of metal prices.

Our results through the first nine months of 2010 demonstrate that we are continuing to make meaningful progress. Where do we go from here? How do we continue to generate long term sustainable growth and profitability?

One avenue we have used and will continue to use is acquisitions. Over the last three years we have completed three acquisitions including two in our growth platforms of portable power and electronic chemicals. We are actively pursing additional opportunities.

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