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OM Group, Inc. (OMG)

Q1 2011 Earnings Call

May 5, 2011 10:00 am ET


Troy Dewar – Director, IR

Joe Scaminace – Chairman & CEO

Ken Haber – CFO

Steve Dunmead – VP & General Manager, Specialties Group


Rosemarie Morbelli – Gabelli & Company

Saul Ludwig – Northcoast Research

Chris Kapsch – DDR Research Group

Mike Harrison – First Analysis



Good morning. My name is Sean and I will be your conference operator today. At this time, I would like to welcome everyone to the OM Group First Quarter 2011 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.

I would now like to turn the conference over to Mr. Troy Dewar, Director of Investor Relations. Sir, you may begin the conference.

Troy Dewar

Thank you, Sean. Good morning, everyone, and welcome to our review of OM Group’s 2011 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 of 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 Web site at

During the course of this call, we will be discussing certain non-GAAP financial measures. I’ll refer you to our company’s 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 forward-looking statements can be found at the bottom of our press release or in our Form 10-K and apply to this call.

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

Joe Scaminace

Thank you, Troy, and good morning, everybody. We had a very strong first quarter. It was characterized by the same positive factors that brought a successful result in 2010. Global economic expansion is powering growth in many sectors we serve such as semiconductors, memory disks and printed circuit board and vast materials used in rechargeable batteries, hard metal cutting tools for automotive and industrial production and specialty batteries for defense and aerospace applications. As a result, volumes were strong for many of our businesses.

Revenue grew 9% this quarter compared with last year and we grew our top-line despite a reduction in cobalt price. It’s worth noting that it was not only strong end market demand that helped us. Diversification of our business model into sectors and products that were not dependent on metal price is paying off. This is additional proof that further transformation [ph] and diversification will in fact create value.

Not only do we grow revenue, but we also improved our operating profit by 18%. Thanks to higher gross profit and disciplined cost management. We’re raising prices where possible in order to stay ahead of rising raw material costs. The increase in profit along with discipline working capital control resulted in positive cash flow from operations.

One of the most common questions we received from the investment community is what are you going to do with the cash. Our answer to this question is the same as it’s always been. We intend to fund our strategic initiatives by investing in organic growth opportunities as well as tactical and transformational acquisitions.

Our first quarter results clearly reflect the benefits of diversifying our business model and reducing our dependence and cobalt price. Transformation however does not in any way eliminate other means of using our cash for creating value in the short-term.

Our growing cash balance in fact provides more options today than in the past, and we will continue to evaluate and consider all options before us.

Our primary goal, however, is to properly identify opportunities for the strategic use of our cash to obtain exposure to diversified and growing end markets. Our transformation is all about growing OM and increasing our opportunities in the global marketplace.

This management team and our entire board of directors are committed to creating value through the implementation of our strategy. Be assured that we will continue to act with this appropriate judiciary duty to ensure we are fulfilling this mission.

Looking to the future, our global end market diversity provides exposure to various patterns of trends which should include and continue to provide growth opportunities.

We are helping our customers to improve efficiency and reduce costs. For example, we are developing chemicals that will be used to reduce costs and increase the efficiency of solar panels. We saw materials that we do submissions in petrochemical refining and improve the performance of electronic vehicles.

We’re ramping up sales of specialty additives that allow coatings customers to remove volatile organic compounds from the formulations, and we’re increasing our involvement in recycling materials to reduce waste and limit environment impacts.

Another trend that provides growth opportunities for us is the growth of electronic devices. These products touch nearly every phase with our life. It’s that something you do every day, chances are there is an apt for that. This is not just the traditional market for computers, laptops and cell phones but encompasses everything from home appliances to automobile to greeting cards. As these devices involve they are becoming smaller, faster, and more functional and less expansion. Our products are enabler for these developments.

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