Market Overview

OMG Down After 4Q Earnings Results


OM Group (NYSE: OMG) came out with its 2011 earnings results Tuesday.

OM Group, which has been publically traded since 1993, is headquartered in Cleveland, Ohio, and has more than 2,100 employees. It is one of the leading solution providers for specialty chemicals, advanced materials and electrochemical power storage devices. The company produces everything from chemicals for printed circuit boards to battery products and battery management systems.

Despite the red ink on the company's last income statement, the Street was expecting positive numbers from OM Group. One of the major reasons for this was the company's acquisition of the Germany company Vacuumschmelze, or VAC, in September 2011.

Luckily for OM Group, some good news did come with the company's 2011 earnings results. For the quarter ending in December 2011, OM Group reported that net sales were $438.6 million and earnings were $50.9 million, both about doubling the amount from the same quarter last year and in a large part thanks to the contributions of VAC.

However, OM group's adjusted profit per share of 73 cents last quarter was far below the consensus estimate of 91 cents, and OM Group was trading down Wednesday. Still, overall, 2011 saw the company move in a positive direction, even if there were some serious bumps in the road.

For the first two of quarters of 2011, OM Group was one of the fastest growing chemical companies on Wall Street. Yet, its financials were still quite questionable.

For the quarter ending in September 2011, OM Group actually posted a net loss of $68.3 million. It was a dramatic reversal from the $73.5 million profit it had posted for the quarter ending in June 2011. Furthermore, the company's long-term debt jumped from $120 million to $676 million, making it highly leveraged and giving it a truly justified beta ratio of 2.

Of course, on the other hand, higher leverage generally means more tax deductions, and since OM Group historically did not offer a dividend, it was expected to have substantially more cash on hand. Despite the tough times, the company was able to add more capacity and double it inventory.

OM Group was also able to buy the aforementioned company VAC for about $1 billion. The acquisition added some valuable products to its chemical and metal-based segments and should continue to provide important resources for the company's alternative energy business and hundreds of millions in revenues going forward.

OM Group is also strategically moving ahead with its battery business, with some believing the company will become a big player in the future of the alternative energy industry. The company is working towards developing products such as photovoltaic cells and hybrid energy generators.

OM Group has been in the industry for awhile now and formed a diverse customer base. As planes, cars, and even mopeds move to alternative energy batteries, OM Group looks positioned with products well-suited for each.

Although manufacturing and selling battery products and the associated management systems is a quickly growing industry, OM Group will need to be careful with the timing of its products. The company will have to exercise caution so as not to have supply exceed demand.

With the automobile and electronics industries that need OM Group's products growing at a different pace than the company, managing the different levels of demand can be tricky and time-consuming. At the same time, OM Group has to also continue to take good care of its core chemical business and fight competitors in that arena.

While OM Group has some promising qualities, the company has some challenges in front of it.

Posted-In: 4Q results Earnings Q3 results VACEarnings News M&A Markets


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