CLEVELAND, May 7 /PRNewswire-FirstCall/ -- OM Group, Inc. (NYSE: OMG) today announced financial results for its first quarter ended March 31, 2009.

First-quarter summary:

• Net sales fell 60 percent as lower cobalt prices resulted in lower product selling prices in Advanced Materials and Advanced Organics, and the global economic slowdown led to a sharp decline in end-market demand.
• Net loss attributable to OM Group, Inc. common shareholders of $0.27 per diluted share included discrete income tax expenses of $0.07 per diluted share, a non-cash lower of cost or market inventory charge of $0.17 per diluted share, and a non-cash net goodwill impairment charge of $0.09 per diluted share.
• Cash flow from operating activities was $36.6 million, aided largely by lower net working capital, resulting in a cash balance at the end of the quarter of $272.4 million.

Net sales for the first quarter of 2009 were $191.7 million compared with $480.8 million in the corresponding period of 2008. Lower commodity prices, especially cobalt, resulted in lower selling prices for Advanced Materials and Advanced Organics. Additionally, the slowdown in global economic activity led to lower demand across all end markets, resulting in significantly lower sales volumes.

Net loss attributable to OM Group, Inc. in the first quarter of 2009 was $8.3 million, or $0.27 per diluted share, compared with net income attributable to OM Group, Inc. of $55.2 million, or $1.81 per diluted share in the first quarter of last year. Included in the 2009 period is a non-cash inventory charge of $6.6 million, or $0.17 per diluted share, to reduce the carrying value of certain inventory to market value; discrete items impacting income tax expense of $2.0 million, or $0.07 per diluted share; and a non-cash charge of $2.6 million, or $0.09 per diluted share, for net goodwill impairment.

'As expected, conditions in our end markets were extremely challenging during the first quarter of 2009,' said Joseph M. Scaminace, chairman and chief executive officer. 'Despite our quick and decisive action to enhance profitability - including eliminating 2009 salary increases where permitted, reducing headcount, reprioritizing capital projects and cutting discretionary spending across the company - we were unable to fully offset the negative impact of significantly lower volumes and prices on our revenues and earnings during the quarter.

'Even with this difficult business climate, we were able to achieve sequential improvement in operating margins and positive cash flow from our operations through the determined execution of our business plan,' said Scaminace. 'These improvements enhance financial flexibility for us heading into the second quarter.'

Gross profit fell to $26.6 million, or 13.9 percent of sales, in the first quarter of 2009 versus $136.7 million, or 28.4 percent of sales, in the comparable 2008 quarter. The decline was attributable primarily to lower selling prices and lower volumes. Included in the 2009 period was an inventory charge of $6.6 million to reduce the carrying value of certain inventory to market value.

Selling, general and administrative (SG&A) expenses decreased to $34.9 million, or 18.2 percent of sales, in the first quarter of 2009 compared with $42.0 million, or 8.7 percent of sales, in the first quarter of 2008. Included in the 2009 period is a goodwill impairment charge of $6.8 million to write-off all of the goodwill associated with Advanced Organics, partially offset by a $4.1 million adjustment to finalize the estimated goodwill impairment charge taken in the fourth quarter of 2008 for Ultra Pure Chemicals.

Operating loss in the first quarter of 2009 was $10.9 million compared with operating profit of $94.6 million in the prior-year period, driven primarily by the decline in gross profit.

Loss from continuing operations attributable to OM Group, Inc. was $8.5 million, or $0.28 per diluted share, in the first quarter of 2009, compared with income from continuing operations attributable to OM Group, Inc. of $55.6 million, or $1.82 per diluted share, in the first quarter of 2008.

Income tax in the first quarter of 2009 included discrete tax expenses totaling $5.9 million related to the joint venture in the Democratic Republic of Congo. The impact of this expense on net loss was $3.2 million, after deducting the minority partners' share. This expense was partially offset by a $1.2 million benefit for the reversal of a liability in France. The net impact of all discrete tax items on net loss attributable to OM Group, Inc. was $2.0 million, or $0.07 per diluted share.

Net cash provided by operating activities in the first quarter of 2009 was $36.6 million compared with use of cash of $53.7 million in the first quarter of 2008. The increase was the result of lower net working capital.

BUSINESS SEGMENT RESULTS

Advanced Materials

In the first quarter of 2009, net sales for the Advanced Materials segment were $108.9 million compared with $332.4 million in the first quarter of last year. The decrease was driven by lower product selling prices due to a decrease in the cobalt reference price and lower sales volumes. Excluding metal resale and copper by-product sales, volume fell 19 percent in the first quarter of 2009 compared with the same quarter last year.

First-quarter operating profit for the segment was $6.4 million, or 5.9 percent of sales, compared with $95.3 million, or 28.7 percent of sales, in the prior-year quarter. The decline in cobalt prices and lower sales volumes led to the decline in profitability. For the 2009 first quarter, cobalt prices averaged $13.37 per pound compared with $20.81 per pound during the fourth quarter of 2008 and $46.19 per pound during the first quarter of 2008. The current period includes an inventory charge of $3.3 million to reduce the carrying value of certain inventory to market value. The first quarter of 2008 was favorably impacted by a $5.8 million unrealized gain on cobalt forward purchase contracts.

Specialty Chemicals

Net sales from the Specialty Chemicals segment were $83.0 million in the first quarter of 2009 compared with $149.1 million in the same quarter last year, driven by lower volumes, unfavorable foreign currency and lower selling prices.

Operating loss was $8.0 million in the first quarter of 2009 compared with operating profit of $8.5 million in the prior-year quarter.