OM Group Dn 6.5%: Banc Of America
Says Dividend At Risk
DOW JONES NEWSWIRES
By Cynthia Schreiber
Dow Jones Newswires
NEW YORK -- A day after learning that OM Group Inc.'s (OMG)
fourth-quarter profit will evaporate, Wall Street is raising questions
about the viability of the company's dividend.
Shares of OM Group plunged to new lows Wednesday amid
speculation that the metal producer will have to suspend its 14
cent-a-share quarterly dividend indefinitely.
"Cash flow and liquidity will be much more important than earnings,"
said Banc of America Securities analyst Mark Gully, who rates the
stock at strong buy. "We expect the dividend will be suspended
indefinitely."
Gulley also said he expects the specialty-chemical maker's margins and
earnings per share to suffer as management focuses on reducing
inventories, managing working capital and cutting costs to maximize
near-term cash flow.
"We believe the dividend is at risk," he said in a research note.
With its stock price at new 12-month lows, OM Group's dividend yield
is now at a hefty 6.15%.
On Tuesday, the Cleveland-Ohio-based company reported
third-quarter operating earnings of 79 cents a share, missing Wall
Street's already lowered consensus target of 84 cents a share. The company cited plummeting cobalt
prices and weak demand for precious metals.
The operating number excluded a $108.2 million charge to mark down cobalt inventories to reflect
current market prices. OM Group's net loss for the quarter came in at $2.52 a share, compared with 84
cents a share a year ago.
The company, an international producer and marketer of value-added, metal-based specialty chemicals
and related materials serving more than 30 industries, also issued a disappointing projection of possible
break-even results for the fourth quarter - well below Wall Street's target of a profit of 87 cents a share.
But Gulley said cash flow and liquidity will be more important than earnings and said the company likely
will trip its debt covenants by year-end, necessitating re-negotiation of its credit facility. |
