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Press release from PR Newswire

Stepan Reports Earnings and Increases Quarterly Dividend

Wednesday, October 19, 2011

Stepan Reports Earnings and Increases Quarterly Dividend08:00 EDT Wednesday, October 19, 2011NORTHFIELD, Ill., Oct. 19, 2011 /PRNewswire/ -- Stepan Company (NYSE: SCL) today reported third quarter and year-to-date results for the period ended September 30, 2011. Net income was $19.2 million, $1.70 per diluted share, compared to $19.2 million, or $1.73 per diluted share, in the year ago quarter.Net income, excluding deferred compensation plan expense, rose five percent to $18.6 million, $1.65 per diluted share, compared to $17.8 million, or $1.60 per diluted share, in the year ago quarter.Year-to-date net income rose three percent to $58.8 million, $5.25 per diluted share, compared to $56.9 million, or $5.14 per diluted share, a year ago.Net sales for the quarter rose 36 percent to $499.3 million.  Sales volume rose four percent.  Higher selling prices resulting from higher raw material costs and improved mix of higher priced products accounted for a 29 percent increase in sales.The dividend was increased 7.7 percent to an annual rate of $1.12 per common share.  This marks the forty-fourth consecutive annual dividend increase.SUMMARYThree Months EndedSeptember 30Nine Months Ended September 30($ in thousands)20112010%Change20112010%ChangeNet Sales$  499,335$  366,800+ 36$1,398,922$1,070,334+ 31Net Income$  19,169$  19,230--$  58,797$  56,936+ 3Net Income Excluding   Deferred Compensation*$  18,626$  17,762+ 5$  57,530$  56,252+ 2Earnings per Diluted Share$1.70$1.73- 2$5.25$5.14+ 2Earnings per Diluted Share   Excluding Deferred   Compensation$1.65$1.60+ 3$5.14$5.08+ 1*  See Table II for a discussion of deferred compensation plan accounting.THIRD QUARTER RESULTSThree Months EndedSeptember 30Nine Months EndedSeptember 30($ in thousands)20112010%Change20112010%ChangeNet Sales    Surfactants$361,874$264,104+ 37$1,030,526$790,984+ 30    Polymers120,06191,805+ 31327,314245,808+ 33    Specialty Products17,40010,891+ 6041,08233,542+ 22        Total Net Sales$499,335$366,800+ 36$1,398,922$1,070,334+ 31Net sales increased 36 percent for the quarter and 31 percent year-to-date, attributable to the following:Three Months EndedSeptember  30Nine Months EndedSeptember 30Volume+ 4%+ 3%Selling Price+ 29%+ 25%Foreign Translation+ 3%+ 3%   Total+ 36%+ 31%Surfactant sales volume rose three percent for the quarter due to growth in Latin America and Asia.  North American volume declined slightly on continued weakness in demand from Consumer Product applications, which offset growth in biodiesel and Functional surfactants used in agricultural and oilfield applications.Polymer sales volume rose 10 percent for the quarter.  Sales volume of polyol, used primarily in rigid foam insulation, rose by 16 percent due to higher demand for insulation in replacement roofing on commercial buildings.  Polyol demand is also growing in metal panel insulation and adhesive applications.  Gross profit increased by 10 percent to $64.1 million versus $58.4 million a year ago.Surfactant gross profit rose by $3.6 million, or nine percent, to $42.2 million, due to an improved sales mix in North America that offset the impact of weaker Consumer Product sales volume.  Our Brazilian expansion also contributed to the higher gross profit as sales volume grew by 20 percent.Polymer gross profit increased 15 percent to $17.2 million.  The increase was due to the 16 percent increase in polyol volume and our continuing efforts to recover higher raw material costs in our selling prices.  Polymer gross profit was adversely impacted by $1.8 million pretax ($1.2 million after tax, or $0.11 per diluted share) of higher cost of supplying polyol from the U.S. to Europe due to fire damage at our new polyol reactor in Germany.  Repairs should be completed during November.  Potential benefit of any recovery under business interruption insurance will not be recorded until a settlement is reached.Specialty Products gross profit rose by five percent to $5.3 million on higher sales volume associated with our acquisition of the Lipid Nutrition product line in June of this year.  Sales volume of these acquired products is in line with our expectations, although transition costs lowered the third quarter profits on this business.OPERATING EXPENSESThree Months EndedSeptember 30Nine Months EndedSeptember 30($ in thousands)20112010%Change20112010%ChangeMarketing$10,885$9,360+ 16$33,886$29,702+ 14Administrative -- General11,7119,906+ 1835,97432,313+ 11Administrative -- Deferred  Compensation Obligations(2,002)(1,400)NM  (2,711)(471)NM  Research, development  and technical service10,0839,422+ 730,97029,347+ 6    Total$30,677$27,288+ 12$98,119$90,891+ 8Investment for future growth opportunities in Singapore, Brazil, Poland, the Netherlands and the Philippines have increased total operating expenses by $2.1 million for the quarter and $5.1 million for the year-to-date period.Marketing expense rose 16 percent for the quarter and 14 percent year-to-date.  Our global growth initiative led to increased personnel supporting marketing.  Foreign currency translation contributed to the higher expense.Administrative -- General expense rose by 18 percent for the quarter and 11 percent year-to-date.  The prior year included a $1.4 million credit for lower estimated future environmental remediation costs.  Global expansion and foreign currency translation also contributed to the increase.OTHER INCOME AND EXPENSE Other income consists of foreign exchange gains and loss and investment income or losses on assets held for the deferred compensation plan, which is broken down as follows:($ in thousands)Three Months EndedSeptember 30Nine Months EndedSeptember 302011201020112010Foreign Exchange Gain (Loss)$        (760)$        1,043$        (655)$        46Investment Income (Loss)(1,268)968(808)632$     (2,028)$       2,011$     (1,463)$      678PROVISION FOR INCOME TAXESThe effective tax rate was 31.9 percent for the quarter, down from 38.5 percent a year ago.  The year-to-date effective tax rate was 31.9 percent compared to the year ago rate of 36.2 percent.  The decrease was attributable to a non recurring provision in the prior year related to the purchase of an increased ownership in our Stepan Philippine joint venture.  Also contributing to the decrease was the implementation of a holding company structure that will provide a recurring benefit in lowering the tax rate on foreign earnings.BALANCE SHEETThe Company's net debt levels decreased by $11.0 million for the quarter and increased $73.8 million for the first nine months:($ in millions)Net Debt9/30/116/30/1112/31/10   Total Debt$186.6$190.8$191.6   Cash32.425.6111.2   Net Debt$154.2$165.2$   80.4The year-to-date increase in net debt was primarily due to a $96.0 million increase in working capital resulting from the inflationary impact of higher commodity raw material costs on inventory and receivables.  Capital expenditures for the quarter and year-to-date periods were $20.6 million and $61.0 million, respectively.DIVIDEND INCREASEOn October 18, 2011, the Board of Directors of Stepan Company declared a 7.7 percent increase in the Company's quarterly cash dividend on its common stock to $0.28 per share.  The quarterly dividend is payable on December 15, 2011, to stockholders of record on November 30, 2011.  The increase brings the annual dividend rate to $1.12 per share, and marks the forty-fourth consecutive annual dividend increase.The Board of Directors also declared a quarterly cash dividend on its 5.5 percent convertible preferred stock, at the quarterly dividend rate of $0.34375 per share, or at the annual rate of $1.375 per share.  The dividend is payable on November 30, 2011, to preferred stockholders of record on November 15, 2011.OUTLOOKOur growth initiatives remain on track to deliver increased earnings in 2012.  We expect surfactant earnings to improve in 2011 as growth from our higher margin functional surfactants offset the weakness in consumer volumes.  Surfactant demand for enhanced oil recovery continues to grow.  Our Brazil expansion is complete and delivered improved results in the third quarter.  The recent fall of commodity prices should improve margins in the fourth quarter.Global Polyol volume continues to benefit from recommendations to use higher insulation levels to reduce energy consumption and new applications.  Our Polyol supply chain cost will decrease in 2012 as we begin to utilize our expanded capacity in Germany.Specialty Product earnings will benefit from our Lipid Nutrition product line acquisition.  "In 2011 we have the opportunity to achieve our fourth consecutive record income year despite the economy and higher expenses associated with our growth initiatives in Brazil, Singapore, Poland and the Netherlands.  For the forty-fourth consecutive year we will increase the annual dividend per common share," said F. Quinn Stepan, Jr., President and Chief Executive Officer.CONFERENCE CALLStepan Company will host a conference call to discuss the third quarter results at 2:00 p.m. Eastern Daylight Time on October 19, 2011. To listen to a live webcast of this call, please go to our Internet website at: www.stepan.com, click on investor relations, next click on conference calls and follow the directions on the screen.Stepan Company, headquartered in Northfield, Illinois, is a leading producer of specialty and intermediate chemicals used in household, industrial, personal care, agricultural, food and insulation related products.  The common and the convertible preferred stocks are traded on the New York and Chicago Stock Exchanges under the symbols SCL and SCLPR.Tables followExcept for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied.  The most significant of these uncertainties are described in Stepan Company's Form 10-K, Form 8-K and Form 10-Q reports and exhibits to those reports, and include (but are not limited to), prospects for our foreign operations, foreign currency fluctuations, certain global and regional economic conditions, the probability of future acquisitions and the uncertainties related to the integration of acquired businesses, the probability of new products, the loss of one or more key customer or supplier relationships, the costs and other effects of governmental regulation and legal and administrative proceedings, and general economic conditions.  These forward-looking statements are made only as of the date hereof, and Stepan Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.Table ISTEPAN COMPANYStatements of IncomeFor the Three and Nine Months Ended September 30, 2011 and 2010(Unaudited ? 000's Omitted)Three Months EndedSeptember 30Nine Months EndedSeptember 3020112010%Change20112010%ChangeNet Sales$499,335$366,800+ 36$1,398,922$1,070,334+ 31Cost of Sales435,255308,371+ 411,203,471884,875+ 36   Gross Profit64,08058,429+ 10195,451185,459+ 5Operating Expenses:   Marketing10,8859,360+ 1633,88629,702+ 14   Administrative9,7098,506+ 1433,26331,842+ 14   Research, Development      and Technical Services10,0839,422+ 730,97029,347+ 630,67727,288+ 1298,11990,891+ 8Operating Income33,40331,141+ 797,33294,568+ 3Other Income (Expense):   Interest, Net(2,256)(2,004)+ 13(6,513)(4,770)+ 37   Income (Loss) from Equity in      Joint Ventures(890)132--(2,660)(1,203)+ 121   Other, Net(2,028)2,011--(1,463)678--(5,174)139--(10,636)(5,295)+ 101Income Before Provisionfor Income Taxes 28,22931,280- 1086,69689,273- 3Provision for Income Taxes8,99812,057- 2527,64332,300- 14Net Income19,23119,223--59,05356,973+ 4Net (Income) Loss Attributableto Noncontrolling Interest(62)7--(256)(37)+ 592Net Income Attributable to Stepan Company$19,169$19,230--$58,797$56,936+ 3Net Income Per Common Share Attributable to Stepan Company   Basic$1.83$1.87- 2$5.63$5.55+ 1   Diluted$1.70$1.73- 2$5.25$5.14+ 2Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company   Basic10,36510,188+ 210,34510,150+ 2   Diluted11,24811,109+ 111,19911,072+ 1Table IIDeferred Compensation PlanThe full effect of the deferred compensation plan on quarterly pretax income was $0.9 million of income versus income of $2.4 million last year.  The accounting for the deferred compensation plan results in income when the price of Stepan Company common stock or mutual funds held in the plan fall and expense when they rise.  The Company also recognizes the change in value of mutual funds as investment income or loss.  The deferred compensation plan income statement impact is summarized below:Three Months Ended September 30Nine Months EndedSeptember 30($ in thousands)2011201020112010Deferred Compensation   Administrative (Expense) Income$2,002$1,400$2,711$471   Other, net -- Mutual Fund Gain (Loss)(1,126)968(667)632       Total Pretax$876$2,368$2,044$1,103       Total After Tax$543$1,468$1,267$684Reconciliation of non-GAAP net income:Three Months Ended September 30Nine Months EndedSeptember 30($ in thousands)2011201020112010Net income excluding deferred   compensation$18,626$17,762$57,530$56,252Deferred compensation plan (expense)   income5431,4681,267684Net income as reported$19,169$19,230$58,797$56,936Reconciliation of non-GAAP EPS:Three Months EndedSeptember 30Nine Months EndedSeptember 302011201020112010Earnings per diluted share excluding   deferred compensation$1.65$1.60$5.14$5.08Deferred compensation plan (expense)   income0.050.130.110.06Earnings per diluted share$1.70$1.73$5.25$5.14The Company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP (Generally Accepted Accounting Principles) measures, are useful because that information is an appropriate measure for evaluating the Company's operating performance.  Internally, the Company uses this non-GAAP information as an indicator of business performance, and evaluates management's effectiveness with specific reference to these indicators.  These measures should be considered in addition to, neither a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.Table IIIEffects of Foreign Currency TranslationThe Company's foreign subsidiaries transact business and report financial results in their respective local currencies. As a result, foreign subsidiary income statements are translated into U.S. dollars at average foreign exchange rates appropriate for the reporting period. Because foreign exchange rates fluctuate against the U.S. dollar over time, foreign currency translation affects period-to-period comparisons of financial statement items (i.e. because foreign exchange rates fluctuate, similar period-to-period local currency results for a foreign subsidiary may translate into different U.S. dollar results). Below is a table that presents the impact that foreign currency translation had on the changes in consolidated net sales and various income line items for the three and nine month periods ending September 30, 2011:($ in millions)Three MonthsEnded September 30Increase(Decrease)Increase Dueto Foreign Translation20112010Net Sales$499.3$366.8132.512.4Gross Profit64.158.45.71.0Operating Income33.431.12.30.4Pretax Income28.231.3(3.1)0.3($ in millions)Nine MonthsEnded September 30Increase(Decrease)Increase Dueto Foreign Translation20112010Net Sales$1,398.9$1,070.3328.632.5Gross Profit195.5185.510.02.9Operating Income97.394.62.71.3Pretax Income86.789.3(2.6)1.1Table IVStepan CompanyConsolidated Balance SheetsSeptember 30, 2011 and December 31, 20102011September 302010December 31ASSETSCurrent Assets$489,105$427,826Property, Plant & Equipment, Net366,808353,585Other Assets36,08230,020   Total Assets$891,995$811,431LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities$249,257$205,627Deferred Income Taxes13,9685,154Long-term Debt150,217159,963Other Non-current Liabilities78,22687,616Total Stepan Company Stockholders' Equity396,373349,491Minority Interest3,9543,580   Total Liabilities and Stockholders' Equity$891,995$811,431SOURCE Stepan CompanyFor further information: James E. Hurlbutt, +1-847-446-7500