The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from PR Newswire

Stepan Reports Second Quarter Results

Wednesday, July 24, 2013

Stepan Reports Second Quarter Results

08:00 EDT Wednesday, July 24, 2013

NORTHFIELD, Ill., July 24, 2013 /PRNewswire/ -- Stepan Company (NYSE: SCL) today reported higher second quarter net income of $22.7 million up 6 percent from $21.4 million in the year ago quarter.  Diluted earnings per share was $0.99 versus $0.94 a year ago. 

  • Sales volume grew by 4 percent for the quarter and 3 percent for the first six months.
  • Gross profit increased to $73.7 million compared to $73.4 million in the year ago quarter.  Core operating margins remain stable when excluding higher priced methyl ester inventories built to support the Singapore start-up combined with contractual selling price lags.
  • Net income, excluding deferred compensation plan income, declined 10 percent to $20.4 million versus $22.6 million a year ago.  Diluted EPS, excluding deferred compensation, was $0.89 versus $0.99 in the year ago quarter.  Deferred compensation plan income was largely attributable to a decrease in the share price of the Company's common stock, which declined by $7.49 per share during the quarter.  Surfactant segment earnings declined on an unfavorable sales mix and utilization of higher cost raw materials.  Polymer and Specialty Product segments both posted higher earnings.
  • Operating expenses, excluding deferred compensation, increased by $4.3 million or 12 percent during the quarter.  Approximately $1.1 million of the increase relates to growth initiatives including patent expenditures for metathesis technologies, acquisition costs related to the business acquired from Bayer Material Science and European product registration costs for our Singapore produced methyl esters.  The majority of the remaining higher spending relates to salaries, travel and legal expenses to support global growth opportunities outside of North America, including support of our Lipid Nutrition business in Europe.
  • Year-to-date income declined 4 percent to $41.8 million compared to $43.7 million a year ago.
  • Year-to-date net income, excluding deferred compensation plan expense, was $41.9 million, down 9 percent from $46.2 million a year ago.

SUMMARY 

Three Months Ended June 30

Six Months Ended June 30

($ in thousands, except per share amounts)

 

2013

 

2012

%

Change

 

2013

 

2012

%

Change

Net Sales

$474,445

$470,231

+ 1

$930,991

$935,500

-

Net Income

22,742

21,425

+ 6

41,776

43,727

- 4

Net Income Excluding

   Deferred Compensation*

 

20,361

 

22,555

 

-10

 

41,876

 

46,195

 

-9

Earnings per Diluted Share

$0.99

$0.94

+ 5

$1.82

$1.93

- 6

Earnings per Diluted Share

   Excluding Deferred

   Compensation

 

 

$0.89

 

 

$0.99

 

 

-10

 

 

$1.82

 

 

$2.04

 

 

- 11

*  See Table II for a discussion of deferred compensation plan accounting.

 

SEGMENT RESULTS

Three Months Ended June 30

Six Months Ended June 30

($ in thousands)

 

2013

 

2012

%

Change

 

2013

 

2012

%

Change

Net Sales

     Surfactants

$331,087

$335,114

- 1

$671,060

$682,270

- 2

     Polymers

121,325

113,923

+ 6

217,323

210,672

+3

     Specialty Products

22,033

21,194

+ 4

42,608

42,558

0

         Total Net Sales

$474,445

$470,231

+ 1

$930,991

$935,500

0

 

Percentage Change in Net Sales

Three Months Ended

June 30

Six Months Ended

June 30

Volume

+ 4%

+ 3%

Selling Price

- 3%

- 3%

Foreign Translation

0%

0%

   Total

+ 1%

0%

The decline in selling prices was attributable to lower commodity raw material costs. 

  • Surfactant sales volume rose by 5 percent with all regions contributing.  Sales of consumer cleaning products led the growth.   Surfactants used in agricultural products continued to deliver strong volume growth.  Sales of functional surfactants used in oilfield applications, including enhanced oil recovery declined.  Latin American sales volume grew by 15 percent with Brazil contributing the majority of the increase.
  • Polymer sales volume grew by 1 percent.  Polyol, used primarily in insulation foam, grew by 6 percent with both North American and Europe contributing to the increase.  Lower phthalic anhydride sales volume partially offset the growth in polyol volume.
  • Specialty Products net sales rose 4 percent on a favorable sales mix.

Gross profit grew by less than 1 percent to $73.7 million.

  • Surfactant gross profit declined by 7 percent to $48.3 million.  Lower North American sales of functional surfactants into the oilfield market including enhanced oil recovery combined with reduced profitability from biodiesel sales contributed to the weaker results.  North American consumer products earnings were reduced by consumption of higher cost raw material inventories.  Europe and Latin American surfactant profits were both higher on improved consumer product sales volume.
  • Polymer gross profit grew by 15 percent to $19.9 million due to the 6 percent growth in polyol volume in North America and Europe.  Contribution from China declined $1.1 million as the plant shut down, as planned, to relocate at the government's request.  Customers will continue to be supplied from Stepan's US and European plants and toll production in China, which will result in lower margins.  Construction of our new plant in China is anticipated to take 18 to 24 months.  The polyol business acquired from Bayer Material Science added a small contribution to the quarter.
  • Specialty Products gross profit grew by 19 percent to $6.6 million.  A favorable sales mix of our nutritional supplement and pharmaceutical products led to the improvement.

OPERATING EXPENSES

Three Months Ended June 30

Six Months Ended June 30

($ in thousands)

 

2013

 

2012

%

Change

 

2013

 

2012

%

 Change

Selling

$14,440

$12,985

+ 11

$28,168

$26,636

+ 6

Administrative ? General

15,151

12,629

+ 20

29,569

26,081

+ 13

Administrative ? Deferred

  Compensation*

 

(3,621)

 

1,457

 

     NM 

 

1,312

 

4,957

 

- 74

Research, development

  and technical service

 

11,868

 

11,504

 

+ 3

 

23,195

 

22,285

 

+ 4

    Total

$37,838

$38,575

- 2

$82,244

$79,959

+ 3

*  See Table II for a discussion of deferred compensation plan accounting.

 

  • Selling expense rose 11 percent due to higher bad debt provisions, travel expense and consulting.  The increased bad debt provision primarily relates to European customer risk. 
  • Administrative general expense rose 20 percent primarily due to $1.1 million of higher legal and patent expenses for growth initiatives in metathesis technologies and nonrecurring costs associated with the Company's acquisition of the North American polyester resins business from Bayer Material Science during the second quarter.  The majority of the remaining higher spending relates to salaries, travel and legal expenses to support global growth opportunities outside of North America, including support of our Lipid Nutrition business in Europe.

INCOME TAXES

The year-to-date effective tax rate was 27.5 percent compared to 31.7 percent a year ago.  The lower rate was due to the retroactive reenactment of the U.S. Research and Development tax credit which resulted in the 2012 and 2013 credit all being recognized in the 2013 income tax provision.

BALANCE SHEET

($ in millions)

6/30/13

3/31/13

12/31/12

Net Debt

   Total Debt

$ 285.4

$  193.9

$  182.4

   Cash

106.9

54.8

76.9

      Net Debt

$ 178.5

$  139.1

$  105.5

Equity

508.7

494.9

480.9

Net Debt + Equity

$  687.2

$  634.0

$  586.4

      Net Debt / (Net Debt + Equity)

26.0%

21.9%

18.0%

On June 27, 2013, the Company secured a new $100 million private placement and repaid $60 million of U.S. revolver borrowings that had been used to fund the Bayer acquisition on June 3, 2013.  The new 3.86% notes have a final maturity of 12 years with straight-line amortization in years 6 through 12, resulting in an average life of 9 years.  Terms and conditions are substantially equivalent to those in our existing long-term debt agreements.

Capital expenditures were $ 21.0 million during the quarter and $ 42.0 for the first half of 2013.

DIVIDEND

The Board of Directors of Stepan Company declared a quarterly cash dividend on its common stock of $0.16 per share on July 23, 2013.  The dividend is payable on September 13, 2013, to common stockholders of record on August 30, 2013.

OUTLOOK

"Despite the lower first half operating results, we remain optimistic about our long-term growth," said F. Quinn Stepan, Jr., President and Chief Executive Officer.

Global surfactant consumer product volumes should continue to grow, particularly in Brazil.  Higher raw material cost inventory built to support our Singapore plant start-up and the subsequent decline in commodity prices, negatively impacted our first half surfactant margins by $3.0 million and potentially up to $1.7 million in the second half.  The Singapore methyl ester plant is operational and should contribute to earnings in the second half.  Surfactants sold for use in enhanced oil recovery are expected to improve compared to the slow first half.  Demand for agricultural surfactants should remain strong.

The polymer segment is experiencing steady improvement in polyol volume after a slow start due to protracted winter weather delaying many roof insulation projects.  The second quarter acquisition of the North America polyester resin business from Bayer Material Science should be modestly accretive to earnings in 2013 and more so after we add capacity to manufacture additional polyol products for the coating, adhesive, sealant and elastomers (CASE) markets.

"The slow start to the year will make full year earnings growth an aggressive target.  We will continue to pursue investments that can accelerate our growth," said Mr. Stepan.

CONFERENCE CALL

Stepan Company will host a conference call to discuss the second quarter results at 2:00 p.m. Eastern Daylight Time on July 24, 2013. 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 Stock Exchange under the symbols SCL and SCLPR.

* * * * *

Tables follow

Except 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, including the expenditures necessary to address and resolve environmental claims and 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 I

STEPAN COMPANY

Statements of Income

For the Three and Six Months Ended June 30, 2013 and 2012

(Unaudited ? 000's Omitted)

Three Months Ended

June 30

Six Months Ended

June 30

 

2013

 

2012

%

Change

 

2013

 

2012

%

Change

Net Sales                                          

$474,445

$470,231

+      1

930,991

$935,500

-        -

Cost of Sales

400,738

396,835

+      1

784,584

785,320

-        -

   Gross Profit

73,707

73,396

  +       -

146,407

150,180

-       3

Operating Expenses:

   Selling

14,440

12,985

+    11

28,168

26,636

+      6

   Administrative

11,530

14,086

-     18

30,881

31,038

-       1

   Research, development

       and technical services

 

11,868

 

11,504

 

+      3

 

23,195

 

22,285

 

+      4

37,838

38,575

-       2

82,244

79,959

+      3

Operating Income

35,869

34,821

+      3

64,163

70,221

-       9

Other Income (Expense):

   Interest, net

(2,329)

(2,086)

+    12

(4,508)

(4,690)

-       4

   Loss from equity in joint ventures

(1,323)

(1,300)

+      2

(2,736)

(2,441)

+    12

   Other, net

(17)

83

       NM

554

1,148

-     52

(3,669)

(3,303)

+    11

(6,690)

(5,983)

+    12

Income before Income Taxes

32,200

31,518

+      2

57,473

64,238

-     11

Provision for Income Taxes

9,546

10,007

-       5

15,822

20,363

-     22

Net Income

22,654

21,511

+      5

41,651

43,875

-       5

Net (Income) Loss Attributable

 to the Noncontrolling Interests

 

88

 

(86)

 

       NM

 

125

 

(148)

 

       NM

Net Income Attributable to

   Stepan Company

 

$22,742

 

$21,425

 

+      6

 

$41,776

 

$43,727

 

-       4

Net Income Per Common Share

Attributable to Stepan Company

   Basic

$1.01

$1.01

-

$1.85

$2.06

-     10

   Diluted

$0.99

$0.94

+      5

$1.82

$1.93

-       6

Shares Used to Compute Net

Income Per Common Share Attributable to Stepan Company

   Basic

22,559

21,100

+      7

22,512

21,074

+      7

   Diluted

22,917

22,714

+      1

22,903

22,690

+      1

 

Table II

Deferred Compensation Plan

The full effect of the deferred compensation plan on quarterly pretax income was $3.8 million of income versus expense of $1.8 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 quarter end market prices of Stepan Company common stock are as follows:

2013

2012

2011

6/30

3/31

12/31

6/30

3/31

12/31

$55.61

$63.10

$55.54

$47.09

$43.90

$40.08

The deferred compensation expense income statement impact is summarized below:

Three Months Ended June 30

Six Months Ended June 30

($ in thousands)

2013

2012

2013

2012

Deferred Compensation

   Administrative (Expense) Income

$3,621

$(1,457)

$(1,312)

$(4,957)

   Other, net ? Mutual Fund Gain (Loss)

220

(365)

1,150

977

       Total Pretax

3,841

$(1,822)

(162)

$(3,980)

       Total After Tax

$2,381

$(1,130)

$100

$(2,468)

 

Reconciliation of non-GAAP net income:

 

Three Months Ended June 30

Six Months Ended June 30

($ in thousands)

2013

2012

2013

2012

Net income excluding deferred

   compensation

 

$20,361

 

$22,555

 

$41,876

 

$46,195

Deferred compensation plan (expense)

   income

 

2,381

 

(1,130)

 

(100)

 

(2,468)

Net income as reported

$22,742

$21,425

$41,776

$43,727

 

Reconciliation of non-GAAP EPS:

 

Three Months Ended June 30

Six Months Ended June 30

2013

2012

2013

2012

Earnings per diluted share excluding

   deferred compensation

 

$0.89

 

$0.99

 

$1.82

 

$2.04

Deferred compensation plan (expense)

   income

 

0.10

 

(0.05)

 

--

 

( 0.11)

Earnings per diluted share

$0.99

$0.94

$1.82

$1.93

 

The 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 III

Effects of Foreign Currency Translation

The 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 are tables that present the effect that foreign currency translation had on the changes in consolidated net sales and various income line items for the quarter and six months ended June 30, 2013.

Three Months

Ended June 30

2013

2012

Increase

Increase Due to

Foreign Translation

Net Sales

$474.4

$470.2

$4.2

$1.5

Gross Profit

73.7

73.4

0.3

0.1

Operating Income

35.9

34.8

1.1

0.1

Pretax Income

32.2

31.5

0.7

0.1

 

Six Months

Ended June 30

2013

2012

(Decrease)

Increase/(Decrease)

Due to

Foreign Translation

Net Sales

$931.0

$935.5

$(4.5)

$1.2

Gross Profit

146.4

150.2

(3.8)

(0.1)

Operating Income

64.2

70.2

(6.0)

-

Pretax Income

57.5

64.2

(6.7)

-

Table IV

 

Stepan Company

Consolidated Balance Sheets

June 30, 2013 and December 31, 2012

 

 

2013

June 30

2012

December 31

ASSETS

Current Assets

$595,969

$523,078

Property, Plant & Equipment, Net

464,446

422,022

Other Assets

63,312

40,378

   Total Assets

$1,123,727

$985,478

LIABILITIES AND EQUITY

Current Liabilities

$260,803

$247,167

Deferred Income Taxes

9,725

9,200

Long-term Debt

246,696

149,564

Other Non-current Liabilities

97,819

98,667

Total Stepan Company Stockholders' Equity

506,885

478,985

Noncontrolling Interest

1,799

1,895

   Total Liabilities and Equity

$1,123,727

$985,478

 

SOURCE Stepan Company

For further information: JAMES E. HURLBUTT, (847) 446-7500

Products
  • Globe Unlimited

    Digital all access pass across devices. subscribe

  • The Globe and Mail Newspaper

    Newspaper delivered to your doorstep. subscribe

  • Globe2Go

    The digital replica of our newspaper. subscribe

  • Globe eBooks

    A collection of articles by the Globe. subscribe

See all Globe Products

Advertise with us

GlobeLink.ca

Your number one partner for reaching Canada's Influential Achievers. learn more

The Globe at your Workplace
Our Company
Customer Service
Globe Recognition
Mobile Apps
NEWS APP
INVESTING APP
Other Sections