2014

Stepan Reports Earnings and Increases Quarterly Dividend

NORTHFIELD, 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.

SUMMARY



Three Months Ended

September 30


Nine Months Ended

September 30

($ in thousands)



2011


2010

%

Change



2011


2010

%

Change

Net Sales

$  499,335

$  366,800

+ 36


$1,398,922

$1,070,334

+ 31









Net Income

$  19,169

$  19,230

--


$  58,797

$  56,936

+ 3









Net Income Excluding

  Deferred Compensation*

$  18,626

$  17,762

+ 5


$  57,530

$  56,252

+ 2









Earnings per Diluted Share

$1.70

$1.73

- 2


$5.25

$5.14

+ 2









Earnings 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 RESULTS



Three Months Ended

September 30


Nine Months Ended

September 30

($ in thousands)



2011


2010

%

Change



2011


2010

%

Change









Net Sales








   Surfactants

$361,874

$264,104

+ 37


$1,030,526

$790,984

+ 30

   Polymers

120,061

91,805

+ 31


327,314

245,808

+ 33

   Specialty Products

17,400

10,891

+ 60


41,082

33,542

+ 22

       Total Net Sales

$499,335

$366,800

+ 36


$1,398,922

$1,070,334

+ 31




Net sales increased 36 percent for the quarter and 31 percent year-to-date, attributable to the following:



Three Months Ended

September  30

Nine Months Ended

September 30

Volume

+ 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 EXPENSES



Three Months Ended

September 30


Nine Months Ended

September 30

($ in thousands)



2011


2010

%

Change



2011


2010

%

Change









Marketing

$10,885

$9,360

+ 16


$33,886

$29,702

+ 14

Administrative -- General

11,711

9,906

+ 18


35,974

32,313

+ 11

Administrative -- Deferred

 Compensation Obligations

(2,002)

(1,400)

NM  


(2,711)

(471)

NM  

Research, development

 and technical service

10,083

9,422

+ 7


30,970

29,347

+ 6

   Total

$30,677

$27,288

+ 12


$98,119

$90,891

+ 8




  • Investment 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 Ended

September 30


Nine Months Ended

September 30


2011

2010


2011

2010







Foreign Exchange Gain (Loss)

$        (760)

$        1,043


$        (655)

$        46







Investment Income (Loss)

(1,268)

968


(808)

632


$     (2,028)

$       2,011


$     (1,463)

$      678




PROVISION FOR INCOME TAXES

The 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 SHEET

The 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 Debt

9/30/11

6/30/11

12/31/10

  Total Debt

$186.6

$190.8

$191.6

  Cash

32.4

25.6

111.2

  Net Debt

$154.2

$165.2

$   80.4




The 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 INCREASE

On 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.

OUTLOOK

Our 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 CALL

Stepan 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 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, 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 Nine Months Ended September 30, 2011 and 2010

(Unaudited – 000's Omitted)










Three Months Ended

September 30


Nine Months Ended

September 30



2011


2010

%

Change



2011


2010

%

Change









Net Sales

$499,335

$366,800

+ 36


$1,398,922

$1,070,334

+ 31

Cost of Sales

435,255

308,371

+ 41


1,203,471

884,875

+ 36

  Gross Profit

64,080

58,429

+ 10


195,451

185,459

+ 5









Operating Expenses:








  Marketing

10,885

9,360

+ 16


33,886

29,702

+ 14

  Administrative

9,709

8,506

+ 14


33,263

31,842

+ 14

  Research, Development

     and Technical Services

10,083

9,422

+ 7


30,970

29,347

+ 6


30,677

27,288

+ 12


98,119

90,891

+ 8









Operating Income

33,403

31,141

+ 7


97,332

94,568

+ 3

Other 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)

+ 101









Income Before Provision

for Income Taxes

28,229

31,280

- 10


86,696

89,273

- 3

Provision for Income Taxes

8,998

12,057

- 25


27,643

32,300

- 14

Net Income

19,231

19,223

--


59,053

56,973

+ 4









Net (Income) Loss Attributable

to Noncontrolling Interest

(62)

7

--


(256)

(37)

+ 592









Net Income Attributable to Stepan Company

$19,169

$19,230

--


$58,797

$56,936

+ 3









Net 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

+ 2









Shares Used to Compute Net

Income Per Common Share Attributable to Stepan Company








  Basic

10,365

10,188

+ 2


10,345

10,150

+ 2

  Diluted

11,248

11,109

+ 1


11,199

11,072

+ 1




Table II

Deferred Compensation Plan


The 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 30


Nine Months Ended

September 30

($ in thousands)

2011

2010


2011

2010







Deferred 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

$684




Reconciliation of non-GAAP net income:



Three Months Ended

September 30


Nine Months Ended

September 30

($ in thousands)

2011

2010


2011

2010







Net income excluding deferred

  compensation

$18,626

$17,762


$57,530

$56,252

Deferred compensation plan (expense)

  income

543

1,468


1,267

684

Net income as reported

$19,169

$19,230


$58,797

$56,936




Reconciliation of non-GAAP EPS:



Three Months Ended

September 30


Nine Months Ended

September 30


2011

2010


2011

2010







Earnings per diluted share excluding

  deferred compensation

$1.65

$1.60


$5.14

$5.08

Deferred compensation plan (expense)

  income

0.05

0.13


0.11

0.06

Earnings per diluted share

$1.70

$1.73


$5.25

$5.14



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 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 Months

Ended September 30

Increase

(Decrease)

Increase Due

to Foreign

Translation


2011

2010



Net Sales

$499.3

$366.8

132.5

12.4

Gross Profit

64.1

58.4

5.7

1.0

Operating Income

33.4

31.1

2.3

0.4

Pretax Income

28.2

31.3

(3.1)

0.3







($ in millions)

Nine Months

Ended September 30


Increase

(Decrease)

Increase Due

to Foreign

Translation


2011

2010



Net Sales

$1,398.9

$1,070.3

328.6

32.5

Gross Profit

195.5

185.5

10.0

2.9

Operating Income

97.3

94.6

2.7

1.3

Pretax Income

86.7

89.3

(2.6)

1.1




Table IV


Stepan Company

Consolidated Balance Sheets

September 30, 2011 and December 31, 2010



2011

September 30

2010

December 31

ASSETS






Current Assets

$489,105

$427,826




Property, Plant & Equipment, Net

366,808

353,585




Other Assets

36,082

30,020




  Total Assets

$891,995

$811,431







LIABILITIES AND STOCKHOLDERS' EQUITY






Current Liabilities

$249,257

$205,627




Deferred Income Taxes

13,968

5,154




Long-term Debt

150,217

159,963




Other Non-current Liabilities

78,226

87,616




Total Stepan Company Stockholders' Equity

396,373

349,491




Minority Interest

3,954

3,580




  Total Liabilities and Stockholders' Equity

$891,995

$811,431




SOURCE Stepan Company



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