2014

Stepan Reports Higher Earnings EARNINGS, EXCLUDING DEFERRED COMPENSATION, UP 9 PERCENT

NORTHFIELD, Ill., July 25, 2012 /PRNewswire/ -- Stepan Company (NYSE: SCL) today reported higher second quarter and year-to-date results for the period ended June 30, 2012.

  • Net income rose 3 percent to $21.4 million for the quarter compared to $20.9 million a year ago.  Diluted EPS was $1.89 versus $1.87 a year ago.

  • Net income, excluding deferred compensation plan expense, was $22.6 million for the quarter compared to $20.7 million a year ago, up 9 percent.  Diluted EPS, excluding deferred compensation expense, was $1.99 versus $1.85 a year ago.

  • Year-to-date net income rose 10 percent to $43.7 million.  Year-to-date net income, excluding deferred compensation expense, rose 19 percent to $46.2 million.

  • Sales volume rose by 5 percent for the quarter and first half.  Net sales revenue declined 1 percent during the quarter due to foreign currency translation and lower selling prices brought on by lower crude and natural oil prices resulting in lower commodity raw material costs.

  • Gross profit rose by 5 percent for the quarter on strong surfactant and specialty products results, partially offset by weaker polymer earnings caused by a maintenance turnaround in our phthalic anhydride plant that added $2.0 million of pretax expense.

  • Net income was adversely impacted by $1.4 million, or $0.12 per diluted share, as a result of phthalic anhydride plant maintenance turnaround and by $0.8 million, or $0.07 per diluted share due to translation impact of weakening foreign currencies on earnings outside the U.S. during the quarter.

SUMMARY


Three Months Ended June 30


Six Months Ended June 30

($ in thousands, except

per share amounts)

 

2012

 

2011

%

Change


 

2012

 

2011

%

Change









Net Sales

$470,231

$476,989

- 1


$935,500

$899,587

+ 4









Net Income

21,425

20,867

+ 3


43,727

39,628

+ 10









Net Income Excluding

   Deferred Compensation*

 

22,555

 

20,680

 

+ 9


 

46,195

 

38,904

 

+ 19









Earnings per Diluted Share

$1.89

$1.87

+ 1


$3.85

$3.55

+ 8









Earnings per Diluted Share

   Excluding Deferred

   Compensation

 

 

$1.99

 

 

$1.85

 

 

+ 8


 

 

$4.07

 

 

$3.49

 

 

+ 17









* 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)

 

2012

 

2011

%

Change


 

2012

 

2011

%

Change









Net Sales








     Surfactants

$335,114

$343,767

- 3


$682,270

$668,652

+ 2

     Polymers

113,923

120,854

- 6


210,672

207,253

+ 2

     Specialty Products

21,194

12,368

+ 71


42,558

23,682

+ 80

         Total Net Sales

$470,231

$476,989

- 1


$935,500

$899,587

+ 4









Percentage Change in Net Sales














Three Months Ended

June 30


Six Months Ended

June 30

Volume

+ 5%


+ 5%

Selling Price

- 2%


+ 2%

Foreign Translation

- 4%


- 3%

   Total

- 1%


+ 4%

The decline in selling prices is attributable to lower commodity raw material costs.  The effect of foreign translation on sales was largely due to the weakening of the Euro versus the U.S. dollar.

  • Surfactant sales volume rose by 6 percent with all regions contributing.  North American volume growth was primarily from functional surfactants used in agricultural and oilfield.  Sale of consumer cleaning products led the growth in Latin America and Asia Pacific.  Sales volume in Brazil rose by 13 percent, accounting for most of the growth in Latin America.

  • Polymer sales volume declined 1 percent, primarily due to an 8 percent decline in phthalic anhydride (PA) volume due to continuing weakness in the end use markets for PA in housing, automotive and boating.  Polyol, used primarily in insulation foam, experienced volume growth of 2 percent for the second quarter. European polyol volume was flat amid growing economic uncertainty in the region.

  • Specialty Products net sales rose by 71 percent due to the Lipid Nutrition business acquired in June 2011.

Gross profit increased by 5 percent to $73.4 million for the quarter.

  • Surfactant gross profit grew by 13 percent to $51.7 million.  Improved profitability in Brazil coupled with improved sales mix of higher value functional surfactants in North America led to the growth.  The Singapore plant added $1.6 million of costs with limited production due to startup delays.  We have completed startup activities in Singapore and the plant is now fully operational.

  • Polymer gross profit declined by 16 percent to $17.4 million due to a decline in PA profits.  The PA production facility went through a maintenance turnaround resulting in higher maintenance and outsourcing costs of $2.0 million.  PA margins were also adversely impacted by high raw material costs.  Polyol gross profit grew by 4 percent, benefiting from improved volume of polyol sold to the adhesives market.

  • Specialty Products gross profit rose by 26 percent to $5.5 million led by the increased contribution from the Lipid Nutrition product line acquired in 2011.

OPERATING EXPENSES


Three Months Ended June 30


Six Months Ended June 30

($ in thousands)

 

2012

 

2011

%

Change


 

2012

 

2011

%

Change









Selling

$12,985

$12,171

+ 7


$26,636

$23,001

+ 16

Administrative – General

12,629

13,008

- 3


26,081

24,263

+ 7

Administrative – Deferred

  Compensation*

 

1,457

 

(328)

 

NM


 

4,957

 

(709)

 

NM

Research, development

  and technical service

 

11,504

 

10,656

 

+ 8


 

22,285

 

20,887

 

+ 7

    Total

$38,575

$35,507

+ 9


$79,959

$67,442

+ 19









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

Excluding the deferred compensation plan expense, operating expenses rose $1.3 million, or 4 percent, for the quarter and 10 percent for the first half.  The quarterly increases in selling and research relates primarily to headcount additions to support global growth initiatives coupled with routine wage increases.  The Lipid Nutrition product line acquired in 2011 has added approximately $1.1 million of operating expenses to the quarter and $2.6 million for the first half, primarily as selling expenses.

INCOME TAXES

The year-to-date effective tax rate was 31.7 percent compared to 31.9 percent a year ago.  The reduction reflects increased profitability of operations in countries having lower tax rates.  The rate does not include the potential benefit of the U.S. research tax credit pending reenactment by Congress.

BALANCE SHEET

The Company's net debt levels decreased by $10.6 million for the quarter and increased $10.4 million for the first six months.  The year-to-date increase reflects higher seasonal working capital requirements.

($ in millions)

6/30/12

3/31/12

12/31/11

Net Debt




   Total Debt

$  195.3

$  201.0

$  199.5

   Cash

69.5

64.6

84.1

      Net Debt

$  125.8

$  136.4

$  115.4

Equity

443.2

434.7

405.5

Net Debt + Equity

$  569.0

$  571.1

$  520.9





      Net Debt / (Net Debt + Equity)

22.1%

23.9%

22.2%

The health of the Company's balance sheet remains strong and will allow us to invest in growth opportunities.  Capital expenditures were $19.5 million during the quarter and $40.8 for the first half of 2012.

DIVIDEND

The Board of Directors of Stepan Company declared a quarterly cash dividend on its common stock of $0.2800 per share on July 24, 2012.  The dividend is payable on September 14, 2012, to common stockholders of record on August 31, 2012.

The Board of Directors also declared a quarterly cash dividend on its five and one half percent (5.5%) convertible preferred stock at the quarterly rate of $0.34375 per share.  Dividends are payable on August 31, 2012 to preferred stockholders of record on August 15, 2012.

OUTLOOK

"We are positioned to deliver solid earnings growth in 2012, despite the challenges of the global economy," said F. Quinn Stepan, Jr., President and Chief Executive Officer.  Net income, excluding deferred compensation expense, grew by 9 percent for the quarter and 19 percent for the first six months.  The PA plant's second quarter maintenance turnaround is complete and the plant is fully operational.  We achieved volume growth in Europe, despite the economic uncertainty. 

Our surfactant business should deliver higher full year earnings on the strength of improved sales mix of higher value functional surfactants used in agricultural and oilfield products, coupled with global growth initiatives.  Brazil will continue to deliver earnings growth on higher sales volumes.

The polymer segment, while more vulnerable to the risk of recession in Europe, is still positioned to deliver full year earnings growth.  The completion of the phthalic anhydride plant maintenance in the second quarter means the higher maintenance and outsourcing costs are behind us.  Polyol volume in North America is expected to increase, while European growth will be limited if economic conditions do not improve.  European polyol volume sold into the adhesive market should still grow.

Specialty Products should deliver full year earnings growth due to the contribution of the Lipid Nutrition product line acquisition.

"We remain optimistic that our growth strategy will deliver increased earnings in 2012 and beyond," 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 25, 2012. 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, 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, 2012 and 2011

(Unaudited – 000's Omitted)


















Three Months Ended

June 30


Six Months Ended

June 30


 

2012

 

2011

% Change


 

2012

 

2011

% Change









Net Sales

$470,231

$476,989

-       1


$935,500

$899,587

+      4

Cost of Sales

396,835

407,404

-       3


785,320

768,216

+      2

   Gross Profit

73,396

69,585

+      5


150,180

131,371

+    14









Operating Expenses:








   Selling

12,985

12,171

+      7


26,636

23,001

+    16

   Administrative

14,086

12,680

+    11


31,038

23,554

+    32

   Research, development

       and technical services

 

11,504

 

10,656

 

+      8


 

22,285

 

20,887

 

+      7


38,575

35,507

+      9


79,959

67,442

+    19









Operating Income

34,821

34,078

+      2


70,221

63,929

+    10

Other Income (Expense):








   Interest, net

(2,086)

(2,194)

-       5


(4,690)

(4,257)

+    10

   Loss from equity in joint ventures

(1,300)

(805)

+    61


(2,441)

(1,770)

+    38

   Other, net

83

253

-     67


1,148

565

+   103


(3,303)

(2,746)

+    20


(5,983)

(5,462)

+    10









Income before Income Taxes

31,518

31,332

+      1


64,238

58,467

+    10

Provision for Income Taxes

10,007

10,326

-       3


20,363

18,645

+      9

Net Income

21,511

21,006

+      2


43,875

39,822

+    10









Net Income Attributable to the

   Noncontrolling Interests

 

(86)

 

(139)

 

-     38


 

(148)

 

(194)

 

-     24









Net Income Attributable to

   Stepan Company

 

$21,425

 

$20,867

 

+      3


 

$43,727

 

$39,628

 

+    10









































Net Income Per Common Share

Attributable to Stepan Company








   Basic

$2.01

$2.00

+      1


$4.12

$3.80

+      8

   Diluted

$1.89

$1.87

+      1


$3.85

$3.55

+      8









Shares Used to Compute Net

Income Per Common Share Attributable to Stepan Company








   Basic

10,550

10,345

+      2


10,537

10,335

+      2

   Diluted

11,357

11,178

+      2


11,345

11,175

+      2

 

Table II

Deferred Compensation Plan

The full effect of the deferred compensation plan on quarterly pretax income was $1.8 million of expense versus income of $0.3 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:

2012


2011


2010

6/30

3/31


12/31

6/30

3/31


12/31









$94.18

$87.80


$80.16

$70.90

$72.50


$76.27

The deferred compensation expense income statement impact is summarized below:


Three Months Ended June 30


Six Months Ended June 30

($ in thousands)

2012

2011


2012

2011







Deferred Compensation






   Administrative (Expense) Income

$(1,457)

$328


$(4,957)

$709

   Other, net – Mutual Fund Gain (Loss)

(365)

(26)


977

460

       Total Pretax

$(1,822)

$302


$(3,980)

$1,169







       Total After Tax

$(1,130)

$187


$(2,468)

$724





Reconciliation of non-GAAP net income:








Three Months Ended June 30


Six Months Ended June 30

($ in thousands)

2012

2011


2012

2011







Net income excluding deferred

   compensation

 

$22,555

 

$20,680


 

$46,195

 

$38,904

Deferred compensation plan (expense)

   income

 

(1,130)

 

187


 

(2,468)

 

724

Net income as reported

$21,425

$20,867


$43,727

$39,628





Reconciliation of non-GAAP EPS:









Three Months Ended June 30


Six Months Ended June 30


2012

2011


2012

2011







Earnings per diluted share excluding

   deferred compensation

 

$1.99

 

$1.85


 

$4.07

 

$3.49

Deferred compensation plan (expense)

   income

 

(0.10)

 

0.02


 

( 0.22)

 

0.06

Earnings per diluted share

$1.89

$1.87


$3.85

$3.55

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). For the second quarter and the first half of 2012, the U.S. dollar was stronger against almost all the foreign currencies in the locations where the Company does business, when compared to the exchange rates for the second quarter and first half of 2011. Consequently, reported net sales, expense and income amounts for 2012 were lower than they would have been had the foreign currency exchange rates remained constant with the rates for 2011. Below is a table that presents the effect that foreign currency translation had on the quarter-over-quarter and year-over-year changes in consolidated net sales and various income line items for the second quarter and first half ending June 30, 2012:


Three Months

Ended June 30





2012

2011

(Decrease)

Increase

Decrease Due to

Foreign Translation







Net Sales

$470.2

$477.0

$(6.8)

$(17.5)


Gross Profit

73.4

69.6

3.8

(2.3)


Operating Income

34.8

34.1

0.7

(1.2)


Pretax Income

31.5

31.3

0.2

(1.1)











Six Months

Ended June 30





2012

2011

Increase

Decrease Due to

Foreign Translation







Net Sales

$935.5

$899.6

$35.9

$(22.5)


Gross Profit

150.2

131.4

18.8

(2.9)


Operating Income

70.2

63.9

6.3

(1.5)


Pretax Income

64.2

58.5

5.7

(1.4)


 

Table IV


Stepan Company

Consolidated Balance Sheets

June 30, 2012 and December 31, 2011





2012

June 30

2011

December 31

ASSETS






Current Assets

$510,797

$479,742




Property, Plant & Equipment, Net

395,939

383,983




Other Assets

36,561

37,393




   Total Assets

$943,297

$901,118







LIABILITIES AND EQUITY






Current Liabilities

$235,513

$233,226




Deferred Income Taxes

9,990

8,644




Long-term Debt

162,049

164,967




Other Non-current Liabilities

90,878

88,816




Total Stepan Company Stockholders' Equity

443,159

401,211




Noncontrolling Interest

1,708

4,254




   Total Liabilities and Equity

$943,297

$901,118

 

SOURCE Stepan Company



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