Stepan Reports Higher Fourth Quarter and Full Year 2015 Results

Feb 24, 2016, 06:50 ET from Stepan Company

NORTHFIELD, Ill., Feb. 24, 2016 /PRNewswire/ -- Stepan Company (NYSE: SCL) today reported:

Fourth Quarter Highlights

  • Reported net income was $12.9 million or $0.56 per diluted share.
  • Adjusted net income* was $17.0 million or $0.74 per diluted share, a 93% increase versus $8.8 million or $0.38 per diluted share in the prior year.
  • Surfactant operating income was $24.3 million, a 101% increase versus prior year. Polymer operating income was $18.1 million, a 38% increase versus prior year. Specialty Product operating income was $0.9 million.
  • Total sales volume increased 10% for the quarter. Surfactant and Polymer sales volumes increased 10% and 7%, respectively.
  • The effect of foreign currency translation negatively impacted net income by $2.7 million or $0.12 per diluted share versus prior year.

Full Year Highlights

  • Reported net income was $76.0 million or $3.32 per diluted share.
  • Adjusted net income* was $79.4 million or $3.46 per diluted share versus $57.7 million or $2.52 per diluted share in the prior year.
  • Surfactant operating income was $104.1 million, a 71% increase versus prior year. The Polymer segment delivered record operating income of $80.9 million, a 33% increase versus prior year. Specialty Product operating income was $4.4 million, a 58% decrease versus prior year.
  • Total sales volume increased 5%. Surfactant and Polymer sales volumes both increased 5% for the full year.
  • The effect of foreign currency translation negatively impacted net income by $9.4 million or $0.41 per diluted share versus prior year.

*  Adjusted net income is a non-GAAP measure which excludes Deferred Compensation Income/ Expense as well as other significant and infrequent/non-recurring items. See Table II for this non-GAAP reconciliation.

"2015 was a good year. We addressed our challenges and completed key components of our short-term and long-term strategy," said F. Quinn Stepan, Jr., President and Chief Executive Officer. "Operationally, we increased asset utilization, improved product mix, reduced costs and enhanced our internal efficiency. Both Surfactant and Polymer results improved. 

Surfactant income increased on strong volume growth and an improved global product mix.  We delivered savings from the previously reported restructuring charges and executed actions to improve earnings going forward through the dissolution of our Enhanced Oil Recovery joint venture and discontinuing ethoxylation in Canada.

Polymers delivered its sixth consecutive record income year as volumes and margins grew.  Polymer results benefited from energy conservation efforts globally and expanded sales into metal panel and CASE applications.  

Specialty Product results were down significantly for the year, but are expected to benefit going forward from actions taken in 2015.

In 2015 Adjusted Net Income grew from $57.7 million to $79.4 million, a strong rebound from 2014 and our second best income year." 

Financial Summary

Three Months Ended

December 31

Twelve Months Ended

December 31

($ in thousands, except per share data)

2015

2014

%

Change

2015

2014

%

Change

Net Sales

$

419,291

$

454,231

(8)%

$

1,776,167

$

1,927,213

(8)%

Operating Income

$

20,223

$

9,004

125%

$

122,790

$

90,694

35%

Net Income

$

12,872

$

6,239

106%

$

75,968

$

57,101

33%

Earnings per Diluted Share

$

0.56

$

0.27

107%

$

3.32

$

2.49

33%

Adjusted Net Income *

$

17,007

$

8,774

94%

$

79,449

$

57,746

38%

Adjusted Earnings per Diluted Share*

$

0.74

$

0.38

95%

$

3.46

$

2.52

37%

* See Table II for a reconciliation of non-GAAP Adjusted Net Income and Earnings per Diluted Share.

Summary of Fourth Quarter Adjusted Net Income Items

Adjusted net income excludes non-operational deferred compensation income and/or expense as well as certain other significant and infrequent or non-recurring items.

  • Deferred Compensation: The quarter includes $2.7 million of after-tax expense versus $1.6 million of after-tax income in the prior year.
  • TIORCO JV Dissolution: The quarter includes $1.5 million of after-tax expense for costs to dissolve this joint venture.

Percentage Change in Net Sales

The decrease in both quarterly and full year net sales was mainly due to lower selling prices primarily related to certain pass-through contract requirements on lower raw material costs and the negative impact of foreign currency translation resulting from the stronger U.S. dollar.  These decreases were partially offset by 10% volume growth in the quarter.  Surfactant and Polymer volumes grew by 10% and 7% respectively. 

Three Months Ended

December 31, 2015

Twelve Months Ended

December 31, 2015

Volume

10%

5%

Selling Price

(11)%

(6)%

Foreign Translation

(7)%

(7)%

Total

(8)%

(8)%

 

Segment Results

Three Months Ended

December 31

Twelve Months Ended

December 31

($ in thousands)

2015

2014

%

Change

2015

2014

%

Change

Net Sales

Surfactants

$

284,725

$

308,681

(8)%

$

1,205,849

$

1,296,638

(7)%

Polymers

113,785

130,634

(13)%

491,488

550,966

(11)%

Specialty Products

20,781

14,916

39%

78,830

79,609

(1)%

Total Net Sales

$

419,291

$

454,231

(8)%

$

1,776,167

$

1,927,213

(8)%

Three Months Ended

December 31

Twelve Months Ended

December 31

($ in thousands, all amounts pre-tax)

2015

2014

%

Change

2015

2014

%

Change

Operating Income

Surfactants

$

24,322

$

12,086

101%

$

104,080

$

60,778

71%

Polymers

$

18,140

$

13,152

38%

$

80,942

$

60,690

33%

Specialty Products

$

899

$

(113)

-

$

4,397

$

10,487

(58)%

Total segment operating income increased $18.2 million or 73% versus the prior year quarter.  Total segment operating income increased $57.5 million or 44% for the full year.  

  • Surfactant net sales were $284.7 million in the fourth quarter, $24.0 million less than prior year. The translation impact of a stronger U.S. dollar decreased sales by $23.4 million, despite sales volume increasing 10% in the fourth quarter. North American sales volume increased 14% mostly due to higher consumer product sales from the Sun supply agreement. Strong volume growth in Latin America and Asia, 17% and 9% respectively, was slightly offset by lower volumes in Europe. Surfactant operating income increased $12.2 million or 101% versus the prior year quarter. All regions delivered operating income growth in the quarter. North America principally benefited from the new volumes in consumer products and the improved capacity utilization associated with this business.
  • Polymer net sales were $113.8 million in the fourth quarter, a $16.8 million decrease versus prior year. The translation impact of a stronger U.S. dollar decreased sales by $6.0 million, and net selling prices were also lower. Sales volume increased 7% in the quarter primarily due to continued growth in polyols used in rigid foam insulation and insulated metal panels. Operating income increased $5.0 million or 38% versus the prior year quarter. The improvement was primarily attributable to volume growth in North America and Europe and more favorable margins.
  • Specialty Products operating income increased $1.0 million versus the prior year quarter. Sales volume was higher mostly attributable to order timing differences by food and flavoring product customers.

Corporate Expenses

Three Months Ended

December 31

Twelve Months Ended

December 31

($ in thousands)

2015

2014

%

Change

2015

2014

%

Change

Total  -  Corporate Expenses

$

23,138

$

16,121

44%

$

66,629

$

41,261

62%

Deferred Compensation Expense/(Income)*

$

5,272

$

(2,148)

-

$

6,500

$

(11,903)

-

Restructuring and Asset Impairment Expense

$

-

$

4,009

-

$

-

$

4,009

-

Adjusted Corporate Expense

$

17,866

$

14,260

25%

$

60,129

$

49,155

22%

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

  • For the fourth quarter, corporate expenses, excluding deferred compensation, restructuring and asset impairments, were up $3.6 million, or 25%, versus prior year. Higher incentive-based compensation expenses and higher consulting expenses related to our efficiency efforts were partially offset by lower environmental remediation expenses.
  • For the full year, corporate expenses, excluding deferred compensation, restructuring and asset impairments, were up $11.0 million, or 22%, versus prior year. This year to date increase is attributable to the same drivers of the quarterly increase.

Income Taxes

During the fourth quarter of 2015, the Company benefited from the federal research and development tax credit and in total recorded a tax provision of $2.2 million for an effective tax rate of 15%. The full year effective tax rate was 26% in 2015 compared to 24% in 2014. This increase was primarily attributable to certain favorable nonrecurring foreign tax benefits recorded in 2014 and a less favorable geographical mix of income in 2015. 

Selected Balance Sheet Information

The Company's net debt level, on a sequential basis, decreased $24.5 million for the quarter and the Net Debt ratio declined from 25% to 22%.  The Company's net debt level, on a full year basis, decreased $32.2 million and the Net Debt ratio decreased from 26% to 22%. 

 ($ in millions)

12/31/15

9/30/15

6/30/15

3/31/15

12/31/14

Net Debt

Total Debt

$

332.6

$

341.5

$

260.5

$

283.7

$

273.9

Cash

176.1

160.5

82.4

97.3

85.2

Net Debt

$

156.5

$

181.0

$

178.1

$

186.4

$

188.7

Equity

557.0

551.6

552.0

530.5

536.9

Net Debt + Equity

$

713.5

$

732.6

$

730.1

$

716.9

$

725.6

Net Debt / (Net Debt + Equity)

22%

25%

24%

26%

26%

The full year increase in both cash and debt is primarily due to the $100 million 3.95% Senior Notes offering announced on July 13, 2015.  The debt proceeds will be used to fund typical capital expenditures, pay off existing higher cost debt according to normal payoff schedules and fund investments that support the Company's strategic initiatives.

The major working capital components are:

 ($ in millions)

12/31/15

12/31/14

Net Receivables

$

249.6

$

270.5

Inventories

170.4

183.2

Accounts Payable

(128.6)

(157.0)

$

291.4

$

296.7

The Company had full year capital expenditures of $119 million in 2015 versus $102 million in the prior year. 

Outlook

In 2016 we expect to build on the momentum generated in 2015.  Our business should benefit from a full year of higher commodity sulfonation volumes in North America and continued growth in core polymer markets.  Benefits from our product and end market diversification efforts, as well as lower costs associated with restructuring activities, should positively impact 2016.  Start-up expenses and lower growth rates in China will negatively impact Polymer performance.  Both Surfactants and Polymers are expected to experience higher costs during the fourth quarter due to a thirty-day government mandated shutdown of our facility in Germany.  Specialty Products should improve on lower costs from structural actions taken in 2015.

Conference Call

Stepan Company will host a conference call to discuss the fourth quarter and year end results at 10 a.m. ET (9 a.m. CT) on February 24, 2016. The call can be accessed by phone and webcast. Telephone access will be available by dialing +1 (800) 950-3502, and the webcast can be accessed through the Investor Relations/Conference Calls page at www.stepan.com. A webcast replay of the conference call will be available at the same location shortly after the call.

Corporate Profile

Stepan Company is a major manufacturer of specialty and intermediate chemicals used in a broad range of industries.  Stepan is a leading merchant producer of surfactants, which are the key ingredients in consumer and industrial cleaning compounds.  The Company is also a leading supplier of Polyurethane polyols used in the expanding thermal insulation market, and CASE (Coatings, Adhesives, Sealants, Elastomers) industries.

Headquartered in Northfield, Illinois, Stepan utilizes a network of modern production facilities located in North and South America, Europe and Asia.

Stepan is a 2015 U.S. Environmental Protection Agency Safer Choice Partner of the Year award winner.

The common stock is traded on the New York Stock Exchange (NYSE) under the symbol SCL.  For more information about Stepan Company please visit the Company online at www.stepan.com

Contact: Scott D. Beamer       

                                                              (847) 446-7500

 

* * * * *

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

For the Three and Twelve Months Ended December 31, 2015 and 2014

(Unaudited – 000's Omitted)

Three Months Ended

December 31

Twelve Months Ended

December 31

2015

2014

2015

2014

Net Sales

$

419,291

$

454,231

$

1,776,167

$

1,927,213

Cost of Sales

344,602

404,380

1,467,926

1,677,650

Gross Profit

74,689

49,851

308,241

249,563

Operating Expenses:

Selling

14,235

10,308

55,522

54,763

Administrative *

21,728

18,378

76,048

66,549

Research, Development and Technical Services

13,231

10,300

50,243

45,451

Deferred Compensation Expense (Income) *

5,272

(2,148)

6,500

(11,903)

54,466

36,838

188,313

154,860

Other Operating Income (Expense)

Gain on Sale of Product Line

2,862

Business Restructuring and Asset Impairment Expense

(4,009)

(4,009)

Operating Income

20,223

9,004

122,790

90,694

Other Income (Expense):

Interest, Net

(3,773)

(2,617)

(14,533)

(11,441)

Loss from Equity in Joint Venture

(3,067)

(1,166)

(6,985)

(5,008)

Other, Net

1,678

791

1,584

1,290

(5,162)

(2,992)

(19,934)

(15,159)

Income Before Income Taxes

15,061

6,012

102,856

75,535

Provision for Income Taxes

2,185

(213)

26,819

18,454

Net Income

12,876

6,225

76,037

57,081

Net Income Attributable to Noncontrolling Interests

(4)

14

(69)

20

Net Income Attributable to Stepan Company

$

12,872

$

6,239

$

75,968

$

57,101

Net Income Per Common Share Attributable to Stepan Company

Basic

$

0.57

$

0.27

$

3.34

$

2.51

Diluted

$

0.56

$

0.27

$

3.32

$

2.49

Shares Used to Compute Net Income Per Common

 Share Attributable to Stepan Company

Basic

22,726

22,704

22,730

22,758

Diluted

22,879

22,830

22,858

22,917

*  In 2014, Deferred Compensation Expense (Income) was reported within the Administrative line item.  The 2014 amounts have been changed to conform to the current year presentation.

 

Table II

Reconciliation of Non-GAAP Net Income and Earnings Per Diluted Share

Three Months Ended

December 31

Twelve Months Ended

December 31

($ in thousands, except per share amounts)

2015

EPS

2014

EPS

2015

EPS

2014

EPS

Net Income Reported

$

12,872

$

0.56

$

6,239

$

0.27

$

75,968

$

3.32

$

57,101

$

2.49

Deferred Compensation Expense/ (Income)

2,675

$

0.12

(1,623)

$

(0.07)

3,453

$

0.15

(8,288)

$

(0.36)

Environmental Remediation Expense

1,752

0.08

341

$

0.01

4,403

$

0.19

Gain on Divestiture of Product Line

(1,774)

$

(0.08)

Bad Debt Expense

(643)

$

(0.03)

1,481

$

0.07

Restructuring and Asset Impairment Expense

3,049

$

0.13

3,049

$

0.13

TIORCO JV Dissolution

1,461

$

0.06

1,461

$

0.06

Adjusted Net Income

$

17,007

$

0.74

$

8,774

$

0.38

$

79,449

$

3.46

$

57,746

$

2.52

* All amounts in this Table are presented after-tax

The Company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP (Generally Accepted Accounting Principles) measures, are useful 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

Deferred Compensation Plan

The full effect of the deferred compensation plan on quarterly pretax income was $4.3 million of expense versus $2.6 million of income in the prior year quarter.  The year to date impact was $5.6 million of expense versus $13.4 million of income in the prior year.  The accounting for the deferred compensation plan results in operating 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:

2015

2014

12/31

9/30

6/30

3/31

12/31

9/30

6/30

3/31

Stepan Company

$

49.69

$

41.61

$

54.11

$

41.66

$

40.08

$

44.38

$

52.86

$

64.56

 

The deferred compensation income statement impact is summarized below:

Three Months Ended

December 31

Twelve Months Ended

December 31

($ in thousands)

2015

2014

2015

2014

Deferred Compensation

Administrative (Expense)

$

(5,272)

$

2,148

$

(6,500)

$

11,903

Other, net – Mutual Fund Gain (Loss)

958

469

931

1,464

Total Pretax

$

(4,314)

$

2,617

$

(5,569)

$

13,367

Total After Tax

$

(2,675)

$

1,623

$

(3,453)

$

8,288

 

Table IV

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 twelve month periods ending December 31, 2015 as compared to 2014:

 ($ in millions)

Three Months Ended

December 31

Increase

(Decrease)

(Decrease)

Due to Foreign

Currency

Translation

2015

2014

Net Sales

$

419.3

$

454.2

$

(34.9)

$

(29.9)

Gross Profit

74.7

49.9

24.8

(5.1)

Operating Income

20.2

9.0

11.2

(3.0)

Pretax Income

15.1

6.0

9.1

(3.2)

 ($ in millions)

Twelve Months Ended

December 31

Increase

(Decrease)

(Decrease)

Due to Foreign

Currency

Translation

2015

2014

Net Sales

$

1,776.2

$

1,927.2

$

(151.0)

$

(131.8)

Gross Profit

308.2

249.6

$

58.6

(21.6)

Operating Income

122.8

90.7

$

32.1

(13.2)

Pretax Income

102.9

75.5

$

27.4

(12.7)

 

Table V

Stepan Company

Consolidated Balance Sheets

December 31, 2015 and December 31, 2014

2015

December 31

2014

December 31

ASSETS

Current Assets

$

619,573

$

575,556

Property, Plant & Equipment, Net

555,463

524,195

Other Assets

64,625

62,263

Total Assets

$

1,239,661

$

1,162,014

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

$

243,244

$

249,513

Deferred Income Taxes

9,455

15,804

Long-term Debt

313,817

246,897

Other Non-current Liabilities

114,761

112,856

Total Stepan Company Stockholders' Equity

556,984

535,546

Noncontrolling Interest

1,400

1,398

Total Liabilities and Stockholders' Equity

$

1,239,661

$

1,162,014

 

SOURCE Stepan Company