Stepan Reports First Quarter Earnings
First Quarter Highlights
- Reported net income was
$27.5 million , or$1.18 per diluted share versus$25.0 million , or$1.07 per diluted share, in the prior year. Adjusted net income* was$24.2 million , or$1.04 per diluted share versus$30.6 million , or$1.31 per diluted share, in the prior year. Reported and adjusted net income were negatively impacted by the previously disclosed Millsdale Plant power outage. All production lines were fully operational prior to the end of the first quarter. The Company's insurance provider has acknowledged this incident is a covered event and the Company is pursuing insurance recovery for incremental supply chain expenses and business interruption. Excluding this one-time event, our adjusted net income was higher than previous year. - Surfactant operating income was
$36.2 million versus$37.2 million in the prior year. These results were attributable to strong volumes in the global consumer product end markets driven by increased demand for cleaning and disinfection products as a result of COVID-19, and a$4.2 million operating income improvement in Mexico. This was fully offset by higher supply chain expenses and lost sales associated with the incident at the Company's Millsdale facility and lower demand in the agricultural and oil field end markets. Global Surfactant sales volume decreased 1% versus the prior year. - Polymer operating income was
$7.5 million versus$12.1 million in the prior year. This decrease was primarily due to the negative impact of the incident at our Millsdale facility. Global Polymer sales volume decreased 9% versus the prior year driven by a significant reduction in phthalic anhydride volume. Global rigid polyol sales volume was flat as growth inNorth America andChina was offset by lower demand inEurope as a result of COVID-19. - Specialty Product operating income was
$4.0 million versus$3.1 million in the prior year. This increase was primarily attributable to improved volume and margins within our MCTs product line driven by strong demand and pantry loading in the infant nutrition market, as a result of the COVID-19 outbreak. - The Company had negative net debt at quarter-end as cash balances of
$254.3 million exceeded total debt of$222.1 million . The Company has access to a committed$350.0 million revolving credit agreement and has$23.6 million of debt maturity scheduled in 2020. The Company believes it has sufficient liquidity levels to operate in the challenging near term environment.
* Adjusted net income is a non-GAAP measure which excludes deferred compensation income/expense, cash-settled stock appreciation rights (SARs) as well as other significant and infrequent/non-recurring items. See Table II for reconciliations of non-GAAP adjusted net income and adjusted earnings per share.
"Today we are living in a difficult and uncertain world. We are all concerned about our health and the health of those we love. At Stepan, we are fortunate that many of the products we sell contribute to the fight against COVID-19. Our plants are running and most importantly, we have been able to keep our employees safe and healthy. We want to thank all our employees, customers, suppliers, government agencies and local communities that are helping us maneuver in this challenging environment," said
"Excluding the impact of the Millsdale power outage, the Company had a solid start to the year. Surfactant operating income, excluding the Millsdale incident, was up significantly. Global Surfactant sales volume declined 1% due to strong volumes in the global consumer product end markets driven by increased demand for cleaning and disinfection products, as a result of COVID-19, offset by lower demand within our Functional Product end markets. Mexican operations delivered strong year-over-year earnings growth. The Polymer business was down primarily due to the Millsdale power outage, impacting mostly our phthalic anhydride business. Rigid Polyol volume was flat as growth within
Financial Summary
Three Months Ended |
|||||||||||
($ in thousands, except per share data) |
2020 |
2019 |
% Change |
||||||||
|
$ |
449,987 |
$ |
489,170 |
(8) |
% |
|||||
Operating Income |
$ |
40,004 |
$ |
29,738 |
35 |
% |
|||||
Net Income |
$ |
27,545 |
$ |
24,984 |
10 |
% |
|||||
Earnings per Diluted Share |
$ |
1.18 |
$ |
1.07 |
10 |
% |
|||||
Adjusted Net Income * |
$ |
24,158 |
$ |
30,636 |
(21) |
% |
|||||
Adjusted Earnings per Diluted Share * |
$ |
1.04 |
$ |
1.31 |
(21) |
% |
* See Table II for reconciliations of non-GAAP adjusted net income and earnings per diluted share. |
|
Summary of First Quarter Adjusted Net Income Items
Adjusted net income excludes non-operational deferred compensation income/expense, cash-settled SARs and other significant and infrequent or non-recurring items.
- Deferred Compensation: The current year quarter reported net income includes
$2.9 million of after-tax income versus$3.9 million of after-tax expense in the prior year. - Cash Settled SARs: These management incentive instruments provide cash to participants equal to the appreciation on the price of specified shares of Company stock over a specified period of time. Because income or expense is recognized merely on the movement in the price of Company stock it has been excluded, similar to deferred compensation, to arrive at adjusted net income. The current year quarter includes
$0.8 million of after-tax income versus$1.2 million of after-tax expense in the prior year. - Business Restructuring: The current year quarter reported net income includes
$0.3 million of after-tax decommissioning expense related to the Company's Canadian plant closure andGermany sulfonation shutdown versus$0.5 million of after-tax expense in the prior year.
Percentage Change in
Net sales decreased 8% quarter-over-quarter due to lower selling prices, mainly attributable to the pass-through of lower raw material costs, a 3% decline in global sales volume and the unfavorable impact of foreign currency translation. The decline in sales volume was predominantly due to the Millsdale plant incident.
Three Months Ended |
|||
Volume |
(3) |
% |
|
Selling Price & Mix |
(3) |
% |
|
Foreign Currency Translation |
(2) |
% |
|
Total |
(8) |
% |
Segment Results
Three Months Ended |
|||||||||||
($ in thousands) |
2020 |
2019 |
% Change |
||||||||
|
|||||||||||
Surfactants |
$ |
327,071 |
$ |
349,650 |
(6) |
% |
|||||
Polymers |
$ |
106,491 |
$ |
120,179 |
(11) |
% |
|||||
Specialty Products |
$ |
16,425 |
$ |
19,341 |
(15) |
% |
|||||
Total |
$ |
449,987 |
$ |
489,170 |
(8) |
% |
|||||
Three Months Ended |
|||||||||||
($ in thousands, all amounts pre-tax) |
2020 |
2019 |
% Change |
||||||||
Operating Income |
|||||||||||
Surfactants |
$ |
36,156 |
$ |
37,167 |
(3) |
% |
|||||
Polymers |
$ |
7,516 |
$ |
12,105 |
(38) |
% |
|||||
Specialty Products |
$ |
3,984 |
$ |
3,131 |
27 |
% |
|||||
Segment Operating Income |
$ |
47,656 |
$ |
52,403 |
(9) |
% |
|||||
Corporate Expenses |
$ |
(7,652) |
$ |
(22,665) |
(66) |
% |
|||||
Consolidated Operating Income |
$ |
40,004 |
$ |
29,738 |
35 |
% |
Total segment operating income decreased
- Surfactant net sales were
$327.1 million for the quarter, a 6% decrease versus the prior year. Selling prices were down 3% primarily due to the pass-through of lower raw material costs. The translation impact of a strongerU.S. dollar decreased net sales by 2%. Sales volume was down 1% versus the prior year. Higher demand for products sold into our consumer product end markets, driven by increased demand for cleaning and disinfection products as a result of COVID-19, was offset by lower sales volume to our functional product end markets, principally agricultural and oilfield. Surfactant operating income decreased$1.0 million versus the prior year primarily due to higher costs and lost sales associated with our Millsdale plant power outage and the negative impact of foreign currency translation. These items were partially offset by a$4.2 million operating income improvement inMexico . - Polymer net sales were
$106.5 million in the quarter, an 11% decrease versus the prior year. Sales volume decreased 9% in the quarter primarily due to a significant reduction in phthalic anhydride volume due to the Millsdale power outage. Selling prices declined 1% and the translation impact of a strongerU.S. dollar negatively impacted net sales by 1%. Polymer operating income decreased$4.6 million , or 38%, primarily due to the higher costs and volume shortfalls associated with the Millsdale power outage. Global Specialty Polyols results were up with all regions growing operating income year-over-year. Global Rigid volumes were flat with growth inNorth America andChina fully offset by lower demand inEurope , as a result of COVID-19. - Specialty Products net sales were
$16.4 million for the quarter, a 15% decrease versus prior year. Sales volume declined 8% for the quarter. Operating income increased$0.9 million versus the prior year primarily due to improved volume and margins within our MCT product line, driven by strong demand and pantry loading in the infant nutrition segment, as a result of the COVID-19 outbreak.
Corporate Expenses
Three Months Ended |
|||||||||||
($ in thousands) |
2020 |
2019 |
% Change |
||||||||
Total - Corporate Expenses |
$ |
7,652 |
$ |
22,665 |
(66) |
% |
|||||
Less: |
|||||||||||
Deferred Compensation Expense/(Income) |
$ |
(7,323) |
$ |
7,473 |
NA |
||||||
Business Restructuring Expense |
$ |
357 |
$ |
733 |
(51) |
% |
|||||
Adjusted Corporate Expenses |
$ |
14,618 |
$ |
14,459 |
1 |
% |
* See Table III for a discussion of deferred compensation plan accounting. |
- Corporate expenses, excluding deferred compensation and business restructuring costs, increased
$0.2 million , or 1%, for the quarter. This increase was mostly attributable to higher acquisition-related expenses for the NatSurFact acquisition.
Income Taxes
The Company's effective tax rate was 22.5% in the first quarter of 2020 versus 19.5% in the first quarter of 2019. The increase was primarily attributable to lower tax benefits derived from stock base compensation awards exercised or distributed in the first quarter of 2020 versus the first quarter of 2019.
Shareholder Return
The Company paid
Selected Balance Sheet Information
The Company's net debt level increased
($ in millions) |
|
|
|||||
Net Debt |
|||||||
Total Debt |
$ |
222.1 |
$ |
222.1 |
|||
Cash |
254.3 |
315.4 |
|||||
Net Debt |
$ |
(32.2) |
$ |
(93.3) |
|||
Equity |
866.8 |
891.8 |
|||||
Net Debt + Equity |
$ |
834.6 |
$ |
798.5 |
|||
Net Debt / (Net Debt + Equity) |
-4 |
% |
-12 |
% |
The major working capital components were:
($ in millions) |
|
|
||||
Net Receivables |
$ |
290.6 |
$ |
276.8 |
||
Inventories |
198.2 |
203.6 |
||||
Accounts Payable |
(187.9) |
(194.3) |
||||
Net Total |
$ |
300.9 |
$ |
286.1 |
Capital spending was
Outlook
"2020 is going to be a difficult year for the world, our country, our industry and
Our Polymer business most likely will face a reduction in demand as people defer or cancel re-roofing and new construction projects. We also anticipate higher North American costs due to the
Our Specialty Product business should continue to benefit from higher MCT demand in the infant nutrition market as pantry loading and retail restocking occur. Our flavor and pharmaceutical product sales should be stable for the year.
We have a strong Balance Sheet with significant cash on hand. We have a
Conference Call
Supporting Slides
Slides supporting this press release will be made available at www.stepan.com through the Investor Relations page at approximately the same time as this press release is issued.
Corporate Profile
Headquartered in
The Company's common stock is traded on the
More information about Stepan's sustainability program can be found at https://stepan.gcs-web.com/static-files/5fb8f458-df94-44ba-9fca-4f1997b4594d
Contact:
Tables follow
Certain information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements about
There are a number of risks, uncertainties and other important factors, many of which are beyond
These forward-looking statements are made only as of the date hereof, and
Table I |
||||||
|
||||||
For the Three Months Ended |
||||||
(Unaudited – '000s Omitted) |
||||||
Three Months Ended |
||||||
2020 |
2019 |
|||||
|
$ |
449,987 |
$ |
489,170 |
||
Cost of Sales |
370,718 |
404,561 |
||||
Gross Profit |
79,269 |
84,609 |
||||
Operating Expenses: |
||||||
Selling |
13,532 |
13,969 |
||||
Administrative |
18,872 |
19,306 |
||||
Research, Development and Technical Services |
13,827 |
13,390 |
||||
Deferred Compensation Expense |
(7,323) |
7,473 |
||||
38,908 |
54,138 |
|||||
Business Restructuring |
357 |
733 |
||||
Operating Income |
40,004 |
29,738 |
||||
Other Income (Expense): |
||||||
Interest, Net |
(1,230) |
(1,853) |
||||
Other, Net |
(3,262) |
3,145 |
||||
(4,492) |
1,292 |
|||||
Income Before Income Taxes |
35,512 |
31,030 |
||||
Provision for Income Taxes |
7,973 |
6,052 |
||||
Net Income |
27,539 |
24,978 |
||||
Net Loss Attributable to Noncontrolling Interests |
6 |
6 |
||||
Net Income Attributable to |
$ |
27,545 |
$ |
24,984 |
||
Net Income Per Common Share Attributable to |
||||||
Basic |
$ |
1.20 |
$ |
1.08 |
||
Diluted |
$ |
1.18 |
$ |
1.07 |
||
Shares Used to Compute Net Income Per Common Share Attributable to |
||||||
Basic |
23,023 |
23,099 |
||||
Diluted |
23,285 |
23,332 |
Table II |
||||||||||||||
Reconciliations of Non-GAAP Net Income and Earnings per Diluted Share* |
||||||||||||||
Three Months Ended |
||||||||||||||
($ in thousands, except per share amounts) |
2020 |
EPS |
2019 |
EPS |
||||||||||
Net Income Reported |
$ |
27,545 |
$ |
1.18 |
$ |
24,984 |
$ |
1.07 |
||||||
Deferred Compensation (Income) Expense |
$ |
(2,858) |
$ |
(0.12) |
$ |
3,881 |
$ |
0.17 |
||||||
Business Restructuring |
263 |
$ |
0.01 |
540 |
$ |
0.02 |
||||||||
Cash Settled Stock Appreciation Rights |
(792) |
$ |
(0.03) |
1,231 |
$ |
0.05 |
||||||||
Adjusted Net Income |
$ |
24,158 |
$ |
1.04 |
$ |
30,636 |
$ |
1.31 |
* All amounts in this table are presented after-tax
The Company believes that certain measures that are not in accordance with generally accepted accounting principles (GAAP), when presented in conjunction with comparable GAAP measures, are useful for evaluating the Company's operating performance and provide better clarity on the impact of non-operational items. 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, and are neither a substitute for, nor superior to, measures of financial performance prepared in accordance with GAAP.
Reconciliations of Pre-Tax to After-Tax Adjustments |
||||||||||||||
Three Months Ended |
||||||||||||||
($ in thousands, except per share amounts) |
2020 |
EPS |
2019 |
EPS |
||||||||||
Pre-Tax Adjustments |
||||||||||||||
Deferred Compensation (Income) Expense |
$ |
(3,760) |
$ |
5,106 |
||||||||||
Business Restructuring |
357 |
733 |
||||||||||||
Cash Settled Stock Appreciation Rights |
(1,042) |
1,620 |
||||||||||||
Total Pre-Tax Adjustments |
$ |
(4,445) |
$ |
7,459 |
||||||||||
Cumulative Tax Effect on Adjustments |
$ |
1,058 |
$ |
(1,807) |
||||||||||
After-Tax Adjustments |
$ |
(3,387) |
$ |
(0.14) |
$ |
5,652 |
$ |
0.24 |
Table III |
Deferred Compensation Plan |
The full effect of the deferred compensation plan on quarterly pre-tax income was |
2020 |
2019 |
|||||||||||||||||
3/31 |
12/31 |
9/30 |
6/30 |
3/31 |
||||||||||||||
|
$ |
88.46 |
$ |
102.44 |
$ |
97.06 |
$ |
91.91 |
$ |
87.52 |
||||||||
The deferred compensation income statement impact is summarized below:
Three Months Ended |
||||||
($ in thousands) |
2020 |
2019 |
||||
Deferred Compensation |
||||||
Operating Income (Expense) |
$ |
7,323 |
$ |
(7,473) |
||
Other, net – Mutual Fund Gain (Loss) |
(3,563) |
2,367 |
||||
Total Pre-Tax |
$ |
3,760 |
$ |
(5,106) |
||
Total After Tax |
$ |
2,858 |
$ |
(3,881) |
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 |
($ in millions) |
Three Months Ended |
Change |
Decrease Due to Foreign Currency Translation |
|||||||||||
2020 |
2019 |
|||||||||||||
|
$ |
450.0 |
$ |
489.2 |
$ |
(39.2) |
$ |
(8.2) |
||||||
Gross Profit |
79.3 |
84.6 |
(5.3) |
(1.4) |
||||||||||
Operating Income |
40.0 |
29.7 |
10.3 |
(0.8) |
||||||||||
Pretax Income |
35.5 |
31.0 |
4.5 |
(0.8) |
Table V |
||||||
|
||||||
Consolidated Balance Sheets |
||||||
|
||||||
|
|
|||||
ASSETS |
||||||
Current Assets |
$ |
768,544 |
$ |
818,789 |
||
Property, Plant & Equipment, Net |
627,542 |
639,317 |
||||
Other Assets |
110,214 |
121,261 |
||||
Total Assets |
$ |
1,506,300 |
$ |
1,579,367 |
||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||
Current Liabilities |
$ |
310,158 |
$ |
339,114 |
||
Deferred Income Taxes |
23,133 |
23,391 |
||||
Long-term Debt |
198,566 |
198,532 |
||||
Other Non-current Liabilities |
106,971 |
125,834 |
||||
Total Stepan Company Stockholders' Equity |
866,778 |
891,783 |
||||
Noncontrolling Interest |
694 |
713 |
||||
Total Liabilities and Stockholders' Equity |
$ |
1,506,300 |
$ |
1,579,367 |
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