Stepan Reports Record Quarterly Earnings
First Quarter Highlights
- Reported net income was a record
$31.9 million , or$1.37 per diluted share versus$27.9 million , or$1.22 per diluted share, in the prior year. Adjusted net income* was a record$31.7 million , or$1.36 per diluted share versus$29.7 million , or$1.30 per diluted share, in the prior year. - Surfactant operating income was a record
$38.2 million versus$37.2 million in the prior year. This increase was primarily attributable to lower manufacturing costs, mostly resulting from previous actions taken to close plants inCanada andBrazil . Surfactant sales volume was down 7% from the prior year. - Polymer operating income was
$21.4 million versus$22.2 million in the prior year. This decrease was mostly attributable to higher costs associated with the new production facility inChina and higher raw material costs. Polymer sales volume was up 8% versus prior year. - Specialty Product operating income was
$1.3 million versus$2.3 million in the prior year. This decrease was primarily attributable to order timing differences within our pharmaceutical and flavor business.
* Adjusted net income is a non-GAAP measure which excludes deferred compensation income/ expense as well as other significant and infrequent/non-recurring items. See Table II for reconciliations of non-GAAP adjusted net income and adjusted earnings per share.
"The Company had a good start to the year and delivered record quarterly results," said
Financial Summary
Three Months Ended March 31 |
||||||||||||
($ in thousands, except per share data) |
2017 |
2016 |
% Change |
|||||||||
Net Sales |
$ |
468,269 |
$ |
445,897 |
5 |
% |
||||||
Operating Income |
$ |
46,059 |
$ |
44,607 |
3 |
% |
||||||
Net Income |
$ |
31,913 |
$ |
27,916 |
14 |
% |
||||||
Earnings per Diluted Share |
$ |
1.37 |
$ |
1.22 |
12 |
% |
||||||
Adjusted Net Income * |
$ |
31,700 |
$ |
29,737 |
7 |
% |
||||||
Adjusted Earnings per Diluted Share * |
$ |
1.36 |
$ |
1.30 |
5 |
% |
||||||
* See Table II for reconciliations of non-GAAP Adjusted Net Income and Adjusted Earnings per Diluted Share. |
Summary of First Quarter Adjusted Net Income Items
Adjusted net income excludes deferred compensation income/expense, which is a non-operational item, and other significant and infrequent or non-recurring items.
- Deferred Compensation: The current year quarter includes
$0.8 million of after-tax income versus$1.8 million of after-tax expense in the prior year. - Business Restructuring: The current year quarter includes
$0.6 million of after-tax expense attributable to decommissioning costs related to the Canadian plant closure announced in 2016.
Percentage Change in Net Sales
The 5% increase in quarterly net sales was primarily due to higher selling prices, which were attributable to the pass-through of higher raw material costs. These higher selling prices were partially offset by a 4% decline in sales volume and the negative impact of foreign currency translation.
Three Months Ended March 31, 2017 |
||||
Volume |
(4) |
% |
||
Selling Price |
10 |
% |
||
Foreign Translation |
(1) |
% |
||
Total |
5 |
% |
Segment Results
Three Months Ended March 31 |
||||||||||||
($ in thousands) |
2017 |
2016 |
% Change |
|||||||||
Net Sales |
||||||||||||
Surfactants |
$ |
322,603 |
$ |
309,960 |
4 |
% |
||||||
Polymers |
$ |
126,610 |
$ |
113,898 |
11 |
% |
||||||
Specialty Products |
$ |
19,056 |
$ |
22,039 |
(14) |
% |
||||||
Total Net Sales |
$ |
468,269 |
$ |
445,897 |
5 |
% |
Three Months Ended March 31 |
||||||||||||
($ in thousands, all amounts pre-tax) |
2017 |
2016 |
% Change |
|||||||||
Operating Income |
||||||||||||
Surfactants |
$ |
38,237 |
$ |
37,245 |
3 |
% |
||||||
Polymers |
$ |
21,399 |
$ |
22,197 |
(4) |
% |
||||||
Specialty Products |
$ |
1,275 |
$ |
2,333 |
(45) |
% |
Total segment operating income decreased
- Surfactant net sales were
$322.6 million , a 4% increase versus prior year. Selling prices were up 12% primarily due to the pass-through of higher raw material costs. Sales volume was down 7% mostly due to lower North American and European consumer product and agricultural volumes. The translation impact of a stronger U.S. dollar decreased net sales by 1%. Surfactant operating income increased$1.0 million versus the prior year, primarily driven by lower manufacturing costs that were mostly attributable to the plant closures inCanada andBrazil . - Polymer net sales were
$126.6 million in the first quarter, an 11% increase versus prior year. Sales volume increased 8% in the quarter primarily due to continued growth in polyols used in rigid foam insulation and insulated metal panels. Increased selling prices partially offset higher raw material costs. Polymer operating income decreased$0.8 million versus the prior year. This decrease was attributable to higher costs associated with the Company's new production facility inChina and slightly lower unit margins, partially offset by higher global Rigid Polyol sales volume. - Specialty Products net sales were
$19.1 million ,$3.0 million lower than prior year. Operating income decreased$1.1 million versus the prior year. The quarterly decline reflects a combination of lower volume and lower margins. A significant portion of the lower volume is due to the timing of orders in our pharmaceutical and flavor businesses.
Corporate Expenses
Three Months Ended March 31 |
||||||||||||
($ in thousands) |
2017 |
2016 |
% Change |
|||||||||
Total - Corporate Expenses |
$ |
14,852 |
$ |
17,168 |
(13) |
% |
||||||
Deferred Compensation Expense * |
$ |
376 |
$ |
2,720 |
(86) |
% |
||||||
Business Restructuring Expense |
$ |
786 |
$ |
- |
- |
|||||||
Adjusted Corporate Expense |
$ |
13,690 |
$ |
14,448 |
(5) |
% |
||||||
* See Table III for a discussion of deferred compensation plan accounting. |
- Corporate expenses, excluding deferred compensation and business restructuring expense, decreased
$0.8 million , or 5%, for the quarter. This decrease was mostly attributable to environmental remediation expense recognized in the first quarter of 2016 that did not recur in 2017.
Income Taxes
The Company's effective tax rate was 28% for the first quarter of 2017 versus 31% for the first quarter of 2016. The decrease was primarily attributable to higher excess tax benefits derived from stock based compensation awards exercised or distributed in the first quarter of 2017 versus 2016. The lower tax rate was also driven by an unfavorable tax settlement related to a foreign income tax audit recorded in the first quarter of 2016 that did not recur in 2017.
Selected Balance Sheet Information
The Company's net debt level increased
($ in millions) |
March 31, 2017 |
December 31, 2016 |
||||||
Net Debt |
||||||||
Total Debt |
$ |
316.7 |
$ |
317.0 |
||||
Cash |
197.8 |
225.7 |
||||||
Net Debt |
$ |
118.9 |
$ |
91.3 |
||||
Equity |
673.2 |
634.6 |
||||||
Net Debt + Equity |
$ |
792.1 |
$ |
725.9 |
||||
Net Debt / (Net Debt + Equity) |
15 |
% |
13 |
% |
The major working capital components were:
($ in millions) |
March 31, 2017 |
December 31, 2016 |
||||||||
Net Receivables |
$ |
287.5 |
$ |
263.4 |
||||||
Inventories |
189.8 |
173.7 |
||||||||
Accounts Payable |
(163.8) |
(158.3) |
||||||||
$ |
313.5 |
$ |
278.8 |
Capital spending was
Outlook
"After a record first quarter, we remain optimistic about the balance of the year. We believe that benefits from our enhanced internal efficiencies, continued growth in our core polymer markets and our product and end-market diversification efforts should positively impact 2017. Conversely, higher raw material costs may pressure margins. Overall, we believe earnings for the year should grow," said
Conference Call
Supporting Slides
Slides supporting this press release will be made available at www.stepan.com under the Investor Relations center at approximately the same time as this press release is issued.
Corporate Profile
Headquartered in
The Company's common stock is traded on the
Contact:
* * * * *
Tables follow
Certain information in this presentation 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 (the Exchange Act). 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 |
||||||||
STEPAN COMPANY |
||||||||
For the Three Months Ended March 31, 2017 and 2016 |
||||||||
(Unaudited – '000s Omitted) |
||||||||
Three Months Ended March 31 |
||||||||
2017 |
2016 |
|||||||
Net Sales |
$ |
468,269 |
$ |
445,897 |
||||
Cost of Sales |
376,171 |
352,398 |
||||||
Gross Profit |
92,098 |
93,499 |
||||||
Operating Expenses: |
||||||||
Selling |
13,485 |
13,690 |
||||||
Administrative |
17,971 |
18,700 |
||||||
Research, Development and Technical Services |
13,421 |
13,782 |
||||||
Deferred Compensation Expense |
376 |
2,720 |
||||||
45,253 |
48,892 |
|||||||
Business Restructuring |
786 |
— |
||||||
Operating Income |
46,059 |
44,607 |
||||||
Other Income (Expense): |
||||||||
Interest, Net |
(2,992) |
(3,614) |
||||||
Other, Net |
1,263 |
(525) |
||||||
(1,729) |
(4,139) |
|||||||
Income Before Income Taxes |
44,330 |
40,468 |
||||||
Provision for Income Taxes * |
12,418 |
12,549 |
||||||
Net Income * |
31,912 |
27,919 |
||||||
Net Income Attributable to Noncontrolling Interests |
1 |
(3) |
||||||
Net Income Attributable to Stepan Company * |
$ |
31,913 |
$ |
27,916 |
||||
Net Income Per Common Share Attributable to Stepan Company |
||||||||
Basic * |
$ |
1.39 |
$ |
1.23 |
||||
Diluted * |
$ |
1.37 |
$ |
1.22 |
||||
Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company |
||||||||
Basic |
22,901 |
22,733 |
||||||
Diluted * |
23,331 |
22,882 |
||||||
* The 2016 amounts for the noted line items have been changed from the amounts originally reported as a result of the Company's adoption in the fourth quarter of 2016 of ASU No. 2016-09 Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. |
Table II |
||||||||||||||||
Reconciliations of Non-GAAP Net Income and Earnings per Diluted Share* |
||||||||||||||||
Three Months Ended March 31 |
||||||||||||||||
($ in thousands, except per share amounts) |
2017 |
EPS |
2016 |
EPS |
||||||||||||
Net Income Reported |
$ |
31,913 |
$ |
1.37 |
$ |
27,916 |
$ |
1.22 |
||||||||
Deferred Compensation (Income) |
$ |
(802) |
$ |
(0.03) |
$ |
1,821 |
$ |
0.08 |
||||||||
Business Restructuring |
589 |
$ |
0.02 |
— |
— |
|||||||||||
Adjusted Net Income |
$ |
31,700 |
$ |
1.36 |
$ |
29,737 |
$ |
1.30 |
||||||||
* 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 and provide better clarity on significant 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, neither a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. |
Three Months Ended March 31 |
|||||||||||||||||
($ in thousands, except per share amounts) |
2017 |
EPS |
2016 |
EPS |
|||||||||||||
Pre-Tax Adjustments |
|||||||||||||||||
Deferred Compensation (Income) |
$ |
(1,293) |
$ |
2,937 |
|||||||||||||
Business Restructuring |
786 |
— |
|||||||||||||||
Total Pre-Tax Adjustments |
$ |
(507) |
$ |
2,937 |
|||||||||||||
Cumulative Tax Effect on Adjustments |
$ |
294 |
$ |
(1,116) |
|||||||||||||
After-Tax Adjustments |
$ |
(213) |
$ |
(0.01) |
$ |
1,821 |
$ |
0.08 |
Table III |
||||||||||||||||||||
Deferred Compensation Plan |
||||||||||||||||||||
The full effect of the deferred compensation plan on quarterly pre-tax income was $1.3 million of income versus $2.9 million of expense in the prior year. The accounting for the deferred compensation plan results in operating income when the prices of Stepan Company common stock or mutual fund shares held in the plan fall and expense when they rise. The Company also recognizes the change in value of mutual fund shares as investment income or loss. The quarter end market prices of Stepan Company common stock are as follows: |
||||||||||||||||||||
2017 |
2016 |
|||||||||||||||||||
3/31 |
12/31 |
9/30 |
6/30 |
3/31 |
||||||||||||||||
Stepan Company |
$ |
78.81 |
$ |
81.48 |
$ |
72.66 |
$ |
59.53 |
$ |
55.29 |
||||||||||
The deferred compensation income statement impact is summarized below: |
||||||||
Three Months Ended March 31 |
||||||||
($ in thousands) |
2017 |
2016 |
||||||
Deferred Compensation |
||||||||
Operating Expense |
$ |
(376) |
$ |
(2,720) |
||||
Other, net – Mutual Fund Gain (Loss) |
1,669 |
(217) |
||||||
Total Pre-Tax |
$ |
1,293 |
$ |
(2,937) |
||||
Total After Tax |
$ |
802 |
$ |
(1,821) |
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 month period ending March 31, 2017 as compared to 2016: |
||||||||||||||||
($ in millions) |
Three Months Ended March 31 |
Increase (Decrease) |
(Decrease) Due to Foreign Currency Translation |
|||||||||||||
2017 |
2016 |
|||||||||||||||
Net Sales |
$ |
468.3 |
$ |
445.9 |
$ |
22.4 |
$ |
(4.4) |
||||||||
Gross Profit |
92.1 |
93.5 |
(1.4) |
(0.1) |
||||||||||||
Operating Income |
46.1 |
44.6 |
1.5 |
- |
||||||||||||
Pretax Income |
44.3 |
40.5 |
3.8 |
(0.1) |
Table V |
||||||||
Stepan Company |
||||||||
Consolidated Balance Sheets |
||||||||
March 31, 2017 and December 31, 2016 |
||||||||
March 31, 2017 |
December 31, 2016 |
|||||||
ASSETS |
||||||||
Current Assets |
$ |
699,602 |
685,541 |
|||||
Property, Plant & Equipment, Net |
584,107 |
582,714 |
||||||
Other Assets |
86,723 |
85,635 |
||||||
Total Assets |
$ |
1,370,432 |
1,353,890 |
|||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
Current Liabilities |
$ |
271,610 |
297,265 |
|||||
Deferred Income Taxes |
15,190 |
12,497 |
||||||
Long-term Debt |
288,898 |
288,859 |
||||||
Other Non-current Liabilities |
120,177 |
119,353 |
||||||
Total Stepan Company Stockholders' Equity |
673,233 |
634,604 |
||||||
Noncontrolling Interest |
1,324 |
1,312 |
||||||
Total Liabilities and Stockholders' Equity |
$ |
1,370,432 |
1,353,890 |
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