Stepan Reports Record Quarterly Earnings
First Quarter Highlights
- Reported net income was a record
$40.6 million , or$1.74 per diluted share versus$27.5 million , or$1.18 per diluted share, in the prior year. Adjusted net income* was a record$42.4 million , or$1.82 per diluted share versus$24.2 million , or$1.04 per diluted share, in the prior year.Total Company sales volume increased 6% versus the prior year. - Surfactant operating income was
$53.2 million versus$36.2 million in the prior year. This increase was primarily driven by improved product and customer mix and higher global demand in the agricultural and oil field end markets, partially offset by lower North American sales volume into the consumer product end markets due to supplier force majeures following the severe weather inTexas . The Company also experienced lower supply chain expenses in the current year quarter due to the non-recurrence of the Q1 2020 Millsdale plant power outage. Total global Surfactant sales volume was flat versus the prior year. - Polymer operating income was
$18.0 million versus$7.5 million in the prior year. This increase was primarily attributable to a 32% increase in global sales volume. Global rigid polyol volume was up 32% versus the prior year largely due to the INVISTA polyester polyol acquisition. Global rigid polyol volume, excluding the INVISTA acquisition, was up 8% versus the prior year. The Company also experienced lower supply chain expenses due to the non-recurrence of the Q1 2020 Millsdale plant power outage. - Specialty Product operating income was
$2.6 million versus$4.0 million in the prior year. This decrease was primarily attributable to lower margins, resulting from raw material shortages and manufacturing challenges, within our medium chain triglycerides (MCTs) product line.
* Adjusted net income is a non-GAAP measure which excludes deferred compensation income/expense, cash-settled stock appreciation rights (SARs) income/expense as well as other significant and infrequent/non-recurring items. See Table II for reconciliations of non-GAAP adjusted net income and adjusted earnings per share.
"The Company had a good start to the year and delivered record quarterly income. Both adjusted net income and adjusted EPS were up 75% versus the prior year first quarter which was negatively impacted by the Millsdale plant power outage," said
Financial Summary
Three Months Ended |
||||||||||||
($ in thousands, except per share data) |
2021 |
2020 |
% Change |
|||||||||
|
$ |
537,740 |
$ |
449,987 |
20 |
% |
||||||
Operating Income |
$ |
53,914 |
$ |
40,004 |
35 |
% |
||||||
Net Income Attributable to Stepan ** |
$ |
40,611 |
$ |
27,545 |
47 |
% |
||||||
Earnings per Diluted Share |
$ |
1.74 |
$ |
1.18 |
47 |
% |
||||||
Adjusted Net Income * |
$ |
42,372 |
$ |
24,158 |
75 |
% |
||||||
Adjusted Earnings per Diluted Share * |
$ |
1.82 |
$ |
1.04 |
75 |
% |
* See Table II for reconciliations of non-GAAP adjusted net income and earnings per diluted share. * * Net Income Attributable to Stepan = Net Income - Net Loss Attributable to Noncontrolling Interests. |
Summary of First Quarter Adjusted Net Income Items
Adjusted net income excludes non-operational deferred compensation income/expense, cash-settled SARs income/expense and other significant and infrequent or non-recurring items.
- Deferred Compensation: The current year quarter includes
$1.5 million of after-tax expense versus$2.9 million of after-tax income 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
$0.2 million of after-tax expense versus$0.8 million of after-tax income in the prior year. - Business Restructuring: The current year quarter includes
$0.1 million of after-tax decommissioning expense related to the Company's Canadian plant closure versus$0.3 million of after-tax expense in the prior year.
Percentage Change in
Net sales in the first quarter increased 20% year-over-year due to higher selling prices, mainly attributable to improved product and customer mix and the pass-through of higher raw material costs, a 6% increase in global sales volume and the favorable impact of foreign currency translation. The increase in sales volume was predominantly due to Polymer sales growth of 32%.
Three Months Ended |
||||
Volume |
6 |
% |
||
Selling Price & Mix |
13 |
% |
||
Foreign Currency Translation |
1 |
% |
||
Total |
20 |
% |
Segment Results
Three Months Ended |
||||||||||||
($ in thousands) |
2021 |
2020 |
% Change |
|||||||||
|
||||||||||||
Surfactants |
$ |
370,936 |
$ |
327,071 |
13 |
% |
||||||
Polymers |
$ |
150,385 |
$ |
106,491 |
41 |
% |
||||||
Specialty Products |
$ |
16,419 |
$ |
16,425 |
(0) |
% |
||||||
Total |
$ |
537,740 |
$ |
449,987 |
20 |
% |
||||||
Three Months Ended |
||||||||||||
($ in thousands, all amounts pre-tax) |
2021 |
2020 |
% Change |
|||||||||
Operating Income |
||||||||||||
Surfactants |
$ |
53,210 |
$ |
36,156 |
47 |
% |
||||||
Polymers |
$ |
17,951 |
$ |
7,516 |
139 |
% |
||||||
Specialty Products |
$ |
2,633 |
$ |
3,984 |
(34) |
% |
||||||
Segment Operating Income |
$ |
73,794 |
$ |
47,656 |
55 |
% |
||||||
Corporate Expenses |
$ |
(19,880) |
$ |
(7,652) |
160 |
% |
||||||
Consolidated Operating Income |
$ |
53,914 |
$ |
40,004 |
35 |
% |
Total segment operating income increased
- Surfactant net sales were
$370.9 million for the quarter, a 13% increase versus the prior year. Selling prices were up 13% primarily due to improved product and customer mix and the pass-through of higher raw material costs. The effect of foreign currency translation was negligible year-over-year and sales volume was flat versus the prior year. Higher demand for products sold into our functional product end markets, principally agricultural and oilfield, offset lower North American sales volume into our consumer product end markets due to supplier force majeures following the severe weather in Texas. Surfactant operating income for the quarter increased$17.1 million , or 47%, versus the prior year primarily due to improved product and customer mix and lower supply chain expenses in the current year quarter due to the non-recurrence of the Q1 2020 Millsdale plant power outage. - Polymer net sales were
$150.4 million in the quarter, a 41% increase versus the prior year. Total sales volume increased 32% in the quarter primarily due to 32% growth in rigid polyol demand. Global rigid polyol volume, excluding the INVISTA acquisition, was up 8% versus the prior year. Phthalic anhydride sales volume was also up versus the prior year quarter due to the non-recurrence of the Millsdale power outage which resulted in the Company declaring force majeure within this market in 2020. Selling prices increased 7% and the translation impact of a weakerU.S. dollar positively impacted net sales by 2%. Polymer operating income increased$10.4 million , or 139%, primarily due to the strong sales volume growth and lower supply chain expenses due to the non-recurrence of the Q1 2020 Millsdale plant power outage. - Specialty Products net sales were
$16.4 million for the quarter, flat versus prior year. Sales volume was up 4% between quarters and operating income declined$1.4 million , or 34%. The operating income decrease was primarily attributable to lower margins within our MCTs product line.
Corporate Expenses
Three Months Ended |
||||||||||||
($ in thousands) |
2021 |
2020 |
% Change |
|||||||||
Total - Corporate Expenses |
$ |
19,880 |
$ |
7,652 |
160 |
% |
||||||
Less: |
||||||||||||
Deferred Compensation Expense/(Income) |
$ |
2,694 |
$ |
(7,323) |
NM |
|||||||
Business Restructuring Expense |
$ |
81 |
$ |
357 |
(77) |
% |
||||||
Adjusted Corporate Expenses |
$ |
17,105 |
$ |
14,618 |
17 |
% |
* See Table III for a discussion of deferred compensation plan accounting. |
- Corporate expenses, excluding deferred compensation and business restructuring costs, increased
$2.5 million , or 17%, versus the prior year quarter. This increase was primarily due to higher acquisition-related and incentive-based compensation expenses.
Income Taxes
The Company's effective tax rate was 23.6% in the first quarter of 2021 versus 22.5% in the first quarter of 2020. This increase was primarily attributable to a less favorable geographical mix of income that was partially offset by higher tax benefits derived from stock-based compensation awards exercised or distributed in the first quarter of 2021 versus the first quarter of 2020.
Shareholder Return
The Company paid $6.9 million of dividends to shareholders and repurchased
Selected Balance Sheet Information
The Company's net debt level increased
($ in millions) |
|
|
||||||
Net Debt |
||||||||
Total Debt |
$ |
248.4 |
$ |
198.7 |
||||
Cash |
150.7 |
349.9 |
||||||
Net Debt |
$ |
97.7 |
$ |
(151.2) |
||||
Equity |
1,002.3 |
986.7 |
||||||
Net Debt + Equity |
$ |
1,100.0 |
$ |
835.5 |
||||
Net Debt / (Net Debt + Equity) |
9 |
% |
-18 |
% |
The major working capital components were:
($ in millions) |
|
|
|||||
Net Receivables |
$ |
380.6 |
$ |
301.3 |
|||
Inventories |
235.1 |
218.8 |
|||||
Accounts Payable |
(264.2) |
(236.8) |
|||||
Net Total |
$ |
351.5 |
$ |
283.3 |
Capital spending was
Outlook
"The Company delivered record quarterly earnings in the first quarter of 2021," said
Conference Call
Supporting Slides
Slides supporting this press release will be made available at www.stepan.com through the Investor/Presentations 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 on the Sustainability page at www.stepan.com
Contact:
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
Tables follow
Table I |
||||||||
|
||||||||
Three Months Ended |
||||||||
2021 |
2020 |
|||||||
|
$ |
537,740 |
$ |
449,987 |
||||
Cost of Sales |
428,760 |
370,718 |
||||||
Gross Profit |
108,980 |
79,269 |
||||||
Operating Expenses: |
||||||||
Selling |
14,504 |
13,532 |
||||||
Administrative |
22,638 |
18,872 |
||||||
Research, Development and Technical Services |
15,149 |
13,827 |
||||||
Deferred Compensation (Income) Expense |
2,694 |
(7,323) |
||||||
54,985 |
38,908 |
|||||||
Business Restructuring |
81 |
357 |
||||||
Operating Income |
53,914 |
40,004 |
||||||
Other Income (Expense): |
||||||||
Interest, Net |
(1,524) |
(1,230) |
||||||
Other, Net |
746 |
(3,262) |
||||||
(778) |
(4,492) |
|||||||
Income Before Income Taxes |
53,136 |
35,512 |
||||||
Provision for Income Taxes |
12,525 |
7,973 |
||||||
Net Income |
40,611 |
27,539 |
||||||
Net Loss Attributable to Noncontrolling Interests |
6 |
|||||||
Net Income Attributable to |
$ |
40,611 |
$ |
27,545 |
||||
Net Income Per Common Share Attributable to |
||||||||
Basic |
$ |
1.77 |
$ |
1.20 |
||||
Diluted |
$ |
1.74 |
$ |
1.18 |
||||
Shares Used to Compute Net Income Per Common Share Attributable to |
||||||||
Basic |
22,974 |
23,023 |
||||||
Diluted |
23,330 |
23,285 |
Table II |
||||||||||||||||
Reconciliations of Non-GAAP Net Income and Earnings per Diluted Share* |
||||||||||||||||
Three Months Ended |
||||||||||||||||
($ in thousands, except per share amounts) |
2021 |
EPS |
2020 |
EPS |
||||||||||||
Net Income Reported |
$ |
40,611 |
$ |
1.74 |
$ |
27,545 |
$ |
1.18 |
||||||||
Deferred Compensation (Income) Expense |
$ |
1,501 |
$ |
0.07 |
$ |
(2,858) |
$ |
(0.12) |
||||||||
Business Restructuring |
61 |
$ |
0.00 |
263 |
$ |
0.01 |
||||||||||
Cash Settled Stock Appreciation Rights |
199 |
$ |
0.01 |
(792) |
$ |
(0.03) |
||||||||||
Adjusted Net Income |
$ |
42,372 |
$ |
1.82 |
$ |
24,158 |
$ |
1.04 |
* 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) |
2021 |
EPS |
2020 |
EPS |
|||||||||||||
Pre-Tax Adjustments |
|||||||||||||||||
Deferred Compensation (Income) Expense |
$ |
1,975 |
$ |
(3,760) |
|||||||||||||
Business Restructuring |
81 |
357 |
|||||||||||||||
Cash Settled Stock Appreciation Rights |
261 |
(1,042) |
|||||||||||||||
Total Pre-Tax Adjustments |
$ |
2,317 |
$ |
(4,445) |
|||||||||||||
Cumulative Tax Effect on Adjustments |
$ |
(556) |
$ |
1,058 |
|||||||||||||
After-Tax Adjustments |
$ |
1,761 |
$ |
0.08 |
$ |
(3,387) |
$ |
(0.14) |
Table III |
||||||||||||||||||||
Deferred Compensation Plan |
||||||||||||||||||||
The full effect of the deferred compensation plan on quarterly pre-tax income was |
||||||||||||||||||||
2021 |
2020 |
|||||||||||||||||||
3/31 |
12/31 |
9/30 |
6/30 |
3/31 |
||||||||||||||||
|
$ |
127.11 |
$ |
119.32 |
$ |
109.00 |
$ |
97.10 |
$ |
88.46 |
||||||||||
The deferred compensation income statement impact is summarized below: |
||||||||
Three Months Ended |
||||||||
($ in thousands) |
2021 |
2020 |
||||||
Deferred Compensation |
||||||||
Operating Income (Expense) |
$ |
(2,694) |
$ |
7,323 |
||||
Other, net – Mutual Fund Gain (Loss) |
719 |
(3,563) |
||||||
Total Pre-Tax |
$ |
(1,975) |
$ |
3,760 |
||||
Total After Tax |
$ |
(1,501) |
$ |
2,858 |
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 |
Increase Due to Foreign Currency Translation |
|||||||||||||
2021 |
2020 |
|||||||||||||||
|
$ |
537.7 |
$ |
450.0 |
$ 87.7 |
$ 4.2 |
||||||||||
Gross Profit |
109.0 |
79.3 |
29.7 |
0.2 |
||||||||||||
Operating Income |
53.9 |
40.0 |
13.9 |
- |
||||||||||||
Pretax Income |
53.1 |
35.5 |
17.6 |
- |
Table V |
||||||||
|
||||||||
|
|
|||||||
ASSETS |
||||||||
Current Assets |
$ |
797,653 |
$ |
905,651 |
||||
Property, Plant & Equipment, Net |
746,379 |
682,667 |
||||||
Other Assets |
283,907 |
164,018 |
||||||
Total Assets |
$ |
1,827,939 |
$ |
1,752,336 |
||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
Current Liabilities |
$ |
464,089 |
$ |
416,554 |
||||
Deferred Income Taxes |
29,876 |
20,745 |
||||||
Long-term Debt |
160,847 |
160,812 |
||||||
Other Non-current Liabilities |
169,181 |
165,860 |
||||||
Total Stepan Company Stockholders' Equity |
1,002,282 |
986,693 |
||||||
Noncontrolling Interest |
1,664 |
1,672 |
||||||
Total Liabilities and Stockholders' Equity |
$ |
1,827,939 |
$ |
1,752,336 |
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