Stepan Reports Third Quarter Results and Record Nine Month Earnings
Third Quarter Highlights
- Reported net income was
$22.2 million , or$0.95 per diluted share versus$21.9 million , or$0.94 per diluted share, in the prior year. Adjusted net income* was$26.0 million , or$1.11 per diluted share, a 21% increase versus$21.4 million , or$0.92 per diluted share, in the prior year. - Consolidated net sales were
$508.0 million , an increase of 4% versus the prior year. This increase was primarily attributable to 6% global volume growth. The Company's first quarter acquisition of BASF's production facility inMexico accounted for 2% and 4% of the quarterly increases in consolidated net sales and global volume growth, respectively. Foreign currency translation negatively impacted net sales by 2% in the quarter. - Surfactant operating income was
$31.2 million , reflecting record third quarter results, versus$22.6 million in the prior year. The increase was primarily attributable to higher North American demand within the consumer and functional product end markets. Global Surfactant sales volume increased 9% versus the prior year. - Polymer operating income was
$17.4 million versus$21.1 million in the prior year. This decrease was mostly attributable to margin pressures and lower European volume. Global Polymer sales volume was down 1% versus prior year. Global rigid polyol volume growth of 4% mostly offset lower volumes in other end markets. - Specialty Product operating income was up
$1.7 million versus the prior year primarily due to order timing differences within our pharmaceutical and flavor businesses. - The Company's net-debt ratio declined to 2%.
- The Company increased its quarterly cash dividend in the fourth quarter of 2018 by
$.025 per share, or 11%, marking the 51st consecutive year that the Company has increased its cash dividend to stockholders.
YTD Highlights
- Reported net income was a record
$85.8 million , or$3.68 per diluted share, up 5% versus$81.7 million , or$3.50 per diluted share, in the prior year. Adjusted net income* was a record$90.1 million , or$3.86 per diluted share, a 7% increase versus$84.0 million , or$3.60 per diluted share, in the prior year.Total Company sales volume increased 4% compared to the first nine months of 2017.
* Adjusted net income is a non-GAAP measure which excludes Deferred Compensation income/ expense as well as other significant and infrequent/non-recurring items. See Table II for reconciliations of non-GAAP adjusted net income and adjusted earnings per diluted share.
"The Company delivered record results through the first nine months. These results have been driven by record Surfactant earnings and a lower 2018 effective tax rate," said
Financial Summary
Three Months Ended September 30 |
Nine Months Ended September 30 |
||||||||||||||||||||||
($ in thousands, except per share data) |
2018 |
2017 |
% Change |
2018 |
2017 |
% Change |
|||||||||||||||||
Net Sales |
$ |
507,997 |
$ |
487,814 |
4 |
% |
$ |
1,527,198 |
$ |
1,451,184 |
5 |
% |
|||||||||||
Operating Income |
$ |
27,694 |
$ |
30,434 |
(9) |
% |
$ |
112,034 |
$ |
115,797 |
(3) |
% |
|||||||||||
Net Income |
$ |
22,168 |
$ |
21,899 |
1 |
% |
$ |
85,816 |
$ |
81,694 |
5 |
% |
|||||||||||
Earnings per Diluted Share |
$ |
0.95 |
$ |
0.94 |
1 |
% |
$ |
3.68 |
$ |
3.50 |
5 |
% |
|||||||||||
Adjusted Net Income * |
$ |
25,965 |
$ |
21,448 |
21 |
% |
$ |
90,109 |
$ |
84,041 |
7 |
% |
|||||||||||
Adjusted Earnings per Diluted Share * |
$ |
1.11 |
$ |
0.92 |
21 |
% |
$ |
3.86 |
$ |
3.60 |
7 |
% |
|||||||||||
* See Table II for reconciliations of non-GAAP adjusted net income and adjusted earnings per diluted share.
Summary of Third Quarter Adjusted Net Income Items
Adjusted net income excludes non-operational deferred compensation income/expense as well as certain other significant and infrequent or non-recurring items.
- Deferred Compensation: The current year third quarter reported net income includes
$2.6 million of after-tax expense versus$0.8 million of after-tax income in the prior year. - Business Restructuring: The current year third quarter reported net income includes
$1.0 million of after-tax asset and spare parts write-downs related to the third quarter shutdown of Surfactant operations at our German plant site and$0.2 million of after-tax decommissioning expense related to our prior year Canadian plant closure. The$0.3 million after-tax expense in the prior period was due to Canadian plant closure decommissioning.
Percentage Change in Net Sales
The 4% increase in quarterly net sales was primarily attributable to 6% sales volume growth partially offset by the negative impact of foreign currency translation.
Three Months Ended September 30, 2018 |
Nine Months Ended September 30, 2018 |
|||||||
Volume |
6 |
% |
4 |
% |
||||
Selling Price |
0 |
% |
0 |
% |
||||
Foreign Translation |
(2) |
% |
1 |
% |
||||
Total |
4 |
% |
5 |
% |
Reported Segment Results
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||||||||||
($ in thousands) |
2018 |
2017 |
% Change |
2018 |
2017 |
% Change |
||||||||||||||||||
Net Sales |
||||||||||||||||||||||||
Surfactants |
$ |
346,884 |
$ |
321,444 |
8 |
% |
$ |
1,062,708 |
$ |
973,381 |
9 |
% |
||||||||||||
Polymers |
$ |
141,646 |
$ |
147,754 |
(4) |
% |
$ |
404,446 |
$ |
415,551 |
(3) |
% |
||||||||||||
Specialty Products |
$ |
19,467 |
$ |
18,616 |
5 |
% |
$ |
60,044 |
$ |
62,252 |
(4) |
% |
||||||||||||
Total Net Sales |
$ |
507,997 |
$ |
487,814 |
4 |
% |
$ |
1,527,198 |
$ |
1,451,184 |
5 |
% |
Three Months Ended September 30 |
Nine Months Ended September 30 |
||||||||||||||||||||||
($ in thousands, all amounts pre-tax) |
2018 |
2017 |
% Change |
2018 |
2017 |
% Change |
|||||||||||||||||
Operating Income * |
|||||||||||||||||||||||
Surfactants |
$ |
31,201 |
$ |
22,559 |
38 |
% |
$ |
105,670 |
$ |
92,080 |
15 |
% |
|||||||||||
Polymers |
$ |
17,431 |
$ |
21,146 |
(18) |
% |
$ |
53,783 |
$ |
63,884 |
(16) |
% |
|||||||||||
Specialty Products |
$ |
2,653 |
$ |
990 |
168 |
% |
$ |
6,543 |
$ |
7,711 |
(15) |
% |
|||||||||||
Segment Operating |
$ |
51,285 |
$ |
44,695 |
15 |
% |
$ |
165,996 |
$ |
163,675 |
1 |
% |
|||||||||||
Corporate Expenses |
$ |
(23,591) |
$ |
(14,261) |
(65) |
% |
$ |
(53,962) |
$ |
(47,878) |
(13) |
% |
|||||||||||
Consolidated Operating |
$ |
27,694 |
$ |
30,434 |
(9) |
% |
$ |
112,034 |
$ |
115,797 |
(3) |
% |
* The 2017 operating income line items have been immaterially changed from the amounts originally reported as a result of the Company's first quarter 2018 adoption of ASU No. 2017-07 Compensation-Retirement Benefits (Topic 715).
Total segment operating income increased
- Surfactant net sales were
$346.9 million for the quarter, an 8% increase versus the prior year. Sales volume increased 9% in total and 4% excluding the first quarter acquisition inMexico . The organic growth was mostly due to higher North American consumer product and oilfield volumes.Higher North American agricultural volumes and higher sales to the Company's distribution partners also contributed to this increase. The translation impact of a stronger U.S. dollar decreased net sales by 3%. Selling prices increased 2% versus the prior year quarter. Surfactant operating income increased$8.6 million , or 38% versus the prior year, primarily due to higher volumes, a more favorable product mix and improved internal efficiencies. - Polymer net sales were
$141.6 million for the quarter, down 4% versus the prior year. Total sales volume declined 1% despite a 4% increase in global rigid polyol volumes. The lower total sales volume was principally due to lower phthalic anhydride volumes. The translation impact of a stronger U.S. dollar negatively impacted net sales by 1% while selling prices declined by 2%. Polymer operating income decreased by$3.7 million versus the prior year quarter mostly due to lower margins. - Specialty Product net sales were
$19.5 million for the quarter, a 5% increase versus the prior year. Operating income increased$1.7 million versus the prior year quarter primarily due to favorable order timing differences within our pharmaceutical and flavor businesses which compensated for some of the first half shortfall.
Corporate Expenses
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||||||||||
($ in thousands) |
2018 |
2017 |
% Change |
2018 |
2017 |
% Change |
||||||||||||||||||
Total - Corporate Expenses |
$ |
23,591 |
$ |
14,261 |
65 |
% |
$ |
53,962 |
$ |
47,878 |
13 |
% |
||||||||||||
Deferred Compensation |
$ |
4,222 |
$ |
(129) |
NM |
$ |
4,971 |
$ |
5,263 |
(6) |
% |
|||||||||||||
Business Restructuring Expense |
$ |
1,715 |
$ |
426 |
303 |
% |
$ |
2,346 |
$ |
1,798 |
30 |
% |
||||||||||||
Adjusted Corporate Expense |
$ |
17,654 |
$ |
13,964 |
26 |
% |
$ |
46,645 |
$ |
40,817 |
14 |
% |
* See Table III for a discussion of deferred compensation plan accounting.
- Corporate expenses, excluding deferred compensation and business restructuring expenses, increased
$3.7 million , or 26% for the quarter. The quarterly increase was primarily due to previously disclosed employee separation costs, higher salaries and higher incentive-based compensation expense.
Income Taxes
The effective tax rate was 18.6% for the first nine months of 2018 versus 26.2% for the first nine months of 2017. This decrease was primarily attributable to a lower U.S. statutory tax rate of 21% in the first nine months of 2018 versus 35% in the first nine months of 2017. The Company expects its full year effective tax rate to be in the range of 19% to 22%.
Shareholder Return
The Company paid
Selected Balance Sheet Information
The Company's net debt level decreased
($ in millions) |
9/30/18 |
6/30/18 |
3/31/18 |
12/31/17 |
|||||||||
Net Debt |
|||||||||||||
Total Debt |
$ |
286.2 |
$ |
286.8 |
$ |
290.8 |
$ |
290.8 |
|||||
Cash |
274.0 |
256.7 |
244.6 |
298.9 |
|||||||||
Net Debt |
$ |
12.2 |
$ |
30.1 |
$ |
46.2 |
$ |
(8.1) |
|||||
Equity |
777.7 |
761.2 |
774.6 |
740.1 |
|||||||||
Net Debt + Equity |
$ |
789.9 |
$ |
791.3 |
$ |
820.8 |
$ |
732.0 |
|||||
Net Debt / (Net Debt + Equity) |
2 |
% |
4 |
% |
6 |
% |
-1 |
% |
The major working capital components were:
($ in millions) |
9/30/18 |
6/30/18 |
3/31/18 |
12/31/17 |
||||||||
Net Receivables |
$ |
323.1 |
$ |
312.2 |
$ |
325.3 |
$ |
293.5 |
||||
Inventories |
195.2 |
188.5 |
187.7 |
172.7 |
||||||||
Accounts Payable |
(209.3) |
(201.3) |
(202.4) |
(205.0) |
||||||||
$ |
309.0 |
$ |
299.4 |
$ |
310.6 |
$ |
261.2 |
Capital spending was
Outlook
"Reported net income for the first nine months of 2018 is up 5% and adjusted net income is up 7%, both reflecting record earnings. We remain optimistic that the Company will deliver full year growth," said
Conference Call
Supporting Slides
Slides supporting this press release will be made available at www.stepan.com at 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
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 |
|||||||||||||||
STEPAN COMPANY |
|||||||||||||||
For the Three and Nine Months Ended September 30, 2018 and 2017 |
|||||||||||||||
(Unaudited – in thousands, except per share data) |
|||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
||||||||||||||
2018 |
2017 |
2018 |
2017 |
||||||||||||
Net Sales |
$ |
507,997 |
$ |
487,814 |
$ |
1,527,198 |
$ |
1,451,184 |
|||||||
Cost of Sales * |
423,872 |
412,238 |
1,264,223 |
1,193,501 |
|||||||||||
Gross Profit * |
84,125 |
75,576 |
262,975 |
257,683 |
|||||||||||
Operating Expenses: |
|||||||||||||||
Selling * |
14,613 |
13,710 |
42,872 |
40,396 |
|||||||||||
Administrative * |
21,904 |
18,480 |
59,441 |
54,141 |
|||||||||||
Research, Development and Technical Services * |
13,977 |
12,655 |
41,311 |
40,288 |
|||||||||||
Deferred Compensation (Income) Expense |
4,222 |
(129) |
4,971 |
5,263 |
|||||||||||
54,716 |
44,716 |
148,595 |
140,088 |
||||||||||||
Business Restructuring |
1,715 |
426 |
2,346 |
1,798 |
|||||||||||
Operating Income * |
27,694 |
30,434 |
112,034 |
115,797 |
|||||||||||
Other Income (Expense): |
|||||||||||||||
Interest, Net |
(2,797) |
(2,763) |
(8,620) |
(8,618) |
|||||||||||
Other, Net * |
346 |
1,641 |
1,990 |
3,526 |
|||||||||||
(2,451) |
(1,122) |
(6,630) |
(5,092) |
||||||||||||
Income Before Income Taxes |
25,243 |
29,312 |
105,404 |
110,705 |
|||||||||||
Provision for Income Taxes |
3,075 |
7,459 |
19,597 |
29,044 |
|||||||||||
Net Income |
22,168 |
21,853 |
85,807 |
81,661 |
|||||||||||
Net Income (Income) Loss Attributable to Noncontrolling Interests |
- |
46 |
9 |
33 |
|||||||||||
Net Income Attributable to Stepan Company |
$ |
22,168 |
$ |
21,899 |
$ |
85,816 |
$ |
81,694 |
|||||||
Net Income Per Common Share Attributable to Stepan Company |
|||||||||||||||
Basic |
$ |
0.96 |
$ |
0.95 |
$ |
3.73 |
$ |
3.56 |
|||||||
Diluted |
$ |
0.95 |
$ |
0.94 |
$ |
3.68 |
$ |
3.50 |
|||||||
Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company |
|||||||||||||||
Basic |
22,986 |
22,971 |
23,036 |
22,941 |
|||||||||||
Diluted |
23,288 |
23,374 |
23,324 |
23,361 |
|||||||||||
* The 2017 amounts for the noted line items have been immaterially changed from the amounts originally reported as a result of the Company's first quarter 2018 adoption of ASU No. 2017-07 Compensation – Retirement Benefits (Topic 715). The changes reflect line item reclassifications only and have no impact on pre-tax income or net income.
Table II |
||||||||||||||||||||||||||||||||
Reconciliation of Non-GAAP Net Income and Earnings per Diluted Share * |
||||||||||||||||||||||||||||||||
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||||||||||||||||||
($ in thousands, except per |
2018 |
EPS |
2017 |
EPS |
2018 |
EPS |
2017 |
EPS |
||||||||||||||||||||||||
Net Income Reported |
$ |
22,168 |
$ |
0.95 |
$ |
21,899 |
$ |
0.94 |
$ |
85,816 |
$ |
3.68 |
$ |
81,694 |
$ |
3.50 |
||||||||||||||||
Deferred Compensation |
$ |
2,610 |
$ |
0.11 |
$ |
(771) |
$ |
(0.03) |
$ |
2,633 |
$ |
0.11 |
$ |
965 |
$ |
0.04 |
||||||||||||||||
Business Restructuring |
1,187 |
$ |
0.05 |
320 |
$ |
0.01 |
1,660 |
$ |
0.07 |
$ |
1,382 |
$ |
0.06 |
|||||||||||||||||||
Adjusted Net Income |
$ |
25,965 |
$ |
1.11 |
$ |
21,448 |
$ |
0.92 |
$ |
90,109 |
$ |
3.86 |
$ |
84,041 |
$ |
3.60 |
* 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, neither a substitute for, nor superior to, measures of financial performance prepared in accordance with GAAP.
Reconciliation of Pre-Tax to After-Tax Adjustments |
||||||||||||||||||||||||||||||||
Three Months Ended September 30 |
Nine Months Ended |
|||||||||||||||||||||||||||||||
($ in thousands, except per |
2018 |
EPS |
2017 |
EPS |
2018 |
EPS |
2017 |
EPS |
||||||||||||||||||||||||
Pre-Tax Adjustments |
||||||||||||||||||||||||||||||||
Deferred Compensation |
$ |
3,434 |
$ |
(1,244) |
$ |
3,465 |
$ |
1,557 |
||||||||||||||||||||||||
Business Restructuring |
1,715 |
426 |
$ |
2,346 |
$ |
1,798 |
||||||||||||||||||||||||||
Total Pre-Tax Adjustments |
$ |
5,149 |
$ |
(818) |
$ |
5,811 |
$ |
3,355 |
||||||||||||||||||||||||
Cumulative Tax Effect |
$ |
(1,352) |
$ |
367 |
$ |
(1,518) |
$ |
(1,008) |
||||||||||||||||||||||||
After-Tax Adjustments |
$ |
3,797 |
$ |
0.16 |
$ |
(451) |
$ |
(0.02) |
$ |
4,293 |
$ |
0.18 |
$ |
2,347 |
$ |
0.10 |
Table III |
|||||||||||||||||||||||||||||
Deferred Compensation Plan |
|||||||||||||||||||||||||||||
The full effect of the deferred compensation plan on quarterly pretax income was $3.4 million of expense versus $1.2 million of income in the prior year. The year to date impact was $3.5 million of expense versus $1.6 million of expense 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: |
|||||||||||||||||||||||||||||
2018 |
2017 |
||||||||||||||||||||||||||||
12/31 |
9/30 |
6/30 |
3/31 |
12/31 |
9/30 |
6/30 |
3/31 |
||||||||||||||||||||||
Stepan Company |
N/A |
$ |
87.01 |
$ |
78.01 |
$ |
83.18 |
$ |
78.97 |
$ |
83.66 |
$ |
87.14 |
$ |
78.81 |
||||||||||||||
The deferred compensation income statement impact is summarized below:
Three Months Ended September 30 |
Nine Months Ended September 30 |
||||||||||||||
($ in thousands) |
2018 |
2017 |
2018 |
2017 |
|||||||||||
Deferred Compensation |
|||||||||||||||
Operating Income (Expense) |
$ |
(4,222) |
$ |
129 |
$ |
(4,971) |
$ |
(5,263) |
|||||||
Other, net – Mutual Fund Gain |
788 |
1,115 |
1,506 |
3,706 |
|||||||||||
Total Pre Tax |
$ |
(3,434) |
$ |
1,244 |
$ |
(3,465) |
$ |
(1,557) |
|||||||
Total After Tax |
$ |
(2,610) |
$ |
771 |
$ |
(2,633) |
$ |
(965) |
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 currency 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). The table below presents the impact that foreign currency translation had on the changes in consolidated net sales and various income line items for the three and nine month periods ending September 30, 2018 as compared to 2017: |
|||||||||||||||||||||||||||
($ in millions) |
Three Months Ended September 30 |
Increase (Decrease) |
Decrease Due to Foreign Currency Translation |
Nine Months Ended September 30 |
Increase (Decrease) |
Increase Due to Foreign Currency Translation |
|||||||||||||||||||||
2018 |
2017 |
2018 |
2017 |
||||||||||||||||||||||||
Net Sales |
$ |
508.0 |
$ |
487.8 |
$ |
20.2 |
$ |
(10.7) |
$ |
1,527.2 |
$ |
1,451.2 |
$ |
76.0 |
$ |
11.4 |
|||||||||||
Gross Profit |
84.1 |
75.6 |
8.5 |
(1.7) |
263.0 |
257.7 |
5.3 |
0.8 |
|||||||||||||||||||
Operating Income |
27.7 |
30.4 |
(2.7) |
(1.1) |
112.0 |
115.8 |
(3.8) |
0.2 |
|||||||||||||||||||
Pretax Income |
25.2 |
29.3 |
(4.1) |
(0.9) |
105.4 |
110.7 |
(5.3) |
0.5 |
Table V |
||||||||
Stepan Company |
||||||||
Consolidated Balance Sheets |
||||||||
September 30, 2018 and December 31, 2017 |
||||||||
Sept. 30, 2018 |
Dec. 31, 2017 |
|||||||
ASSETS |
||||||||
Current Assets |
$ |
815,032 |
$ |
788,736 |
||||
Property, Plant & Equipment, Net |
598,715 |
598,443 |
||||||
Other Assets |
78,484 |
83,682 |
||||||
Total Assets |
$ |
1,492,231 |
$ |
1,470,861 |
||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
Current Liabilities |
$ |
326,883 |
$ |
320,253 |
||||
Deferred Income Taxes |
18,798 |
10,962 |
||||||
Long-term Debt |
262,551 |
268,299 |
||||||
Other Non-current Liabilities |
105,585 |
130,433 |
||||||
Total Stepan Company Stockholders' Equity |
777,651 |
740,096 |
||||||
Noncontrolling Interest |
763 |
818 |
||||||
Total Liabilities and Stockholders' Equity |
$ |
1,492,231 |
$ |
1,470,861 |
View original content:http://www.prnewswire.com/news-releases/stepan-reports-third-quarter-results-and-record-nine-month-earnings-300736707.html
SOURCE