Stepan Reports Record Quarterly and First Half Earnings
Second Quarter Highlights
- Reported net income was a record
$32.9 million , or$1.41 per diluted share versus$27.9 million , or$1.19 per diluted share, in the prior year. Adjusted net income* was a record$32.1 million , or$1.38 per diluted share versus$30.9 million , or$1.32 per diluted share, in the prior year.
- Consolidated net sales were
$519.9 million , up 5% versus the prior year. This increase was primarily attributable to 5% global volume growth. The Company's first quarter acquisition of BASF's production facility inMexico accounted for 2% and 3% of the quarterly increases in consolidated net sales and global volume growth, respectively.
- Surfactant operating income was
$34.2 million versus$31.2 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 7% versus the prior year.
- Polymer operating income was
$19.5 million versus$21.3 million in the prior year. This decrease was mostly due to less favorable product mix and margin pressures. Global Polymer sales volume was up 1% versus the prior year.
- Specialty Product operating income was down
$1.2 million versus the prior year. This decrease was primarily attributable to lower margins within the food and nutritional business and order timing differences within the flavor business.
- The Company's net-debt ratio declined slightly to 4%.
First Half Highlights
- Reported net income was a record
$63.6 million , or$2.73 per diluted share, up 6% versus$59.8 million , or$2.56 per diluted share, in the prior year.
- Adjusted net income* was a record
$64.1 million , or$2.75 per diluted share, a 2% increase versus$62.6 million , or$2.68 per diluted share, in the prior year.Total Company sales volume increased 3% compared to the first half of 2017.
* Adjusted net income is a non-GAAP measure which excludes Deferred Compensation income/ expense as well as other significant and infrequent/non-recurring items. See Table II for reconciliations of non-GAAP adjusted net income and adjusted earnings per diluted share.
"The Company had a good first half, delivering record quarterly and year-to-date results. These results were driven by record first half Surfactant earnings and a lower 2018 effective tax rate," said
Financial Summary
Three Months Ended June 30 |
Six Months Ended June 30 |
||||||||||||||||||||||
($ in thousands, except per share data) |
2018 |
2017 |
% Change |
2018 |
2017 |
% Change |
|||||||||||||||||
Net Sales |
$ |
519,866 |
$ |
495,101 |
5 |
% |
$ |
1,019,201 |
$ |
963,370 |
6 |
% |
|||||||||||
Operating Income |
$ |
44,685 |
$ |
39,133 |
14 |
% |
$ |
84,340 |
$ |
85,363 |
(1) |
% |
|||||||||||
Net Income |
$ |
32,925 |
$ |
27,882 |
18 |
% |
$ |
63,648 |
$ |
59,795 |
6 |
% |
|||||||||||
Earnings per Diluted Share |
$ |
1.41 |
$ |
1.19 |
18 |
% |
$ |
2.73 |
$ |
2.56 |
7 |
% |
|||||||||||
Adjusted Net Income * |
$ |
32,114 |
$ |
30,893 |
4 |
% |
$ |
64,145 |
$ |
62,594 |
2 |
% |
|||||||||||
Adjusted Earnings per Diluted Share * |
$ |
1.38 |
$ |
1.32 |
5 |
% |
$ |
2.75 |
$ |
2.68 |
3 |
% |
* See Table II for reconciliations of non-GAAP adjusted net income and adjusted earnings per diluted share. |
Summary of Second Quarter Adjusted Net Income Items
Adjusted net income excludes non-operational deferred compensation income/expense and other significant and infrequent or non-recurring items.
- Deferred Compensation: The current year second quarter reported net income includes
$1.0 million of after-tax income versus$2.5 million of after-tax expense in the prior year.
- Business Restructuring: The current year second quarter reported net income includes
$0.2 million of after-tax decommissioning expense related to the Canadian plant closure versus$0.5 million of after-tax expense in the prior year.
Percentage Change in Net Sales
The 5% increase in quarterly net sales was primarily attributable to sales volume growth. The positive impact of foreign currency translation offset slightly lower selling prices.
Three Months Ended June 30, 2018 |
Six Months Ended June 30, 2018 |
|||||||
Volume |
5 |
% |
3 |
% |
||||
Selling Price |
(1) |
% |
1 |
% |
||||
Foreign Translation |
1 |
% |
2 |
% |
||||
Total |
5 |
% |
6 |
% |
Segment Results
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||||||||||
($ in thousands) |
2018 |
2017 |
% Change |
2018 |
2017 |
% Change |
||||||||||||||||||
Net Sales |
||||||||||||||||||||||||
Surfactants |
$ |
356,884 |
$ |
329,334 |
8 |
% |
$ |
715,824 |
$ |
651,937 |
10 |
% |
||||||||||||
Polymers |
$ |
140,867 |
$ |
141,187 |
- |
$ |
262,800 |
$ |
267,797 |
(2) |
% |
|||||||||||||
Specialty Products |
$ |
22,115 |
$ |
24,580 |
(10) |
% |
$ |
40,577 |
$ |
43,636 |
(7) |
% |
||||||||||||
Total Net Sales |
$ |
519,866 |
$ |
495,101 |
5 |
% |
$ |
1,019,201 |
$ |
963,370 |
6 |
% |
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||||||||||
($ in thousands) |
2018 |
2017 |
% Change |
2018 |
2017 |
% Change |
||||||||||||||||||
Operating Income * |
||||||||||||||||||||||||
Surfactants |
$ |
34,218 |
$ |
31,164 |
10 |
% |
$ |
74,469 |
$ |
69,535 |
7 |
% |
||||||||||||
Polymers |
$ |
19,458 |
$ |
21,283 |
(9) |
% |
$ |
36,352 |
$ |
42,708 |
(15) |
% |
||||||||||||
Specialty Products |
$ |
4,240 |
$ |
5,451 |
(22) |
% |
$ |
3,890 |
$ |
6,737 |
(42) |
% |
||||||||||||
Total Segment Operating Income |
$ |
57,916 |
$ |
57,898 |
- |
$ |
114,711 |
$ |
118,980 |
(4) |
% |
|||||||||||||
Corporate Expenses |
$ |
(13,231) |
$ |
(18,765) |
(29) |
% |
$ |
(30,371) |
$ |
(33,617) |
(10) |
% |
||||||||||||
Consolidated Operating Income |
$ |
44,685 |
$ |
39,133 |
14 |
% |
$ |
84,340 |
$ |
85,363 |
(1) |
% |
* 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 slightly in the quarter to
- Surfactant net sales were
$356.9 million for the quarter, an 8% increase versus the prior year. Sales volume increased 7% in total and 3% excluding the first quarter acquisition inMexico . The organic growth was mostly due to higher North American consumer product and oilfield volumes. Higher sales to the Company's distribution partners inNorth America also contributed to this increase. Selling prices increased 1% compared to the prior year quarter and the translation impact of foreign currencies had a nominal impact in the quarter. Surfactant operating income increased$3.1 million versus the prior year, primarily due to higher volumes, a more favorable product mix and improved internal efficiencies.
- Polymer net sales were
$140.9 million for the quarter, essentially flat versus prior year. Total sales volume increased 1% despite a 1% decline in global polyol volumes. The Company believes that the market for insulation materials remains strong due to continued global energy conservation efforts. The translation impact of a weaker U.S. dollar favorably impacted net sales by 2% while selling prices declined by 3%. Polymer operating income decreased by$1.8 million versus the prior year quarter due to a less favorable product mix and margin challenges.
- Specialty Product net sales were
$22.1 million , a 10% decrease versus the prior year. Operating income decreased$1.2 million versus the prior year quarter primarily due to order timing differences in our flavor business and lower margins in our food and nutritional business.
Corporate Expenses
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||||||||||
($ in thousands) |
2018 |
2017 |
% Change |
2018 |
2017 |
% Change |
||||||||||||||||||
Total Corporate Expenses |
$ |
13,231 |
$ |
18,765 |
(29)% |
$ |
30,371 |
$ |
33,617 |
(10)% |
||||||||||||||
Excluded Items: |
||||||||||||||||||||||||
Deferred Compensation Income/(Expense) |
$ |
865 |
$ |
(5,016) |
(117)% |
$ |
(749) |
$ |
(5,392) |
(86)% |
||||||||||||||
Business Restructuring Expense |
$ |
(273) |
$ |
(586) |
(53)% |
$ |
(631) |
$ |
(1,372) |
(54)% |
||||||||||||||
Adjusted Corporate Expense |
$ |
13,823 |
$ |
13,163 |
5% |
$ |
28,991 |
$ |
26,853 |
8% |
* See Table III for a discussion of deferred compensation plan accounting. |
- Corporate expenses, excluding deferred compensation and business restructuring expenses, increased
$0.7 million , or 5%, for the quarter. Corporate expenses increased$2.1 million , or 8%, for the first six months of 2018. Most of the quarterly and year-to-date increase is attributable to higher salaries and legal expense, partially offset by lower consulting fees.
Income Taxes
The effective tax rate was 20.6% for the first half of 2018 compared to 26.5% for the first half of 2017. This decrease was primarily attributable to a lower U.S. statutory tax rate of 21% in the first half of 2018 versus 35% in the first half of 2017. The Company expects its full year effective tax rate to be in the range of 20% to 23%.
Shareholder Return
The Company returned
Selected Balance Sheet Information
The Company's net debt level decreased
($ in millions) |
6/30/18 |
3/31/18 |
12/31/17 |
||||||||
Net Debt |
|||||||||||
Total Debt |
$ |
286.8 |
$ |
290.8 |
$ |
290.8 |
|||||
Cash |
256.7 |
244.6 |
298.9 |
||||||||
Net Debt |
$ |
30.1 |
$ |
46.2 |
$ |
(8.1) |
|||||
Equity |
761.2 |
774.6 |
740.1 |
||||||||
Net Debt + Equity |
$ |
791.3 |
$ |
820.8 |
$ |
732.0 |
|||||
Net Debt / (Net Debt + Equity) |
4 |
% |
6 |
% |
-1 |
% |
The major working capital components were:
($ in millions) |
6/30/18 |
3/31/18 |
12/31/17 |
||||||||
Net Receivables |
$ |
312.2 |
$ |
325.3 |
$ |
293.5 |
|||||
Inventories |
188.5 |
187.7 |
172.7 |
||||||||
Accounts Payable |
(201.3) |
(202.4) |
(205.0) |
||||||||
Total |
$ |
299.4 |
$ |
310.6 |
$ |
261.2 |
Capital spending was
Outlook
"After achieving record first half net income, we remain optimistic about the balance of the year. We believe our Surfactant business will continue to build upon its strong start and further benefit from our diversification efforts into functional products, new technologies, improved internal efficiencies and expanded sales into our broad customer base globally," 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 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
STEPAN COMPANY |
||||||||||||||||
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
2018 |
2017 |
2018 |
2017 |
|||||||||||||
Net Sales |
$ |
519,866 |
$ |
495,101 |
$ |
1,019,201 |
$ |
963,370 |
||||||||
Cost of Sales * |
430,586 |
405,113 |
840,351 |
781,263 |
||||||||||||
Gross Profit * |
89,280 |
89,988 |
178,850 |
182,107 |
||||||||||||
Operating Expenses: |
||||||||||||||||
Selling * |
13,369 |
13,230 |
28,259 |
26,686 |
||||||||||||
Administrative * |
18,098 |
17,769 |
37,537 |
35,661 |
||||||||||||
Research, Development and Technical Services * |
13,720 |
14,254 |
27,334 |
27,633 |
||||||||||||
Deferred Compensation Expense |
(865) |
5,016 |
749 |
5,392 |
||||||||||||
44,322 |
50,269 |
93,879 |
95,372 |
|||||||||||||
Business Restructuring |
273 |
586 |
631 |
1,372 |
||||||||||||
Operating Income * |
44,685 |
39,133 |
84,340 |
85,363 |
||||||||||||
Other Income (Expense): |
||||||||||||||||
Interest, Net |
(2,672) |
(2,863) |
(5,823) |
(5,855) |
||||||||||||
Other, Net * |
484 |
793 |
1,644 |
1,885 |
||||||||||||
(2,188) |
(2,070) |
(4,179) |
(3,970) |
|||||||||||||
Income Before Income Taxes |
42,497 |
37,063 |
80,161 |
81,393 |
||||||||||||
Provision for Income Taxes |
9,574 |
9,167 |
16,522 |
21,585 |
||||||||||||
Net Income |
32,923 |
27,896 |
63,639 |
59,808 |
||||||||||||
Net (Income) Loss Attributable to Noncontrolling Interests |
2 |
(14) |
9 |
(13) |
||||||||||||
Net Income Attributable to Stepan Company |
$ |
32,925 |
$ |
27,882 |
$ |
63,648 |
$ |
59,795 |
||||||||
Net Income Per Common Share Attributable to Stepan Company |
||||||||||||||||
Basic |
$ |
1.43 |
$ |
1.21 |
$ |
2.76 |
$ |
2.61 |
||||||||
Diluted |
$ |
1.41 |
$ |
1.19 |
$ |
2.73 |
$ |
2.56 |
||||||||
Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company |
||||||||||||||||
Basic |
23,039 |
22,953 |
23,059 |
22,927 |
||||||||||||
Diluted |
23,295 |
23,381 |
23,341 |
23,356 |
||||||||||||
* 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 to pre-tax income or net income.
Reconciliation of Non-GAAP Net Income and Earnings per Diluted Share * |
||||||||||||||||||||||||||||||||
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||||||||||||||||||
($ in thousands, except per share amounts) |
2018 |
EPS |
2017 |
EPS |
2018 |
EPS |
2017 |
EPS |
||||||||||||||||||||||||
Net Income Reported |
$ |
32,925 |
$ |
1.41 |
$ |
27,882 |
$ |
1.19 |
$ |
63,648 |
$ |
2.73 |
$ |
59,795 |
$ |
2.56 |
||||||||||||||||
Deferred Compensation Expense |
$ |
(1,015) |
$ |
(0.04) |
$ |
2,538 |
$ |
0.11 |
$ |
24 |
$ |
0.00 |
$ |
1,737 |
$ |
0.07 |
||||||||||||||||
Business Restructuring |
$ |
204 |
$ |
0.01 |
$ |
473 |
$ |
0.02 |
$ |
473 |
$ |
0.02 |
$ |
1,062 |
$ |
0.05 |
||||||||||||||||
Adjusted Net Income |
$ |
32,114 |
$ |
1.38 |
$ |
30,893 |
$ |
1.32 |
$ |
64,145 |
$ |
2.75 |
$ |
62,594 |
$ |
2.68 |
* 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 June 30 |
Six Months Ended June 30 |
|||||||||||||||||||||||||||||||
($ in thousands, except per share amounts) |
2018 |
EPS |
2017 |
EPS |
2018 |
EPS |
2017 |
EPS |
||||||||||||||||||||||||
Pre-Tax Adjustments |
||||||||||||||||||||||||||||||||
Deferred Compensation (Income) Expense |
$ |
(1,335) |
$ |
4,094 |
$ |
31 |
$ |
2,801 |
||||||||||||||||||||||||
Business Restructuring |
$ |
273 |
$ |
586 |
$ |
631 |
$ |
1,372 |
||||||||||||||||||||||||
Total Pre-Tax Adjustments |
$ |
(1,062) |
$ |
4,680 |
$ |
662 |
$ |
4,173 |
||||||||||||||||||||||||
Cumulative Tax Effect on Adjustments |
$ |
251 |
$ |
(1,669) |
$ |
(165) |
$ |
(1,374) |
||||||||||||||||||||||||
After-Tax Adjustments |
$ |
(811) |
$ |
(0.03) |
$ |
3,011 |
$ |
0.13 |
$ |
497 |
$ |
0.02 |
$ |
2,799 |
$ |
0.12 |
Deferred Compensation Plan
The full effect of the deferred compensation plan on quarterly pre-tax income was
2018 |
2017 |
|||||||||||||||||||||||||||
12/31 |
9/30 |
6/30 |
3/31 |
12/31 |
9/30 |
6/30 |
3/31 |
|||||||||||||||||||||
Stepan Company |
N/A |
N/A |
$ |
78.01 |
$ |
83.18 |
$ |
78.97 |
$ |
83.66 |
$ |
87.14 |
$ |
78.81 |
The deferred compensation income statement impact is summarized below:
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
($ in thousands) |
2018 |
2017 |
2018 |
2017 |
||||||||||||
Deferred Compensation |
||||||||||||||||
Operating Income (Expense) |
$ |
866 |
$ |
(5,016) |
$ |
(749) |
$ |
(5,392) |
||||||||
Other, net – Mutual Fund Gain (Loss) |
469 |
922 |
718 |
2,591 |
||||||||||||
Total Pretax |
$ |
1,335 |
$ |
(4,094) |
$ |
(31) |
$ |
(2,801) |
||||||||
Total After Tax |
$ |
1,015 |
$ |
(2,538) |
$ |
(24) |
$ |
(1,737) |
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 six month periods ending
($ in millions) |
Three Months Ended June 30 |
Increase (Decrease) |
Increase Due to Foreign Currency Translation |
Six Months Ended June 30 |
Increase (Decrease) |
Increase Due to Foreign Currency Translation |
||||||||||||||||||||||||||
2018 |
2017 |
2018 |
2017 |
|||||||||||||||||||||||||||||
Net Sales |
$ |
519.9 |
$ |
495.1 |
$ |
24.8 |
$ |
4.6 |
$ |
1,019.2 |
$ |
963.4 |
$ |
55.8 |
$ |
22.1 |
||||||||||||||||
Gross Profit |
89.3 |
90.0 |
(0.7) |
0.5 |
178.9 |
182.1 |
(3.2) |
2.6 |
||||||||||||||||||||||||
Operating Income |
44.7 |
39.1 |
5.6 |
0.2 |
84.3 |
85.4 |
(1.1) |
1.3 |
||||||||||||||||||||||||
Pretax Income |
42.5 |
37.1 |
5.4 |
0.3 |
80.2 |
81.4 |
(1.2) |
1.4 |
Stepan Company |
||||||||
June 30, 2018 |
Dec 31, 2017 |
|||||||
ASSETS |
||||||||
Current Assets |
$ |
780,553 |
$ |
788,736 |
||||
Property, Plant & Equipment, Net |
599,148 |
598,443 |
||||||
Other Assets |
79,084 |
83,682 |
||||||
Total Assets |
$ |
1,458,785 |
$ |
1,470,861 |
||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
Current Liabilities |
$ |
305,713 |
$ |
320,253 |
||||
Deferred Income Taxes |
14,060 |
10,962 |
||||||
Long-term Debt |
262,504 |
268,299 |
||||||
Other Non-current Liabilities |
114,474 |
130,433 |
||||||
Total Stepan Company Stockholders' Equity |
761,240 |
740,096 |
||||||
Noncontrolling Interest |
794 |
818 |
||||||
Total Liabilities and Stockholders' Equity |
$ |
1,458,785 |
$ |
1,470,861 |
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