Stepan Reports Second Quarter Results and Announces Dividend
- Net Sales increased 6% to $504.1 million versus $474.4 million in the prior year period.
- Net income was $24.4 million, up 7% versus $22.7 million in the prior year period. Net income, excluding deferred compensation was $20.6 million essentially flat with prior year results of $20.4 million.
- Diluted EPS was $1.06 versus $0.99 in the prior year period. Diluted EPS, excluding deferred compensation, was $0.90 versus $0.89 in the prior year period.
- Polymer sales volume was up 22% for the quarter. North American and European polyol volumes used in rigid foam insulation grew 18%.
- Surfactant results were adversely impacted by continued weakness in North America and a soft global Agricultural market.
"Despite challenges in our North America Surfactant business, we were able to match prior year earnings by delivering significant growth in our Polymer business and from recent strategic investments in both Surfactants and Polymers," said
"We continue to make progress on our strategic initiatives that are critical for future sales and earnings growth. On
Summary
Three Months Ended June 30 |
Six Months Ended June 30 |
||||||
($ in thousands, except per share data) |
2014 |
2013 |
% Change |
2014 |
2013 |
% Change |
|
Net Sales |
$ 504,111 |
$ 474,445 |
+6 |
$ 981,553 |
$ 930,991 |
+5 |
|
Operating Income |
$ 36,914 |
$ 35,869 |
+3 |
59,437 |
64,163 |
( 7) |
|
Net Income |
$ 24,353 |
22,742 |
+7 |
37,371 |
41,776 |
(11) |
|
Net Income Excluding Deferred Compensation* |
$ 20,626 |
20,361 |
+1 |
33,393 |
41,876 |
(20) |
|
Earnings per Diluted Share |
$ 1.06 |
$ 0.99 |
+7 |
$ 1.63 |
$ 1.82 |
(10) |
|
Earnings per Diluted Share Excluding Deferred Compensation |
$ 0.90 |
$ 0.89 |
+1 |
$ 1.46 |
$ 1.82 |
(20) |
|
* See Table II for a discussion of deferred compensation plan accounting. |
Percentage Change in Net Sales
The increase in quarterly net sales was primarily due to higher average selling prices in the Surfactant segment and 22% volume growth in our Polymer segment (15% excluding the polyester resin acquisition from
Three Months Ended June 30 |
Six Months Ended June 30 |
|
Volume |
(2) |
(2) |
Selling Price |
+7 |
+7 |
Foreign Translation |
+1 |
─ |
Total |
+6 |
+5 |
Segment Net Sales
Three Months Ended June 30 |
Six Months Ended June 30 |
||||||
($ in thousands)
|
2014 |
2013 |
% Change |
2014 |
2013 |
% Change |
|
Net Sales |
|||||||
Surfactants |
$333,761 |
$331,087 |
+1 |
$669,471 |
$671,060 |
─ |
|
Polymers |
148,270 |
121,325 |
+22 |
267,377 |
217,323 |
+23 |
|
Specialty Products |
22,080 |
22,033 |
─ |
44,705 |
42,608 |
+5 |
|
Total Net Sales |
$504,111 |
$474,445 |
+6 |
$981,553 |
$930,991 |
+5 |
Segment Sales Volume
- Surfactant sales volume declined 8% for the quarter. Most of this decrease was attributable to the
North America business which experienced an 11% volume decline. Consumer Product volumes were down due to greater use of internal capacity by customers. Surfactant sales for agricultural applications were down due to the carryover impact of severe first quarter weather inNorth America that resulted in lower customer demand and higher customer inventory levels. As in the first quarter, Stepan did not participate in the biodiesel market because it was not economically advantageous to do so. North American enhanced oil recovery (EOR) volumes increased versus prior year. Surfactant volumes outsideNorth America were down 3%, mostly inBrazil and driven by a temporary plant shutdown at a large customer and the weaker Agricultural market due to drought conditions. - Polymer sales volume increased 22% for the quarter. Excluding the North American polyester resin acquisition, growth was 15%. North American polyol volume, used in rigid foam insulation, grew 19% versus prior year. Phthalic Anhydride volumes were down 9%. European polyols volume increased 16% largely due to continued market growth in insulated metal panels and C.A.S.E (Coatings, Adhesives, Sealants and Elastomers).
- Specialty Products quarterly sales volume was flat versus prior year.
Segment Gross Profit
Three Months Ended June 30 |
Six Months Ended June 30 |
||||||
($ in thousands)
|
2014 |
2013 |
% Change |
2014 |
2013 |
% Change |
|
Surfactants |
$40,846 |
$48,330 |
(15) |
$81,654 |
$99,978 |
(18) |
|
Polymers |
$25,156 |
$19,940 |
+26 |
$42,421 |
$36,491 |
+16 |
|
Specialty Products |
$ 6,094 |
$ 6,565 |
(7) |
$12,330 |
$11,775 |
+5 |
|
- Surfactant gross profit declined 15% to
$40.8 million .North America accounted for most of this decline due to lower volumes and higher maintenance and depreciation expenses. The lowerNorth America volume accounted for$3.7 million of the decline in gross profit. Maintenance expense inNorth America was$1.4 million over prior year primarily due to projects related to the severe first quarter weather. Additionally, we incurred$0.9 million of higher depreciation expense that was associated with the Canadian restructuring initiative that was approved in the fourth quarter of 2013. The associated savings will begin in the second half of 2014 with a full annual run rate of approximately$2.5 million per year beginning in 2015. Gross Profit outside ofNorth America increased$2.6 million versus prior year. - Polymer gross profit increased 26% to
$25.2 million . Strong polyol volume growth in bothNorth America andEurope generated$2.6 million of gross profit improvement, while the polyester resin acquisition added$1.7 million . - Specialty Products gross profit declined 7% to
$6.1 million . This decline was primarily attributable to lower pharmaceutical volume.
Segment Operating Income
Three Months Ended June 30 |
Six Months Ended June 30 |
||||||||||
($ in thousands)
|
2014 |
2013 |
% Change |
2014 |
2013 |
% Change |
|||||
Surfactants |
$19,239 |
$25,966 |
(26) |
$37,577 |
$55,618 |
(32) |
|||||
Polymers |
$18,444 |
$13,524 |
+36 |
$29,270 |
$24,288 |
+20 |
|||||
Specialty Products |
$3,550 |
$4,197 |
(15) |
$7,571 |
$ 7,029 |
+8 |
|||||
Total Company Operating Expenses
Three Months Ended June 30 |
Six Months Ended June 30 |
||||||
($ in thousands)
|
2014 |
2013 |
% Change |
2014 |
2013 |
% Change |
|
Selling |
$ 13,493 |
$ 14,440 |
(7) |
$ 27,639 |
$ 28,168 |
(2) |
|
Administrative – General |
14,469 |
15,151 |
(5) |
29,148 |
29,569 |
(1) |
|
Administrative – Deferred Compensation* |
(5,417) |
(3,621) |
+50 |
(5,665) |
1,312 |
NM |
|
Research, development and technical service |
12,130 |
11,868 |
+2 |
24,054 |
23,195 |
+4 |
|
Total |
$ 34,675 |
$ 37,838 |
(8) |
$ 75,176 |
$ 82,244 |
(9) |
|
* See Table II for a discussion of deferred compensation plan accounting. |
- Operating expenses, excluding the impact of Deferred Compensation decreased 3% for the quarter. The decrease was primarily due to lower incentive-based compensation, pension and group insurance expenses.
Income Taxes
The effective tax rate was 27% for the first half of 2014 compared to 28% for the first half of 2013. The decrease was primarily attributable to a greater percentage of consolidated income being generated outside the U.S. where the effective tax rates are lower. This was partially offset by the expiration of the U.S. research and development tax credit and the small agri-biodiesel producer tax credit.
Selected Balance Sheet Information
The Company's net debt level increased by
($ in millions) |
6/30/14 |
3/31/14 |
12/31/13 |
Net Debt |
|||
Total Debt |
$ 271.3 |
$ 269.6 |
$ 270.6 |
Cash |
96.4 |
96.7 |
133.3 |
Net Debt |
$ 174.9 |
$ 172.9 |
$ 137.3 |
Equity |
586.4 |
564.3 |
553.7 |
Net Debt + Equity |
$ 761.3 |
$ 737.2 |
$ 691.0 |
Net Debt / (Net Debt + Equity) |
23.0% |
23.5% |
19.9% |
The major working capital components are:
($ in millions) |
6/30/14 |
3/31/14 |
12/31/13 |
Net Receivables |
$ 306.8 |
$ 296.3 |
$ 265.7 |
Inventories |
203.9 |
185.6 |
172.4 |
Accounts Payable |
(182.8) |
(167.8) |
(157.3) |
Total |
$ 327.9 |
$ 314.1 |
$ 280.8 |
The Company had capital expenditures of
Stockholders' equity has grown 6% to
Outlook
"The second quarter had its share of challenges, but by delivering on our strategic initiatives we matched prior year earnings," said
The challenges to our Surfactant business in
Polymers should continue to deliver strong volume growth globally. Improving economies in the U.S. and
Dividend Declaration
The Board of Directors of
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 common stock is traded on the
Tables follow
Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these uncertainties are described in
Table I |
|||||||
STEPAN COMPANY Statements of Income For the Three and Six Months Ended June 30, 2014 and 2013 (Unaudited – 000's Omitted) |
|||||||
Three Months Ended June 30 |
Six Months Ended June 30 |
||||||
2014 |
2013 |
% Change |
2014 |
2013 |
% Change |
||
Net Sales |
$504,111 |
$474,445 |
+ 6 |
$981,553 |
$930,991 |
+ 5 |
|
Cost of Sales |
432,522 |
400,738 |
+ 8 |
846,940 |
784,584 |
+ 8 |
|
Gross Profit |
71,589 |
73,707 |
(3) |
134,613 |
146,407 |
(8) |
|
Operating Expenses: |
|||||||
Selling |
13,493 |
14,440 |
(7) |
27,639 |
28,168 |
(2) |
|
Administrative |
9,052 |
11,530 |
(21) |
23,483 |
30,881 |
(24) |
|
Research, development and technical services |
12,130 |
11,868 |
+ 2 |
24,054 |
23,195 |
+ 4 |
|
34,675 |
37,838 |
(8) |
75,176 |
82,244 |
(9) |
||
Operating Income |
36,914 |
35,869 |
+ 3 |
59,437 |
64,163 |
(7) |
|
Other Income (Expense): |
|||||||
Interest, net |
(3,021) |
(2,329) |
+ 30 |
(5,978) |
(4,508) |
+ 33 |
|
Loss from equity in joint ventures |
(1,243) |
(1,323) |
(6) |
(2,694) |
(2,736) |
(2) |
|
Other, net |
556 |
(17) |
NM |
530 |
554 |
(4) |
|
(3,708) |
(3,669) |
+ 1 |
(8,142) |
(6,690) |
+ 22 |
||
Income before Income Taxes |
33,206 |
32,200 |
+ 3 |
51,295 |
57,473 |
(11) |
|
Provision for Income Taxes |
8,838 |
9,546 |
(7) |
13,919 |
15,822 |
(12) |
|
Net Income |
24,368 |
22,654 |
+ 8 |
37,376 |
41,651 |
(10) |
|
Net (Income) Loss Attributable to the Noncontrolling Interests |
(15) |
88 |
NM |
(5) |
125 |
NM |
|
Net Income Attributable to Stepan Company |
$24,353 |
$22,742 |
+ 7 |
$37,371 |
$41,776 |
(11) |
|
Net Income Per Common Share Attributable to Stepan Company |
|||||||
Basic |
$1.07 |
$1.01 |
+ 6 |
$1.64 |
$1.85 |
(11) |
|
Diluted |
$1.06 |
$0.99 |
+ 7 |
$1.63 |
$1.82 |
(10) |
|
Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company |
|||||||
Basic |
22,763 |
22,559 |
+ 1 |
22,768 |
22,512 |
+ 1 |
|
Diluted |
22,931 |
22,917 |
+ ─ |
22,948 |
22,903 |
+ ─ |
Table II |
||||||||||||||
Deferred Compensation Plan |
||||||||||||||
The full effect of the deferred compensation plan on quarterly pretax income was $6.0 million of income versus $3.8 million of income last year. The accounting for the deferred compensation plan results in 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: |
||||||||||||||
2014 |
2013 |
2012 |
||||||||||||
6/30 |
3/31 |
12/31 |
9/30 |
6/30 |
3/31 |
12/31 |
||||||||
$52.86 |
$64.56 |
$65.63 |
$57.73 |
$55.61 |
$63.10 |
$55.54 |
The deferred compensation expense income statement impact is summarized below: |
|||||
Three Months Ended June 30 |
Six Months Ended June 30 |
||||
($ in thousands) |
2014 |
2013 |
2014 |
2013 |
|
Deferred Compensation |
|||||
Administrative (Expense) Income |
$5,417 |
$3,621 |
$5,665 |
$(1,312) |
|
Other, net – Mutual Fund Gain |
594 |
220 |
751 |
1,150 |
|
Total Pretax |
6,011 |
3,841 |
6,416 |
(162) |
|
Total After Tax |
$3,727 |
$2,381 |
$3,978 |
$(100) |
|
Reconciliation of non-GAAP net income: |
|||||
Three Months Ended June 30 |
Six Months Ended June 30 |
||||
($ in thousands) |
2014 |
2013 |
2014 |
2013 |
|
Net income excluding deferred compensation |
$20,626 |
$20,361 |
$33,393 |
$41,876 |
|
Deferred compensation plan (expense) income |
3,727 |
2,381 |
3,978 |
(100) |
|
Net income as reported |
$24,353 |
$22,742 |
$37,371 |
$41,776 |
|
Reconciliation of non-GAAP EPS: |
|||||
Three Months Ended June 30 |
Six Months Ended June 30 |
||||
2014 |
2013 |
2014 |
2013 |
||
Earnings per diluted share excluding deferred compensation |
$0.90 |
$0.89 |
$1.46 |
$1.82 |
|
Deferred compensation plan income |
0.16 |
0.10 |
0.17 |
─ |
|
Earnings per diluted share |
$1.06 |
$0.99 |
$1.63 |
$1.82 |
|
The Company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP (Generally Accepted Accounting Principles) measures, are useful because that information is an appropriate measure for evaluating the Company's operating performance. Internally, the Company uses this non-GAAP information as an indicator of business performance, and evaluates management's effectiveness with specific reference to these indicators. These measures should be considered in addition to, neither a substitute for nor superior to, measures of financial performance prepared in accordance with GAAP. |
Table III |
||||||||
Effects of Foreign Currency Translation |
||||||||
The Company's foreign subsidiaries transact business and report financial results in their respective local currencies. As a result, foreign subsidiary income statements are translated into U.S. dollars at average foreign exchange rates appropriate for the reporting period. Because foreign exchange rates fluctuate against the U.S. dollar over time, foreign currency translation affects period-to-period comparisons of financial statement items (i.e., because foreign exchange rates fluctuate, similar period-to-period local currency results for a foreign subsidiary may translate into different U.S. dollar results). Below is a table that presents the impact that foreign currency translation had on the changes in consolidated net sales and various income line items for the three and six month periods ending June 30, 2014: |
||||||||
($ in millions) |
Three Months Ended June 30 |
Increase (Decrease) |
Increase Due to Foreign Translation |
|||||
2014 |
2013 |
|||||||
Net Sales |
$ 504.1 |
$ 474.4 |
$29.7 |
$3.2 |
||||
Gross Profit |
71.6 |
73.7 |
(2.1) |
0.3 |
||||
Operating Income |
36.9 |
35.9 |
1.0 |
0.1 |
||||
Pretax Income |
33.2 |
32.2 |
1.0 |
0.2 |
||||
($ in millions) |
Six Months Ended June 30 |
Increase (Decrease) |
Increase (Decrease) Due to Foreign Translation |
|||||
2014 |
2013 |
|||||||
Net Sales |
$ 981.6 |
$931.0 |
$50.6 |
$1.5 |
||||
Gross Profit |
134.6 |
146.4 |
(11.8) |
(0.1) |
||||
Operating Income |
59.4 |
64.2 |
(4.8) |
(0.2) |
||||
Pretax Income |
51.3 |
57.5 |
(6.2) |
0.1 |
Table IV |
||
Stepan Company |
||
Consolidated Balance Sheets |
||
June 30, 2014 and December 31, 2013 |
||
2014 June 30 |
2013 December 31 |
|
ASSETS |
||
Current Assets |
$641,726 |
$608,550 |
Property, Plant & Equipment, Net |
500,957 |
494,042 |
Other Assets |
65,256 |
64,610 |
Total Assets |
$1,207,939 |
$1,167,202 |
LIABILITIES AND STOCKHOLDERS' EQUITY |
||
Current Liabilities |
$284,037 |
$268,993 |
Deferred Income Taxes |
22,768 |
20,616 |
Long-term Debt |
233,853 |
235,246 |
Other Non-current Liabilities |
80,904 |
88,606 |
Total Stepan Company Stockholders' Equity |
584,964 |
552,286 |
Noncontrolling Interest |
1,413 |
1,455 |
Total Liabilities and Stockholders' Equity |
$1,207,939 |
$1,167,202 |
SOURCE
Scott D. Beamer, (847) 446-7500