Stepan Reports Fourth Quarter And Full Year 2013 Results, Notes Strong Volumes; And Declares Quarterly Dividend
Fourth Quarter Highlights
- Net Sales were up 11% vs. prior year driven by an 11% increase in volume. Excluding the North American polyester resin acquisition from Bayer MaterialScience, the increases were 8% and 9%, respectively.
- Net Income was
$10.7 million vs.$15.4 million in the prior year. - Net Income excluding deferred compensation and restructuring expense was
$14.3 million vs.$18.0 million in the prior year.* - Diluted EPS excluding deferred compensation and restructuring expense was
$0.62 vs.$0.79 in the prior year.* - Restructuring charges were
$0.7 million , or$0.03 per share, for shutting down Canadian sulfonation capacity.
Full Year Highlights
- Net Sales were up 4% vs. prior year driven by a 7% increase in volume. Excluding the acquisition, increases were 2% and 6%, respectively.
- Net Income was
$72.8 million vs.$79.4 million in the prior year. - Net Income excluding deferred compensation and restructuring expense was
$77.3 million vs.$84.8 million in the prior year.* - Diluted EPS excluding deferred compensation and restructuring expense was
$3.37 vs.$3.73 in the prior year.* - Strategic initiatives in
Brazil ,Singapore andColumbus (US) are on track.
* See Table II for reconciliations of non-GAAP net income and earnings per diluted share.
"Despite the challenges faced in 2013, we recorded the second best year in our eighty-two year history and we remain optimistic about our future and our ability to deliver growth," said
SEGMENT NET SALES
Three Months Ended December 31 |
Twelve Months Ended December 31 |
||||||
($ in thousands) |
2013 |
2012 |
% Change |
2013 |
2012 |
% Change |
|
Net Sales |
|||||||
Surfactants |
$327,747 |
$310,454 |
6 |
$1,317,164 |
$1,305,800 |
1 |
|
Polymers |
128,389 |
103,116 |
25 |
483,361 |
423,959 |
14 |
|
Specialty Products |
18,193 |
13,689 |
33 |
80,261 |
73,978 |
8 |
|
Total Net Sales |
$474,329 |
$427,259 |
11 |
$1,880,786 |
$1,803,737 |
4 |
PERCENTAGE CHANGE IN NET SALES
The increase in both quarterly and full year net sales was predominately due to higher sales volumes.
Three Months Ended December 31, 2013 |
Twelve Months Ended December 31, 2013 |
|
Volume |
11 |
7 |
Selling Price |
─ |
( 3) |
Foreign Translation |
─ |
─ |
Total |
11 |
4 |
SEGMENT SALES VOLUME
- Surfactant sales volume increased 9% for the quarter and 6% for the full year. All regions delivered growth for the full year. U.S. consumer product and general surfactant volumes were each up 2%. European consumer product volumes were up 3%. Higher value added surfactants used in agricultural products delivered strong global volume growth, while sales of surfactants used in oilfields declined. Regionally, recent capacity expansions in
Brazil andSingapore delivered anticipated growth. - Polymer sales volume increased 19% for the quarter and 8% for the full year. Excluding the North American polyester resin acquisition from Bayer, the increases were 10% and 3%, respectively. For the full year, despite continued general economic headwinds, European polyol volumes grew by 16%, in large part due to new business and market growth in metal panels and C.A.S.E. North American polyol used in rigid foam roof insulation was flat. Phthalic Anhydride volumes were down 6%.
- Specialty Products sales volume increased 26% for the quarter and 2% for the year.
SEGMENT GROSS PROFIT
Gross profit declined 13% to
- Surfactant gross profit declined
$10.9 million or 21%, for the quarter, and declined$17.7 million , or 9%, for the full year. North American operations were responsible for most of the quarterly and full year decline. For the quarter, North American results were negatively impacted by higher material costs, maintenance, and transportation costs. On a full year basis, North American results were also negatively impacted by the higher cost raw material inventory built to support ourSingapore plant start-up, contractual timing differences between changes in raw material costs and selling prices and non-recurring cost to secure a strategic raw material for specialty surfactant growth approximating$9.0 million . All regions outside the US delivered higher gross profit for the full year. - Polymer gross profit increased
$1.2 million , or 7%, for the quarter, and increased$9.0 million or 13%, for the full year. The quarter and full year growth were primarily due to strong sales volume inEurope . Our second quarter North American polyester resin business acquisition from Bayer also contributed to both quarterly and full year gross profit growth. Offsetting a portion of both quarterly and full year growth were lower contributions from ourChina joint venture that resulted from the Chinese government-mandated plant relocation. - Specialty Products gross profit increased 58%, or
$1.6 million , for the quarter, driven by higher food and flavoring products sales volume. Full year gross profit declined 1% or$0.3 million .
OPERATING EXPENSES
Three Months Ended December 31 |
Twelve Months Ended December 31 |
||||||
($ in thousands) |
2013 |
2012 |
% Change |
2013 |
2012 |
% Change |
|
Selling |
$12,166 |
$14,381 |
( 15) |
$53,229 |
$53,145 |
─ |
|
Administrative – General |
16,443 |
14,562 |
13 |
61,958 |
53,728 |
16 |
|
Administrative – Deferred Compensation Plan Expense * |
6,003 |
3,990 |
50 |
9,496 |
10,251 |
( 9) |
|
Research, development and technical service |
11,380 |
12,583 |
( 10) |
46,809 |
45,713 |
2 |
|
Total |
$45,992 |
$45,516 |
1 |
$171,492 |
$162,837 |
5 |
|
* See Table II for a discussion of deferred compensation plan accounting. |
- Selling expense decreased 15% for the quarter and was flat year-over-year. The quarterly decline was primarily due to lower performance-based compensation expense.
- Administrative – General expense increased 13% for the quarter, and 16% for the year. The quarterly increase was primarily due to higher acquisition evaluation expenses, legal expenses related to the Chinese government-mandated plant relocation, salary costs, and global patents and trademark expense to support the growth initiatives. The full year increase is attributable to the aforementioned items plus North American polyester resin business acquisition and integration related expenses, plus nonrecurring expenses in
China to dismantle and vacate our existing plant site. - Research, development and technical service expense declined 10% in the quarter, and increased 2% for the full year. The quarterly decline was primarily due to lower performance-based compensation and lower product registration costs in
Europe . The full year increase was primarily due to higher salary costs and external innovation related support costs.
RESTRUCTURING
In the fourth quarter, the Company approved a plan to consolidate a portion of its North American surfactants manufacturing operations (part of the Surfactants reportable segment) to reduce future costs and improve asset utilization. The Company will shut down sulfonation production at its Canadian manufacturing site, which will result in the elimination of an estimated 20 North American positions. Production of affected products currently manufactured in
As a result of the approved plan, the Company recognized
In addition to the restructuring costs, the Company reduced the useful life of the manufacturing assets in the affected areas of the Canadian plant. As a result, the Company recognized
The savings will begin in the second half of 2014 with a full annual run rate of approximately
INCOME TAXES
The effective tax rate was 24% in 2013, compared to 31% in 2012. The decrease was partially attributable to a favorable
SELECTED BALANCE SHEET INFORMATION
The Company's net debt level declined by
12/31/13 |
9/30/13 |
6/30/13 |
3/31/13 |
12/31/12 |
|
Net Debt |
|||||
Total Debt |
$ 270.6 |
$ 276.8 |
$ 285.4 |
$ 193.9 |
$ 182.4 |
Cash |
133.3 |
103.1 |
106.9 |
54.8 |
76.9 |
Net Debt |
$ 137.3 |
$ 173.7 |
$ 178.5 |
$ 139.1 |
$ 105.5 |
Equity |
553.7 |
532.8 |
508.7 |
494.9 |
480.9 |
Net Debt + Equity |
$ 691.0 |
$ 706.5 |
$ 687.2 |
$ 634.0 |
$ 586.4 |
Net Debt / (Net Debt + Equity) |
19.9% |
24.6% |
26.0% |
21.9% |
18.0% |
On a full year basis, the Company generated
12/31/13 |
12/31/12 |
12/31/11 |
|
Net Receivables |
$265.7 |
$255.9 |
$260.8 |
Inventories |
172.4 |
162.0 |
111.2 |
Accounts Payable |
(157.3) |
(141.7) |
(137.8) |
$280.8 |
$276.2 |
$234.2 |
Capital spending for continuing operations was
During 2013 the Company's stockholders' equity grew to
OUTLOOK
"Although we are experiencing a slow start to the year with severe weather impacting customer locations and our own facilities in
In particular, Surfactant earnings are expected to be down in the first quarter due to the extreme weather and higher maintenance expenses. Earnings should improve as the year progresses driven by greater Agricultural sales, continued consumer product growth in
Polymers should experience continued growth from polyol used in energy saving rigid foam insulation. Improving economies in the U.S. and
DIVIDEND DECLARATION
The Board of Directors of
CONFERENCE CALL
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 For the Three and Twelve Months Ended December 31, 2013 and 2012 (Unaudited – 000's Omitted) |
|||||
Three Months Ended December 31 |
Twelve Months Ended December 31 |
||||
2013 |
2012 |
2013 |
2012 |
||
Net Sales |
$ 474,329 |
$ 427,259 |
$ 1,880,786 |
$ 1,803,737 |
|
Cost of Sales |
413,392 |
357,139 |
1,599,101 |
1,512,184 |
|
Gross Profit |
60,937 |
70,120 |
281,685 |
291,553 |
|
Operating Expenses: |
|||||
Selling |
12,166 |
14,381 |
53,229 |
53,145 |
|
Administrative |
22,446 |
18,552 |
71,454 |
63,979 |
|
Research, Development and Technical Services |
11,380 |
12,583 |
46,809 |
45,713 |
|
45,992 |
45,516 |
171,492 |
162,837 |
||
Business Restructuring |
1,040 |
─ |
1,040 |
─ |
|
Operating Income |
13,905 |
24,604 |
109,153 |
128,716 |
|
Other Income (Expense): |
|||||
Interest, Net |
(2,863) |
(2,225) |
(10,358) |
(9,599) |
|
Loss from Equity in Joint Venture |
(1,275) |
(907) |
(5,336) |
(4,724) |
|
Other, Net |
543 |
(223) |
2,171 |
1,329 |
|
(3,595) |
(3,355) |
(13,523) |
(12,994) |
||
Income Before Income Taxes |
10,310 |
21,249 |
95,630 |
115,722 |
|
Provision for Income Taxes |
(227) |
5,756 |
23,293 |
36,035 |
|
Net Income |
10,537 |
15,493 |
72,337 |
79,687 |
|
Net (Income) Loss Attributable to the Noncontrolling Interests |
113 |
(54) |
491 |
(291) |
|
Net Income Attributable to Stepan Company |
$ 10,650 |
$ 15,439 |
$ 72,828 |
$ 79,396 |
|
Net Income Per Common Share Attributable to Stepan Company |
|||||
Basic |
$0.47 |
$0.71 |
$3.22 |
$3.71 |
|
Diluted |
$0.46 |
$0.68 |
$3.18 |
$3.49 |
|
Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company |
|||||
Basic |
22,753 |
21,777 |
22,621 |
21,273 |
|
Diluted |
22,949 |
22,804 |
22,924 |
22,730 |
Table II
Reconciliation of Non-GAAP Net Income and Earnings Per Diluted Share |
|||||||||||
($ in thousands, except per |
|||||||||||
Three Months Ended December 31 |
Twelve Months Ended December 31 |
||||||||||
2013 |
2012 |
2013 |
2012 |
||||||||
Net Income |
EPS |
Net Income |
EPS |
Net Income |
EPS |
Net Income |
EPS |
||||
Net Income Reported |
$ 10,650 |
$ 0.46 |
$ 15,439 |
$ 0.68 |
$ 72,828 |
$ 3.18 |
$ 79,396 |
$ 3.49 |
|||
Deferred Compensation |
2,921 |
0.13 |
2,571 |
0.11 |
3,720 |
0.16 |
5,438 |
0.24 |
|||
Restructuring Expense |
723 |
0.03 |
─ |
─ |
723 |
0.03 |
─ |
─ |
|||
Net Income Excluding Deferred Compensation and Restructuring Expenses |
$ 14,294 |
$ 0.62 |
$ 18,010 |
$ 0.79 |
$ 77,271 |
$ 3.37 |
$ 84,834 |
$ 3.73 |
|||
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, or superior to, measures of financial performance prepared in accordance with GAAP. |
Deferred Compensation Plan
The full effect of the deferred compensation plan on quarterly pretax income was
2013 |
2012 |
||||||||
12/31 |
9/30 |
6/30 |
3/31 |
12/31 |
9/30 |
6/30 |
3/31 |
||
Stepan Company |
$65.63 |
$57.73 |
$55.61 |
$63.10 |
$55.54 |
$48.06 |
$47.09 |
$43.90 |
The deferred compensation expense income statement impact is summarized below:
Three Months Ended December 31 |
Twelve Months Ended December 31 |
||||
($ in thousands) |
2013 |
2012 |
2013 |
2012 |
|
Deferred Compensation |
|||||
Administrative (Expense) |
$ (6,003) |
$ (3,990) |
$ (9,496) |
$ (10,251) |
|
Other, net – Mutual Fund Gain |
1,291 |
(156) |
3,496 |
1,480 |
|
Total Pretax |
$ (4,712) |
$ (4,146) |
$ (6,000) |
$ (8,771) |
|
Total After Tax |
$ (2,921) |
$ (2,571) |
$ (3,720) |
$ (5,438) |
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 quarter and year ending
($ in millions) |
Three Months Ended December 31 |
Increase (Decrease) |
Increase to Foreign |
|
2013 |
2012 |
|||
Net Sales |
$ 474.3 |
$ 427.3 |
47.0 |
0.3 |
Gross Profit |
60.9 |
70.1 |
(9.2) |
(0.1) |
Operating Income |
13.9 |
24.6 |
(10.7) |
(0.1) |
Pretax Income |
10.3 |
21.2 |
(10.9) |
─ |
($ in millions) |
Twelve Months Ended December 31 |
Increase (Decrease) |
Increase to Foreign |
|
2013 |
2012 |
|||
Net Sales |
$1,880.8 |
$1,803.7 |
77.1 |
2.3 |
Gross Profit |
281.7 |
291.6 |
(9.9) |
─ |
Operating Income |
109.2 |
128.7 |
(19.5) |
─ |
Pretax Income |
95.6 |
115.7 |
(20.1) |
0.2 |
Table IV
Stepan Company |
||
Consolidated Balance Sheets |
||
December 31, 2013 and December 31, 2012 |
||
2013 December 31 |
2012 December 31 |
|
ASSETS |
||
Current Assets |
$608,550 |
$523,078 |
Property, Plant & Equipment, Net |
494,042 |
422,022 |
Other Assets |
64,610 |
40,378 |
Total Assets |
$1,167,202 |
$985,478 |
LIABILITIES AND STOCKHOLDERS' EQUITY |
||
Current Liabilities |
$268,993 |
$247,167 |
Deferred Income Taxes |
20,616 |
9,200 |
Long-term Debt |
235,246 |
149,564 |
Other Non-current Liabilities |
88,606 |
98,667 |
Total Stepan Company Stockholders' Equity |
552,286 |
478,985 |
Noncontrolling Interest |
1,455 |
1,895 |
Total Liabilities and Stockholders' Equity |
$1,167,202 |
$985,478 |
SOURCE
SCOTT D. BEAMER, 847-446-7500