Stepan Reports Higher Second Quarter and First Half Results and Announces Dividend
Second Quarter Highlights
- Reported net income was
$16.9 million or$0.74 per diluted share versus$24.4 million or$1.06 per diluted share in the prior year. - Adjusted net income* was
$20.9 million or$0.91 per diluted share versus$20.6 million or$0.90 per diluted share in the prior year. - Surfactant and Polymer sales volumes increased 1% and 3%, respectively. Surfactant operating income was
$24.2 million , up 26% versus prior year. Polymers operating income was$23.4 million , up 27% versus prior year. - Net income was
$1.8 million or$0.08 per diluted share lower due to the negative impacts of a stronger U.S. dollar.
First Half Highlights
- Reported net income was
$38.2 million or$1.67 per diluted share versus$37.4 million or$1.63 per diluted share in the prior year. - Adjusted net income was
$41.3 million or$1.80 per diluted share versus$33.4 million or$1.46 per diluted share in the prior year. - Net income was
$3.6 million or$0.16 per diluted share lower due to the negative impacts of a stronger U.S. dollar.
* Adjusted net income is a non-GAAP measure which excludes Deferred Compensation Income/ Expense as well as other significant and infrequent/non-recurring items. See Table II for this non-GAAP reconciliation.
"Our second quarter operating results benefited from earnings momentum in Surfactants and Polymers, partially offset by a decline in Specialty Products," said
"While we are pleased with our year over year improvement during the first half, our focus remains on delivering meaningful growth during the remainder of this year and beyond. During the quarter, we made significant progress on a number of key strategic initiatives. Our long-term supply agreement with
Financial Summary
Three Months Ended June 30 |
Six Months Ended June 30 |
||||||
($ in thousands, except |
2015 |
2014 |
% |
2015 |
2014 |
% |
|
Net |
$ 452,414 |
$ 504,111 |
-10% |
$ 912,865 |
$ 981,553 |
-7% |
|
Operating Income |
$ 28,595 |
$ 36,914 |
-23% |
$ 63,773 |
$ 59,437 |
7% |
|
Net Income |
$ 16,914 |
$ 24,353 |
-31% |
$ 38,184 |
$ 37,371 |
2% |
|
Earnings per Diluted Share |
$ 0.74 |
$ 1.06 |
-30% |
$ 1.67 |
$ 1.63 |
2% |
|
Adjusted Net Income * |
$ 20,912 |
$ 20,626 |
1% |
$ 41,344 |
$ 33,393 |
24% |
|
Adjusted Earnings per Diluted Share * |
$ 0.91 |
$ 0.90 |
1% |
$ 1.80 |
$ 1.46 |
23% |
|
* See Table II for a reconciliation of non-GAAP Adjusted Net Income and Earnings per Diluted Share. |
|||||||
Summary of Second Quarter Adjusted Net Income Items
Adjusted net income excludes non-operational deferred compensation income and/or expense as well as certain other significant and infrequent or non-recurring items.
- Deferred Compensation: The current year quarter includes
$4.0 million of after-tax expense versus$3.7 million of after-tax income in the prior year.
Percentage Change in Net Sales
The decrease in quarterly net sales was primarily due to the negative impact of foreign currency translations resulting from the strengthening U.S. dollar and lower selling prices attributable to lower raw material costs. These decreases were partially offset by volume growth in both the Surfactant and Polymer segments.
Three Months Ended June 30, 2015 |
Six Months Ended June 30, 2015 |
|
Volume |
1% |
2% |
Selling Price |
-4% |
-3% |
Foreign Translation |
-7% |
-6% |
Total |
-10% |
-7% |
Segment Results
Segment Net Sales
Three Months Ended June 30, 2015 |
Six Months Ended June 30, 2015 |
||||||
($ in thousands) |
2015 |
2014 |
% Change |
2015 |
2014 |
% Change |
|
Net Sales |
|||||||
Surfactants |
$299,743 |
$333,761 |
-10% |
$630,294 |
$669,471 |
-6% |
|
Polymers |
133,613 |
148,270 |
-10% |
242,977 |
267,377 |
-9% |
|
Specialty Products |
19,058 |
22,080 |
-14% |
39,594 |
44,705 |
-11% |
|
Total Net Sales |
$452,414 |
$504,111 |
-10% |
$912,865 |
$981,553 |
-7% |
Segment Operating Income
Three Months Ended June 30, 2015 |
Six Months Ended June 30, 2015 |
||||||
($ in thousands, all |
2015 |
2014 |
% Change |
2015 |
2014 |
% Change |
|
Operating Income |
|||||||
Surfactants |
$24,232 |
$19,239 |
26% |
$57,996 |
$37,577 |
54% |
|
Polymers |
$23,429 |
$18,444 |
27% |
$38,214 |
$29,270 |
31% |
|
Specialty Products |
$1,522 |
$3,550 |
-57% |
$3,766 |
$7,571 |
-50% |
Total segment operating income increased
- Surfactant sales were
$299.7 million in the second quarter,$34.0 million less than prior year. The translation impact of a stronger U.S. dollar decreased sales by$24.0 million . Sales volume was up 1% in the second quarter. North American sales volume was down 2%.Higher North American consumer product and agricultural sales were offset by lower oil field sales. Strong volume growth inEurope andBrazil was partially offset by lower sales inAsia andMexico . Surfactant operating income increased$5.0 million or 26% versus the prior year quarter. All regions, with the exception ofAsia , delivered operating income growth in the quarter. - Polymer sales were
$133.6 million in the second quarter,$14.7 million less than prior year. The translation impact of a stronger U.S. dollar decreased sales by$8.7 million . Sales volume was up 3% in the quarter primarily due to continued growth in North American and European polyols used in rigid foam insulation and insulated metal panels. Operating income increased$5.0 million or 27% versus the prior year quarter to a record$23.4 million . This operating income growth was primarily attributable to the volume growth in North American rigid polyols and improved results in the C.A.S.E (Coatings, Adhesives, Sealants and Elastomers) markets. - Specialty Products operating income declined
$2.0 million or 57% versus the prior year quarter. This decline was due to both lower sales volume and gross profit margins. The margin decline was attributable to higher raw material costs required to serve the nutraceutical markets and recurring timing differences in pharmaceutical sales.
Corporate Expenses
Three Months Ended June 30, 2015 |
Six Months Ended June 30, 2015 |
||||||
($ in thousands) |
2015 |
2014 |
% |
2015 |
2014 |
% |
|
Total - Corporate |
$20,588 |
$4,319 |
377% |
$36,203 |
$14,981 |
142% |
|
Deferred Compensation Expense/(Income)* |
$6,573 |
($5,417) |
NM |
$8,150 |
($5,665) |
NM |
|
Adjusted Corporate |
$14,015 |
$9,736 |
44% |
$28,053 |
$20,646 |
36% |
|
* See Table III for a discussion of deferred compensation plan accounting. |
- For the second quarter, corporate expenses, excluding deferred compensation, increased
$4.3 million or 44% for the quarter. This increase was mostly attributable to higher incentive-based compensation, group insurance expenses and consulting expenses related to the efficiency initiative. The year to date increase of$7.4 million , or 36%, is attributable to these same items.
Income Taxes
The effective tax rate was 30% for the first half of 2015 compared to 27% for the first half of 2014. The increase was driven by changes in the geographical mix of income and an unfavorable non-recurring tax charge related to a foreign income tax audit recorded in the second quarter of 2015.
Selected Balance Sheet Information
The Company's net debt level decreased
($ in millions)
6/30/15 |
3/31/15 |
12/31/14 |
|
Net Debt |
|||
Total Debt |
$ 260.5 |
$ 283.7 |
$ 273.9 |
Cash |
82.4 |
97.3 |
85.2 |
Net Debt |
$ 178.1 |
$ 186.4 |
$ 188.7 |
Equity |
552.0 |
530.5 |
536.9 |
Net Debt + Equity |
$ 730.1 |
$ 716.9 |
$ 725.6 |
Net Debt / (Net Debt + Equity) |
24% |
26% |
26% |
On
The major working capital components are:
($ in millions)
6/30/15 |
3/31/15 |
12/31/14 |
|
Net Receivables |
$264.5 |
$271.5 |
$270.5 |
Inventories |
178.6 |
172.2 |
183.2 |
Accounts Payable |
(140.0) |
(142.1) |
(157.0) |
$303.1 |
$301.6 |
$296.7 |
The Company had capital expenditures of
Outlook
"After six months, we remain on track to re-establish earnings momentum for the full year," said
"In the second half, Surfactant earnings should benefit from new commodity laundry volumes in
Dividend Declaration
The Board of Directors of
Conference Call
Corporate Profile
Headquartered in
The common stock is traded on the
Contact:
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 Six Months Ended June 30, 2015 and 2014 |
|||||
(Unaudited – 000's Omitted) |
|||||
Three Months Ended June 30 |
Six Months Ended June 30 |
||||
2015 |
2014 |
2015 |
2014 |
||
Net Sales |
$ 452,414 |
$504,111 |
$ 912,865 |
$981,553 |
|
Cost of Sales |
372,902 |
432,522 |
756,911 |
846,940 |
|
Gross Profit |
79,512 |
71,589 |
155,954 |
134,613 |
|
Operating Expenses: |
|||||
Selling |
14,265 |
13,493 |
27,262 |
27,639 |
|
Administrative |
24,055 |
9,052 |
43,394 |
23,483 |
|
Research, Development and Technical Services |
12,597 |
12,130 |
24,387 |
24,054 |
|
50,917 |
34,675 |
95,043 |
75,176 |
||
Gain on Sale of Product Line |
- |
- |
2,862 |
- |
|
Operating Income |
28,595 |
36,914 |
63,773 |
59,437 |
|
Other Income (Expense): |
|||||
Interest, Net |
(2,869) |
(3,021) |
(6,923) |
(5,978) |
|
Loss from Equity in Joint Venture |
(1,815) |
(1,243) |
(3,055) |
(2,694) |
|
Other, Net |
235 |
556 |
887 |
530 |
|
(4,449) |
(3,708) |
(9,091) |
(8,142) |
||
Income Before Income Taxes |
24,146 |
33,206 |
54,682 |
51,295 |
|
Provision for Income Taxes |
7,205 |
8,838 |
16,455 |
13,919 |
|
Net Income |
16,941 |
24,368 |
38,227 |
37,376 |
|
Net Income Attributable to |
(27) |
(15) |
(43) |
(5) |
|
Net Income Attributable to Stepan Company |
$ 16,914 |
$ 24,353 |
$ 38,184 |
$ 37,371 |
|
Net Income Per Common Share |
|||||
Basic |
$ 0.74 |
$ 1.07 |
$ 1.68 |
$ 1.64 |
|
Diluted |
$ 0.74 |
$ 1.06 |
$ 1.67 |
$ 1.63 |
|
Shares Used to Compute Net Income Per Common Share |
|||||
Basic |
22,742 |
22,763 |
22,731 |
22,768 |
|
Diluted |
22,871 |
22,931 |
22,850 |
22,948 |
Table II |
||||||||||
Reconciliation of Non-GAAP Net Income and Earnings Per Diluted Share |
||||||||||
Three Months Ended June 30, 2015 |
Six Months Ended June 30, 2015 |
|||||||||
($ in thousands, except |
2015 |
EPS |
2014 |
EPS |
2015 |
EPS |
2014 |
EPS |
||
Net Income Reported
|
$16,914 |
$0.74 |
$24,353 |
$1.06 |
$38,184 |
$1.67 |
$37,371 |
$1.63 |
||
Deferred Compensation |
3,998 |
$0.17 |
(3,727) |
($0.16) |
4,593 |
$0.20 |
(3,978) |
($0.17) |
||
Environmental |
- |
- |
- |
- |
341 |
$0.01 |
- |
- |
||
Gain on Divestiture of |
- |
- |
- |
- |
(1,774) |
($0.08) |
- |
- |
||
Adjusted Net Income |
$20,912 |
$0.91 |
$20,626 |
$0.90 |
$41,344 |
$1.80 |
$33,393 |
$1.46 |
||
* All amounts in this Table are presented after-tax
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.
Table III
Deferred Compensation Plan
The full effect of the deferred compensation plan on quarterly pretax income was
2015 |
2014 |
||||||||
12/31 |
9/30 |
6/30 |
3/31 |
12/31 |
9/30 |
6/30 |
3/31 |
||
Stepan Company |
N/A |
N/A |
$54.11 |
$41.66 |
$40.08 |
$44.38 |
$52.86 |
$64.56 |
The deferred compensation income statement impact is summarized below:
Three Months Ended June 30, 2015 |
Six Months Ended June 30, 2015 |
||||
($ in thousands) |
2015 |
2014 |
2015 |
2014 |
|
Deferred Compensation |
|||||
Administrative (Expense) |
($6,573) |
$5,417 |
($8,150) |
$5,665 |
|
Other, net – Mutual Fund Gain |
126 |
594 |
743 |
751 |
|
Total Pretax |
($6,447) |
$6,011 |
($7,407) |
$6,416 |
|
Total After Tax |
($3,998) |
$3,727 |
($4,593) |
$3,978 |
Table IV
Effects of Foreign Currency Translation
The Company's foreign subsidiaries transact business and report financial results in their respective local currencies. As a result, foreign subsidiary income statements are translated into U.S. dollars at average foreign exchange rates appropriate for the reporting period. Because foreign exchange rates fluctuate against the U.S. dollar over time, foreign currency translation affects period-to-period comparisons of financial statement items (i.e., because foreign exchange rates fluctuate, similar period-to-period local currency results for a foreign subsidiary may translate into different U.S. dollar results). Below is a table that presents the impact that foreign currency translation had on the changes in consolidated net sales and various income line items for the three and six month periods ending
($ in millions) |
Three Months Ended June 30, 2015 |
Increase |
(Decrease) Due to Foreign |
|
2015 |
2014 |
|||
Net Sales |
$ 452.4 |
$ 504.1 |
($51.7) |
($33.6) |
Gross Profit |
79.5 |
71.6 |
7.9 |
(5.1) |
Operating Income |
28.6 |
36.9 |
(8.3) |
(3.1) |
Pretax Income |
24.1 |
33.2 |
(9.1) |
(2.6) |
($ in millions) |
Six Months Ended June 30, 2015 |
Increase |
(Decrease) Due to Foreign |
|
2015 |
2014 |
|||
Net Sales |
$912.9 |
$981.6 |
($68.7) |
($63.2) |
Gross Profit |
156.0 |
134.6 |
21.4 |
(10.0) |
Operating Income |
63.8 |
59.4 |
4.4 |
(6.1) |
Pretax Income |
54.7 |
51.3 |
3.4 |
(5.1) |
Table V |
||
Stepan Company |
||
Consolidated Balance Sheets |
||
June 30, 2015 and December 31, 2014 |
||
2015 June 30 |
2014 December 31 |
|
ASSETS |
||
Current Assets |
$564,384 |
$575,556 |
Property, Plant & Equipment, Net |
536,837 |
524,195 |
Other Assets |
60,339 |
62,263 |
Total Assets |
$1,161,560 |
$1,162,014 |
LIABILITIES AND STOCKHOLDERS' EQUITY |
||
Current Liabilities |
$233,973 |
$249,513 |
Deferred Income Taxes |
15,453 |
15,804 |
Long-term Debt |
235,644 |
246,897 |
Other Non-current Liabilities |
124,528 |
112,856 |
Total Stepan Company Stockholders' Equity |
550,519 |
535,546 |
Noncontrolling Interest |
1,443 |
1,398 |
Total Liabilities and Stockholders' Equity |
$1,161,560 |
$1,162,014 |
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