Stepan Reports Second Quarter and Record First Half Earnings
Second Quarter Highlights
- Reported net income was
$27.9 million , or$1.19 per diluted share versus$28.5 million , or$1.24 per diluted share, in the prior year. Adjusted net income* was$30.9 million , or$1.32 per diluted share versus$30.7 million , or$1.33 per diluted share, in the prior year. - Surfactants operating income was
$31.0 million versus$27.2 million in the prior year. The increase was primarily attributable to higher demand for Functional Products, strength in Household, Industrial and Institutional end markets and lower manufacturing costs, mostly from prior plant closures inCanada andBrazil . Overall Surfactants sales volume declined 3% from the prior year primarily due to lower commodity surfactant demand. - Polymer operating income was
$21.3 million versus$31.0 million in the prior year. This decrease was mostly attributable to higher raw material costs and lower sales volumes. Overall Polymer sales volume declined 7% from the prior year with polyol volumes down 5%. - Specialty Product operating income was
$5.4 million versus$1.8 million in the prior year, primarily due to order timing differences within the flavor business and higher unit margins across the business. - Announced intent to acquire a surfactant plant and a portion of the associated business in
Mexico . - Net-debt ratio declined 500 basis points to 10%.
First Half Highlights
- Reported net income was a record
$59.8 million , or$2.56 per diluted share, a 6% increase versus$56.4 million , or$2.46 per diluted share, in the prior year. - Adjusted net income* was a record
$62.6 million , or$2.68 per diluted share, a 4% increase versus$60.4 million , or$2.63 per diluted share, in the prior year.Total Company sales volume declined 4% compared to the first half of 2016.
"The second quarter adjusted net income exceeded prior year as the Company continued to benefit from our diversification strategy, increased productivity and improved margins within our Surfactants and Specialty businesses. Rising raw material costs and increased competitive pressure contributed to a disappointing quarter for our Polymer business. The global market for rigid polyols continues to be strong," said
* Adjusted net income is a non-GAAP measure which excludes Deferred Compensation income/ expense as well as other significant and infrequent/non-recurring items. See Table II for a reconciliation of non-GAAP adjusted net income and adjusted earnings per diluted share.
Financial Summary
Three Months Ended |
Six Months Ended June 30 |
||||||||||||||||||||||
($ in thousands, except per share data) |
2017 |
2016 |
% Change |
2017 |
2016 |
% Change |
|||||||||||||||||
Net Sales |
$ |
495,101 |
$ |
454,603 |
9 |
% |
$ |
963,370 |
$ |
900,500 |
7 |
% |
|||||||||||
Operating Income |
$ |
38,961 |
$ |
42,916 |
(9)% |
$ |
85,020 |
$ |
87,523 |
(3)% |
|||||||||||||
Net Income |
$ |
27,882 |
$ |
28,496 |
(2)% |
$ |
59,795 |
$ |
56,412 |
6 |
% |
||||||||||||
Earnings per Diluted Share |
$ |
1.19 |
$ |
1.24 |
(4)% |
$ |
2.56 |
$ |
2.46 |
4 |
% |
||||||||||||
Adjusted Net Income * |
$ |
30,893 |
$ |
30,711 |
1 |
% |
$ |
62,594 |
$ |
60,448 |
4 |
% |
|||||||||||
Adjusted Earnings per Diluted Share * |
$ |
1.32 |
$ |
1.33 |
(1)% |
$ |
2.68 |
$ |
2.63 |
2 |
% |
* See Table II for reconciliations 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/expense as well as certain other significant and infrequent or non-recurring items.
- Deferred Compensation: The current year second quarter includes
$2.5 million of after-tax expense versus$1.4 million of after-tax expense in the prior year. - Business Restructuring: The current year second quarter includes
$0.3 million of after-tax decommissioning expense related to the Canadian plant closure announced in 2016 and$0.2 million of after-tax severance expense attributable to cost reduction efforts at ourSingapore plant. The prior year quarter includes$0.8 million of after-tax severance expense related to our Canadian plant closure.
Percentage Change in Net Sales
The 9% increase in quarterly net sales was primarily due to higher selling prices, which were attributable to the pass-through of certain higher raw material costs. These higher selling prices were partially offset by a 4% decline in sales volume and the negative impact of foreign currency translation.
Three Months Ended June 30, 2017 |
Six Months Ended June 30, 2017 |
|||||||
Volume |
(4) |
% |
(4) |
% |
||||
Selling Price |
14 |
% |
12 |
% |
||||
Foreign Translation |
(1) |
% |
(1) |
% |
||||
Total |
9 |
% |
7 |
% |
Segment Results
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||||||||||
($ in thousands) |
2017 |
2016 |
% Change |
2017 |
2016 |
% Change |
||||||||||||||||||
Net Sales |
||||||||||||||||||||||||
Surfactants |
$ |
329,334 |
$ |
298,587 |
10 |
% |
$ |
651,937 |
$ |
608,547 |
7 |
% |
||||||||||||
Polymers |
$ |
141,187 |
$ |
134,498 |
5 |
% |
$ |
267,797 |
$ |
248,396 |
8 |
% |
||||||||||||
Specialty Products |
$ |
24,580 |
$ |
21,518 |
14 |
% |
$ |
43,636 |
$ |
43,557 |
0 |
% |
||||||||||||
Total Net Sales |
$ |
495,101 |
$ |
454,603 |
9 |
% |
$ |
963,370 |
$ |
900,500 |
7 |
% |
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||||||||||
($ in thousands) |
2017 |
2016 |
% Change |
2017 |
2016 |
% Change |
||||||||||||||||||
Operating Income * |
||||||||||||||||||||||||
Surfactants |
$ |
31,030 |
$ |
27,232 |
14 |
% |
$ |
69,267 |
$ |
64,477 |
7 |
% |
||||||||||||
Polymers |
$ |
21,257 |
$ |
30,994 |
(31) |
% |
$ |
42,656 |
$ |
53,191 |
(20) |
% |
||||||||||||
Specialty Products |
$ |
5,439 |
$ |
1,788 |
204 |
% |
$ |
6,714 |
$ |
4,121 |
63 |
% |
Total segment operating income declined
- Surfactant net sales were
$329.3 million for the quarter, a 10% increase versus the prior year. Selling prices increased 15% compared to the prior year quarter primarily due to the pass-through of certain higher raw material costs. Sales volume declined 3%, mostly due to lower Consumer Product commodity volumes inNorth America andEurope , partially offset by growth in Functional Products and Household, Industrial and Institutional end markets. The translation impact of a stronger U.S. dollar decreased net sales by 2%. Surfactant operating income increased$3.8 million versus the prior year, primarily driven by improved product mix, lower manufacturing costs attributable to prior plant closures inCanada andBrazil and positive contributions from our previous acquisitions of Tebras Tensoativos do Brazil Ltda. and from PBC Industria Quimica Ltda. inBrazil . - Polymer net sales were
$141.2 million for the quarter, a 5% increase versus prior year. Selling prices increased 12% in the quarter, partially offsetting higher raw material costs. Sales volume declined 7% compared to the prior year quarter, primarily due to lower Phthalic Anhydride (PA) and global Rigid Polyol volumes, partially offset by higher Specialty Polyol volume. PA volume declined 16% primarily due to non-recurring sales to a co-producer.North America and Europe Polyol volume declined 4% due to the pull-forward of North American volume into the first quarter of 2017, lost share at one customer inNorth America and MDI shortages inEurope . Despite the decline, the global rigid polyol market remains strong. Operating income decreased$9.7 million versus the prior year quarter, attributable to higher raw material costs and lower sales volumes during the quarter. - Specialty Products net sales were
$24.6 million , a$3.1 million increase versus the prior year. Operating income increased$3.7 million versus the prior year quarter. The quarterly improvement reflects higher sales volume due to the timing of orders in our flavor business and higher unit margins across the business.
Corporate Expenses
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||||||||||
($ in thousands) |
2017 |
2016 |
% Change |
2017 |
2016 |
% Change |
||||||||||||||||||
Total - Corporate Expenses |
$ |
18,765 |
$ |
17,098 |
10 |
% |
$ |
33,617 |
$ |
34,266 |
(2) |
% |
||||||||||||
Deferred Compensation Expense/(Income) * |
$ |
5,016 |
$ |
2,434 |
106 |
% |
$ |
5,392 |
$ |
5,154 |
5 |
% |
||||||||||||
Business Restructuring Expense |
$ |
586 |
$ |
1,061 |
(45) |
% |
$ |
1,372 |
$ |
1,061 |
29 |
% |
||||||||||||
Adjusted Corporate Expense |
$ |
13,163 |
$ |
13,603 |
(3) |
% |
$ |
26,853 |
$ |
28,051 |
(4) |
% |
* See Table III for a discussion of deferred compensation plan accounting. |
- Corporate expenses, excluding deferred compensation and business restructuring expense, decreased
$0.4 million , or 3%, for the quarter. Corporate expenses declined$1.2 million , or 4%, for the first six months.
Income Taxes
The effective tax rate was 27% for the first half of 2017 versus 29% for the first half of 2016. The decrease was primarily attributable to higher excess tax benefits derived from stock based compensation awards exercised or distributed in the first half of 2017 versus 2016 and an unfavorable foreign tax audit settlement recorded in 2016 that did not recur in 2017.
Selected Balance Sheet Information
The Company's net debt level decreased
($ in millions) |
6/30/17 |
3/31/17 |
12/31/16 |
||||||||
Net Debt |
|||||||||||
Total Debt |
$ |
304.4 |
$ |
316.7 |
$ |
317.0 |
|||||
Cash |
223.8 |
197.8 |
225.7 |
||||||||
Net Debt |
$ |
80.6 |
$ |
118.9 |
$ |
91.3 |
|||||
Equity |
707.3 |
673.2 |
634.6 |
||||||||
Net Debt + Equity |
$ |
788.0 |
$ |
792.1 |
$ |
725.9 |
|||||
Net Debt / (Net Debt + Equity) |
10 |
% |
15 |
% |
13 |
% |
The major working capital components were:
($ in millions) |
6/30/17 |
3/31/17 |
12/31/16 |
||||||||
Net Receivables |
$ |
306.2 |
$ |
287.5 |
$ |
263.4 |
|||||
Inventories |
178.4 |
189.8 |
173.7 |
||||||||
Accounts Payable |
(169.2) |
(163.8) |
(158.3) |
||||||||
$ |
315.4 |
$ |
313.5 |
$ |
278.8 |
The Company had capital expenditures of
Outlook
"After achieving record first half net income, we remain optimistic about the balance of the year. We believe that our diversification efforts and enhanced internal efficiencies should continue to positively impact the remainder of 2017. The global rigid polyol market remains strong. Although competitive activity in
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 presentation 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 (the Exchange Act). 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 |
||||||||||||||||
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
2017 |
2016 |
2017 |
2016 |
|||||||||||||
Net Sales |
$ |
495,101 |
$ |
454,603 |
$ |
963,370 |
$ |
900,500 |
||||||||
Cost of Sales |
405,135 |
361,672 |
781,306 |
714,070 |
||||||||||||
Gross Profit |
89,966 |
92,931 |
182,064 |
186,430 |
||||||||||||
Operating Expenses: |
||||||||||||||||
Selling |
13,259 |
14,572 |
26,744 |
28,262 |
||||||||||||
Administrative |
17,848 |
17,692 |
35,819 |
36,392 |
||||||||||||
Research, Development and Technical Services |
14,296 |
14,256 |
27,717 |
28,038 |
||||||||||||
Deferred Compensation Expense |
5,016 |
2,434 |
5,392 |
5,154 |
||||||||||||
50,419 |
48,954 |
95,672 |
97,846 |
|||||||||||||
Business Restructuring |
586 |
1,061 |
1,372 |
1,061 |
||||||||||||
Operating Income |
38,961 |
42,916 |
85,020 |
87,523 |
||||||||||||
Other Income (Expense): |
||||||||||||||||
Interest, Net |
(2,863) |
(3,417) |
(5,855) |
(7,031) |
||||||||||||
Other, Net |
965 |
(303) |
2,228 |
(828) |
||||||||||||
(1,898) |
(3,720) |
(3,627) |
(7,859) |
|||||||||||||
Income Before Income Taxes |
37,063 |
39,196 |
81,393 |
79,664 |
||||||||||||
Provision for Income Taxes * |
9,167 |
10,695 |
21,585 |
23,244 |
||||||||||||
Net Income * |
27,896 |
28,501 |
59,808 |
56,420 |
||||||||||||
Net Income Attributable to Noncontrolling Interests |
(14) |
(5) |
(13) |
(8) |
||||||||||||
Net Income Attributable to Stepan Company * |
$ |
27,882 |
$ |
28,496 |
$ |
59,795 |
$ |
56,412 |
||||||||
Net Income Per Common Share Attributable to Stepan Company |
||||||||||||||||
Basic * |
$ |
1.21 |
$ |
1.25 |
$ |
2.61 |
$ |
2.48 |
||||||||
Diluted * |
$ |
1.19 |
$ |
1.24 |
$ |
2.56 |
$ |
2.46 |
||||||||
Shares Used to Compute Net Income Per Common Share Attributable to Stepan Company |
||||||||||||||||
Basic |
22,953 |
22,760 |
22,927 |
22,746 |
||||||||||||
Diluted * |
23,381 |
23,004 |
23,356 |
22,950 |
||||||||||||
* The 2016 amounts for the noted line items have been immaterially changed from the amounts originally reported as a result of the Company's adoption of Accounting Standards Update (ASU) No. 2016-09 Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting in the fourth quarter of 2016. |
Table II |
||||||||||||||||||||||||||||||||
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 |
2017 |
EPS |
2016 |
EPS |
2017 |
EPS |
2016 |
EPS |
||||||||||||||||||||||||
Net Income Reported |
$ |
27,882 |
$ |
1.19 |
$ |
28,496 |
$ |
1.24 |
$ |
59,795 |
$ |
2.56 |
$ |
56,412 |
$ |
2.46 |
||||||||||||||||
Deferred Compensation Expense |
$ |
2,538 |
$ |
0.11 |
$ |
1,419 |
$ |
0.06 |
$ |
1,737 |
$ |
0.07 |
$ |
3,240 |
$ |
0.14 |
||||||||||||||||
Business Restructuring |
$ |
473 |
$ |
0.02 |
$ |
796 |
$ |
0.03 |
$ |
1,062 |
$ |
0.05 |
$ |
796 |
$ |
0.03 |
||||||||||||||||
Adjusted Net Income |
$ |
30,893 |
$ |
1.32 |
$ |
30,711 |
$ |
1.33 |
$ |
62,594 |
$ |
2.68 |
$ |
60,448 |
$ |
2.63 |
||||||||||||||||
* 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 significant 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) |
2017 |
EPS |
2016 |
EPS |
2017 |
EPS |
2016 |
EPS |
||||||||||||||||||||||||
Pre-Tax Adjustments |
||||||||||||||||||||||||||||||||
Deferred Compensation Expense |
$ |
4,094 |
$ |
2,289 |
$ |
2,801 |
$ |
5,226 |
||||||||||||||||||||||||
Business Restructuring |
$ |
586 |
$ |
1,061 |
$ |
1,372 |
$ |
1,061 |
||||||||||||||||||||||||
Total Pre-Tax Adjustments |
$ |
4,680 |
$ |
3,350 |
$ |
4,173 |
$ |
6,287 |
||||||||||||||||||||||||
Cumulative Tax Effect on Adjustments |
$ |
(1,669) |
$ |
(1,135) |
$ |
(1,374) |
$ |
(2,251) |
||||||||||||||||||||||||
After-Tax Adjustments |
$ |
3,011 |
$ |
0.13 |
$ |
2,215 |
$ |
0.09 |
$ |
2,799 |
$ |
0.12 |
$ |
4,036 |
$ |
0.17 |
Table III |
||||||||||||||||||||||||||||
Deferred Compensation Plan |
||||||||||||||||||||||||||||
The full effect of the deferred compensation plan on quarterly pretax income was $4.1 million of expense versus $2.3 million of expense in the prior year. The year to date impact was $2.8 million of expense versus $5.2 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: |
||||||||||||||||||||||||||||
2017 |
2016 |
|||||||||||||||||||||||||||
12/31 |
9/30 |
6/30 |
3/31 |
12/31 |
9/30 |
6/30 |
3/31 |
|||||||||||||||||||||
Stepan Company |
N/A |
N/A |
$ |
87.14 |
$ |
78.81 |
$ |
81.48 |
$ |
72.66 |
$ |
59.53 |
$ |
55.29 |
||||||||||||||
The deferred compensation income statement impact is summarized below: |
||||||||||||||||
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
($ in thousands) |
2017 |
2016 |
2017 |
2016 |
||||||||||||
Deferred Compensation |
||||||||||||||||
Operating Income (Expense) |
$ |
(5,016) |
$ |
(2,434) |
$ |
(5,392) |
$ |
(5,154) |
||||||||
Other, net – Mutual Fund Gain (Loss) |
922 |
145 |
2,591 |
(72) |
||||||||||||
Total Pretax |
$ |
(4,094) |
$ |
(2,289) |
$ |
(2,801) |
$ |
(5,226) |
||||||||
Total After Tax |
$ |
(2,538) |
$ |
(1,419) |
$ |
(1,737) |
$ |
(3,240) |
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 June 30, 2017 as compared to 2016: |
||||||||||||||||||||||||||||||||
($ in millions) |
Three Months Ended June 30 |
Increase (Decrease) |
(Decrease) Due to Foreign Currency Translation |
Six Months Ended June 30 |
Increase (Decrease) |
(Decrease) Due to Foreign Currency Translation |
||||||||||||||||||||||||||
2017 |
2016 |
2017 |
2016 |
|||||||||||||||||||||||||||||
Net Sales |
$ |
495.1 |
$ |
454.6 |
$ |
40.5 |
$ |
(4.1) |
$ |
963.4 |
$ |
900.5 |
$ |
62.9 |
$ |
(8.6) |
||||||||||||||||
Gross Profit |
90.0 |
92.9 |
$ |
(2.9) |
(0.3) |
182.1 |
186.4 |
$ |
(4.3) |
(0.4) |
||||||||||||||||||||||
Operating Income |
39.0 |
42.9 |
$ |
(3.9) |
(0.1) |
85.0 |
87.5 |
$ |
(2.5) |
(0.1) |
||||||||||||||||||||||
Pretax Income |
37.1 |
39.2 |
$ |
(2.1) |
(0.1) |
81.4 |
79.7 |
$ |
1.7 |
(0.2) |
Table V |
||||||||
Stepan Company |
||||||||
2017 June 30 |
2016 December 31 |
|||||||
ASSETS |
||||||||
Current Assets |
$ |
733,429 |
$ |
685,541 |
||||
Property, Plant & Equipment, Net |
587,249 |
582,714 |
||||||
Other Assets |
86,061 |
85,635 |
||||||
Total Assets |
$ |
1,406,739 |
$ |
1,353,890 |
||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
Current Liabilities |
$ |
274,392 |
$ |
297,265 |
||||
Deferred Income Taxes |
15,147 |
12,497 |
||||||
Long-term Debt |
283,222 |
288,859 |
||||||
Other Non-current Liabilities |
125,279 |
119,353 |
||||||
Total Stepan Company Stockholders' Equity |
707,341 |
634,604 |
||||||
Noncontrolling Interest |
1,358 |
1,312 |
||||||
Total Liabilities and Stockholders' Equity |
$ |
1,406,739 |
$ |
1,353,890 |
View original content:http://www.prnewswire.com/news-releases/stepan-reports-second-quarter-and-record-first-half-earnings-300493919.html
SOURCE