Stepan Posts Strong Quarter

NORTHFIELD, Ill., Oct. 18, 2016 /PRNewswire/ — Stepan Company (NYSE: SCL) today reported:

Third Quarter Highlights

• Reported net income was $20.4 million, or $0.89 per diluted share, an 18% decrease versus $24.9 million, or $1.09 per diluted share, in the prior year. Adjusted net income* was $24.5 million, or $1.06 per diluted share, a 16% increase versus $21.1 million, or $0.92 per diluted share, in the prior year.
• Total company sales volume increased 2% for the quarter.
• Surfactant operating income was $20.7 million, a 5% decrease versus prior year. Most of this decrease was attributable to lower sales volumes in Latin American and Europe. Global Surfactant sales volume was flat versus prior year.
• Polymer operating income was $27.1 million, a 10% increase versus prior year. This was mostly attributable to higher volume which was up 11% versus prior year.
• The effect of foreign currency translation had an immaterial impact on net income versus prior year.
• On October 3rd, closed on acquisition of Tebras/PBC in Brazil, which will allow Stepan to expand and diversify its customer base in Brazil and provide an opportunity to sell the Company’s broader surfactant portfolio.

Nine Month Highlights

• Reported net income was a record $75.9 million, or $3.31 per diluted share, a 20% increase versus $63.1 million, or $2.76 per diluted share, in the prior year. Adjusted net income* was a record $84.1 million, or $3.66 per diluted share, a 35% increase versus $62.4 million, or $2.73 per diluted share, in the prior year.
• Total company sales volume increased 8% for the first nine months.
• The effect of foreign currency translation negatively impacted net income by $2.3 million, or $0.10 per diluted share, versus prior year.

*  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.

“The Company delivered reported net income of $20.4 million, a record adjusted net income in the third quarter, and record results through the first nine months of the year,” said F. Quinn Stepan, Jr., President and Chief Executive Officer. “Strong Polymer volumes globally, increased asset utilization and enhanced internal efficiencies continue to drive results.

“Surfactant operating income was down 5% mostly due to lower volumes in Latin America and Europe. North American surfactant operating income improved on higher volumes. Polymer income was up 10%, benefiting from global energy conservation efforts and the advantages that our technologies provide over competitive insulation materials.”  

Financial Summary

Summary of Third Quarter Adjusted Net Income Items

Adjusted net income excludes non-operational deferred compensation income/expense and may exclude certain other significant and infrequent or non-recurring items.

• Deferred Compensation:  The current year quarter includes $6.6 million of pre-tax expense versus $6.2 million of pre-tax income in the prior year.  These amounts were $4.1 million of expense and $3.8 million of income, respectively, on an after-tax basis.

Percentage Change in Net Sales

Quarterly net sales were essentially flat versus prior year.  Higher sales volume offset lower selling prices and the negative impact of foreign currency translation resulting from the stronger U.S. dollar.  Sales volumes were up 2% mostly due to strong Polymer growth globally and higher volumes in North America Surfactants. The lower selling prices were primarily related to lower raw material costs within the Polymer segment.

Segment Results

Total segment operating income increased $4.1 million, or 9%, versus the prior year quarter. Total segment operating income for the first nine months increased $25.9 million or 18% versus the prior year.

• Surfactant net sales were $290.5 million for the quarter, $0.4 million less than prior year. Sales volume was flat with prior year. Increased North American laundry business was offset by lower volumes in Latin America and Europe. Selling prices were slightly higher resulting in an increase in net sales of $5.3 million while the translation impact of a stronger U.S. dollar decreased net sales by $4.7 million. Surfactant operating income decreased $1.0 million, or 5%, versus the prior year. This decrease was primarily attributable to lower sales volumes in Latin America and Europe as well as accelerated depreciation related to the Canadian plant closure. These were partially offset by lower raw material costs and contributions from our internal efficiency program (DRIVE).
• Polymer net sales were $134.1 million in the third quarter, a $0.6 million decrease versus prior year. Sales volume increased 11% in the quarter primarily due to continued growth in polyols used in rigid foam insulation and insulated metal panels. Net sales increased $14.4 million as a result of this volume growth. Selling prices were lower which decreased net sales by $13.4 million. The translation impact of a stronger U.S. dollar decreased net sales by $1.6 million. Operating income increased $2.5 million, or 10%, versus the prior year. This improvement was primarily attributable to 14% volume growth within the Global Rigid Polyol business.
• Specialty Products net sales were $20.4 million, $2.0 million higher than prior year. Operating income increased $2.5 million versus the prior year. This improvement was primarily due to higher volumes, improved margins and lower costs due to actions taken in 2015.