Stepan Q3 Results
Stepan Reports Third Quarter Results and Nine Month Earnings
NORTHFIELD, Ill., Oct. 23, 2019 /PRNewswire/ — Stepan Company (NYSE: SCL) today reported:
Third Quarter Highlights
- Reported net income was $25.9 million, or $1.11 per diluted share versus $21.8 million, or $0.93 per diluted share, in the prior year. Adjusted net income* was $27.9 million, or $1.20 per diluted share versus $26.4 million, or $1.13 per diluted share, in the prior year.
- Surfactant operating income was $19.7 million versus $28.8 million in the prior year. This decrease was primarily attributable to an 8% decline in global sales volume. The decline in global sales volume was mostly due to the Company’s exit from its sulfonation business in Germany in 2018, lower agricultural demand due to the wet weather in the U.S. farm belt and lower demand in the U.S. commodity consumer product end markets. The current quarter was also significantly impacted by higher inventory-related costs associated with the Company’s internal Asian-U.S. supply chain and the residual impact of the equipment failure in Ecatepec, Mexico. The Company’s insurance provider has acknowledged the Ecatepec incident is a covered event and the Company is pursuing insurance recovery for damaged equipment, incremental supply chain expenses and business interruption.
- Polymer operating income was $23.3 million versus $19.3 million in the prior year. This increase was mostly attributable to higher volume and improved margins. Global Polymer sales volume increased 3% versus the prior year. Global rigid polyol volume growth of 6% more than offset lower volume in other end markets.
- Specialty Product operating income was $2.3 million versus $2.7 million in the prior year. This decrease was primarily attributable to unfavorable order timing differences within our pharmaceutical business largely offset by improved margins within our medium chain triglycerides (MCTs) product line.
- The effect of foreign currency translation negatively impacted net income by $0.4 million, or $0.02 per diluted share, versus the prior year.
- The Company increased its quarterly cash dividend in the fourth quarter of 2019 by $.025 per share, or 10%, marking the 52nd consecutive year that the Company has increased its cash dividend to stockholders.
- Reported net income was $81.1 million, or $3.48 per diluted share, versus $87.2 million, or $3.74 per diluted share, in the prior year. Adjusted net income* was $93.7 million, or $4.02 per diluted share, versus $92.2 million, or $3.95 per diluted share, in the prior year. Total Company sales volume declined 3% compared to the first nine months of 2018. Sales volume growth within the Polymer and Specialty Product segments was offset by a 4% decline in Surfactant sales volume, or a 2% decline excluding the exit from the sulfonation business in Germany.
- As disclosed in the first quarter of 2019, the Company elected to change its method of accounting for U.S. inventories from the last in, first out (LIFO) basis to the first in, first out (FIFO) basis. The Company has retrospectively applied this change to its prior year financial statement comparables and denoted impacted prior year columns “As Adjusted”. The net impact of changing from the LIFO method to the FIFO method on prior year results was $0.4 million of additional expense recognition in the third quarter and $1.3 million of additional income recognition for the first nine months. The Company will recognize $1.6 million of additional expense for full year 2018.
* Adjusted net income is a non-GAAP measure which excludes deferred compensation income/expense, cash-settled stock appreciation rights (SARs), as well as other significant and infrequent/non-recurring items. See Table II for reconciliations of non-GAAP adjusted net income and adjusted earnings per diluted share.
“Despite the challenging current environment, the Company’s quarterly net income and adjusted net income exceeded prior year, and through nine months, adjusted net income is ahead of last year’s record,” said F. Quinn Stepan, Jr., Chairman, President and Chief Executive Officer. “For the quarter, Surfactant earnings were down significantly due to lower commodity volumes in North America and the slow recovery of our business in Mexico. The Polymer business had a strong third quarter driven by global rigid polyol growth. Specialty Products income was down due to customer order patterns, but is expected to deliver significant profit growth for the year.”
“Adjusted net income for the first nine months of 2019 is up 2% from our record in 2018, despite the Mexican equipment failure and the decrease in commodity surfactant volumes. We believe our continued focus on end market diversification, Tier 2 and Tier 3 customers, as well as our cost-out activities should improve future Surfactant margins. We remain optimistic the Polymer business will deliver full year volume growth and incremental margin improvement versus 2018 given our strong rigid polyol growth in the first nine months. We believe full year Specialty Product results will improve versus 2018. Overall, despite the current year challenges, we have an opportunity to deliver another year of adjusted net income growth,” said F. Quinn Stepan, Jr., Chairman, President and Chief Executive Officer.