Stepan Company

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Press Release $SCL Stepan Company

0 COMMENTs 19 Feb
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Stepan Reports Fifth Consecutive Year Of Record Earnings

NORTHFIELD, Ill., Feb. 19, 2013 /PRNewswire/ -- Stepan Company (NYSE: SCL) today reported its fifth consecutive record net income year generating a five year compound growth rate of 39 percent.

  • Full year net income increased for a fifth consecutive record year to $79.4 million, up 10 percent, or $3.49 per diluted share, compared to $72.0 million, or $3.21 per diluted share, a year ago.
  • Fourth quarter net income rose 17 percent to $15.4 million, or $0.68 per diluted share, compared to $13.2 million, or $0.59 per diluted share, a year ago.
  • Excluding deferred compensation plan expense, full year net income was up 16 percent to $84.8 million, or $3.73 per diluted share compared to $72.9 million, or $3.25 per diluted share.  Fourth quarter net income, excluding deferred compensation expense was up 17 percent to $18.0 million, or $0.79 per diluted share, compared to $15.4 million, or $0.68 per diluted share, a year ago.  Deferred compensation expense is largely attributable to an increase in the share price of the Company's common stock, which rose by $7.48 per share during the fourth quarter and $15.46 per share for the full year.
  • Sales volume grew by 2 percent.  Net sales revenues declined by 2 percent due to lower selling prices (resulting from lower raw material costs) and foreign translation.

 

SUMMARY








Three Months Ended

December 31


Twelve Months Ended

December 31

($ in thousands)

 

2012

 

2011

%
Change


 

2012

 

2011

%
Change









Net Sales

$  427,259

$  444,170

- 4


$  1,803,737

$  1,843,092

- 2









Net Income

$   15,439

$   13,179

+ 17


$      79,396

$      71,976

+ 10









Net Income Excluding

   Deferred Compensation*

 

$   18,010

 

$   15,371

 

+ 17


 

$      84,834

 

$      72,900

 

+ 16









Earnings per Diluted Share

$0.68

$0.59

+ 15


$3.49

$3.21

+ 9









Earnings per Diluted Share

   Excluding Deferred

   Compensation

 

 

$0.79

 

 

$0.68

 

 

+ 16


 

 

$3.73

 

 

$3.25

 

 

+ 15









*  See Table II for a discussion of deferred compensation plan accounting.

 

FOURTH QUARTER AND FULL YEAR RESULTS



Three Months Ended

December 31


Twelve Months Ended

December 31

($ in thousands)

 

2012

 

2011

%
Change


 

2012

 

2011

%
Change









Net Sales








     Surfactants  

$310,454

$331,430

- 6


$1,305,800

$1,361,956

- 4

     Polymers

103,116

94,201

+ 9


423,959

421,515

+ 1

     Specialty Products

13,689

18,539

- 26


73,978

59,621

+ 24

         Total Net Sales

$427,259

$444,170

- 4


$1,803,737

$1,843,092

- 2

The decrease in sales was due to lower selling prices and foreign translation, partially offset by higher volume.



Percentage Change in Net Sales


Three Months Ended

December 31, 2012

Twelve Months Ended

December 31, 2011

Volume

+ 3

+ 2

Selling Price

- 6

- 2

Foreign Translation

- 1

- 2

   Total

- 4

- 2

  • Surfactant net sales declined 6 percent for the quarter and 4 percent for the year due to lower selling prices, which reflect lower raw material costs.  Surfactant sales volume rose 1 percent for the quarter and 2 percent for the full year.  Higher value added surfactants used in agricultural products and household and industrial cleaning products posted higher sales volumes, whereas commodity surfactants used in North American consumer cleaning declined slightly as a result of lower usage levels, competition and the weak economy.  Sales volumes in Latin America were up on gains in Brazil and Colombia. 
  • Polymer net sales rose 9 percent for the quarter and 1 percent for the full year.  Volume rose 10 percent for the quarter and 3 percent for the full year.  The volume growth was primarily from polyol used in rigid foam insulation.  The full year 3 percent volume growth included gains from new applications in metal panels and adhesives. 
  • Specialty Products net sales rose 24 percent for the full year due to the Company's acquisition of the Lipid Nutrition business in June of 2011, despite lower fourth quarter volumes due to increased global competition.

Gross profit increased by 17 percent to $70.1 million for the quarter and rose 14 percent to $291.6 million for the year.

  • Surfactant gross profit grew by 20 percent to $51.6 million for the quarter.  Full year gross profit grew by 14 percent to $203.4 million.  The gross profit improvement was largely attributable to improved product mix and margin recovery as raw material costs declined.  Value added surfactants used in agricultural products and household and industrial cleaning products posted higher sales volume.  Also contributing significantly to the improvement were higher profits from Latin America, particularly Brazil, due to improved volume and operational efficiencies.
  • Polymer gross profit grew by 31 percent to $16.6 million for the quarter on a 10 percent increase in volume.  The profit improvement came from both phthalic anhydride (PA) and polyol products.  Polyol profit growth was attributable to 12 percent quarterly volume growth, primarily from polyol used in energy saving rigid foam roof insulation.  Full year polymer gross profit rose 17 percent to $71.9 million.  The gross profit improvement benefited from a favorable sales mix of higher value added polyol and polyurethane systems.  Polyol volume rose 5 percent for the year.  A large polyurethane systems order for an aircraft carrier and a business interruption insurance recovery related to a 2011 fire in our German polyol plant positively impacted the year.
  • Full year Specialty Products gross profit rose 7 percent to $20.3 million due to the contribution of the Lipid Nutrition product line acquired in June of 2011. Fourth quarter Specialty Products gross profit declined to $2.9 million due to a 26 percent drop in volume among both food ingredients and nutritional supplements. 

 

OPERATING EXPENSES






Three Months Ended

December 31


Twelve Months Ended

December 31

($ in thousands)

 

2012

 

2011

%
Change


 

2012

 

2011

%
Change









Selling

$14,381

$11,921

+ 21


$53,145

$45,807

+ 16

Administrative – General

14,562

13,263

+ 10


53,728

49,237

+ 9

Administrative – Deferred

    Compensation Plan

    Expense *

 

 

3,990

 

 

4,240

 

 

- 6


 

 

10,251

 

 

1,529

 

 

    NM

Research, development

    and technical service

 

12,583

 

9,554

 

+ 32


 

45,713

 

40,524

 

+ 13

           Total

$45,516

$38,978

+ 17


$162,837

$137,097

+ 19









* See Table II for a discussion of deferred compensation plan accounting.

Increased headcount to support growth initiatives contributed to the full year increase in all categories.  Also contributing to the higher expense in all categories was the effect of higher performance based compensation expense due to the strong operating results for the Company.  The higher fourth quarter research expenses include higher product registration costs in Europe.

BALANCE SHEET











The Company's net debt level declined by $3.0 million for the quarter and $9.9 million for the year:








12/31/12

9/30/12

6/30/12

3/31/12

12/31/11







Net Debt






   Total Debt

$182.4

$188.2

$195.3

$201.0

$199.5

   Cash

76.9

79.7

69.5

64.6

84.1

      Net Debt

$105.5

$108.5

$125.8

$136.4

$115.4







Equity

480.9

467.8

443.2

434.7

405.5

Net Debt + Equity

$586.4

$576.3

$569.0

$571.1

$520.9







Ratio of Net Debt to
Net Debt + Equity

 

18.0%

 

18.8%

 

22.1%

 

23.9%

 

22.2%

The Company's stockholders' equity has grown over the last three years to $479 million from $289 million.  The health of the Company's balance sheet remains strong and will allow us to continue investment in growth opportunities. 

The fourth quarter decrease in net debt was attributable to lower seasonal working capital requirements.  The full year decrease in net debt was due to the deflationary impact of lower commodity raw material costs on receivables, partially offset by higher quantities of inventory on hand for our Singapore plant start-up.  Capital expenditures for the quarter and year-to-date periods were $22.3 million and $83.2 million, respectively.

OUTLOOK

The investments made over the last several years helped the Company deliver a 16% increase in full year net income, excluding deferred compensation.  In 2013 we will continue to pursue geographic expansion and higher value opportunities within all three of our business segments.  Our strategy and ability to execute provide us with the opportunity for continued earning growth in 2013.

Surfactants expects to continue to derive more of its profits from higher value added products in the agricultural, oilfield and household and industrial cleaning markets.  Demand for crop protection chemicals is expected to remain strong in 2013.  We are positioned for further profit growth in Brazil.  Our Singapore plant is now operational and should contribute modestly to earnings in 2013 and more significantly beyond that as we diversify production at the site.

Polymers should experience continued growth from polyol used in energy saving rigid foam insulation.  Recent demand growth has largely come from greater insulation levels for replacement roofing.  A recovering economy would stimulate the commercial construction market and eventually restore that demand.  Our polymers segment is expected to face higher costs to operate in China in 2013 and 2014 as the government is requiring that we relocate our plant to a new industrial zone.  We plan to supply our Asian customers with product toll produced by another chemical plant in China or imported from other Stepan production sites.  We anticipate the higher costs of operating in China will limit polymer earnings growth in 2013. 

"In 2012 we achieved our fifth consecutive record income year and our forty-fifth consecutive annual dividend increase.  Our balance sheet is strong and we intend to leverage that strength to make investments that will accelerate our growth and deliver value to our shareholders," said F. Quinn Stepan, Jr., President and Chief Executive Officer.


CONFERENCE CALL

Stepan Company will host a conference call to discuss the fourth quarter and year end results at 2 p.m. ET (1:00 p.m. CT) on February 20, 2013. Telephone access to the live conference call will be available by dialing +1 (800) 272-5460.  To listen to a live webcast of this call, please go to our Internet website at: www.stepan.com, click on investor relations, next click on conference calls and follow the directions on the screen.

ABOUT STEPAN COMPANY

Stepan Company, headquartered in Northfield, Illinois, is a leading producer of specialty and intermediate chemicals used in household, industrial, personal care, agricultural, food and insulation related products.  The common and the convertible preferred stocks are traded on the New York and Chicago Stock Exchanges under the symbols SCL and SCLPR.

For more information about Stepan Company, please visit the Company online at www.stepan.com.

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 Stepan Company's Form 10-K, Form 8-K and Form 10-Q reports and exhibits to those reports, and include (but are not limited to), prospects for our foreign operations, foreign currency fluctuations, certain global and regional economic conditions, the probability of future acquisitions and the uncertainties related to the integration of acquired businesses, the probability of new products, the loss of one or more key customer or supplier relationships, the costs and other effects of governmental regulation and legal and administrative proceedings, including the expenditures necessary to address and resolve environmental claims and proceedings, and general economic conditions.  These forward-looking statements are made only as of the date hereof, and Stepan Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.


Table I


STEPAN COMPANY

Statements of Income

For the Three and Twelve Months Ended December 31, 2012 and 2011

(Unaudited – 000's Omitted)


















Three Months Ended

December 31


Twelve Months Ended

December 31


 

2012

 

2011

% Change


 

2012

 

2011

% Change









Net Sales

$ 427,259

$ 444,170

-       4


$ 1,803,737

$ 1,843,092

-       2

Cost of Sales

357,139

384,068

-       7


1,512,184

1,587,539

-       5

   Gross Profit

70,120

60,102

+    17


291,553

255,553

+    14









Operating Expenses:








   Selling

14,381

11,921

+    21


53,145

45,807

+    16

   Administrative

18,552

17,503

+      6


63,979

50,766

+    26

   Research, Development

       and Technical Services

 

12,583

 

9,554

 

+    32


 

45,713

 

40,524

 

+    13


45,516

38,978

+    17


162,837

137,097

+    19









Operating Income

24,604

21,124

+    16


128,716

118,456

+      9

Other Income (Expense):








   Interest, Net

(2,225)

(2,582)

-     14


(9,599)

(9,095)

+      6

   Loss from Equity

   in Joint Ventures

 

(907)

 

(956)

 

-       5


 

(4,724)

 

(3,616)

 

+    31

   Other, Net

(223)

612

       NM


1,329

(851)

       NM


(3,355)

(2,926)

+    15


(12,994)

(13,562)

-       4









Income Before Income Taxes

21,249

18,198

+    17


115,722

104,894

+    10

Provision for Income Taxes

5,756

4,649

+    24


36,035

32,292

+    12

Net Income

15,493

13,549

+    14


79,687

72,602

+    10









Net Income Attributable to

Noncontrolling Interests

 

(54)

 

(370)

 

-     85


 

(291)

 

(626)

 

-     54









Net Income Attributable to Stepan Company

 

$   15,439

 

$   13,179

 

+    17


 

$      79,396

 

$      71,976

 

+    10









Net Income Per Common Share Attributable to Stepan Company








   Basic

$0.71

$0.63

+    13


$3.71

$3.44

+      8

   Diluted

$0.68

$0.59

+    15


$3.49

$3.21

+      9









Shares Used to Compute Net

Income Per Common Share Attributable to Stepan Company








   Basic

21,777

20,836

+      5


21,273

20,726

+      3

   Diluted

22,804

22,572

+      1


22,730

22,440

+      1

 

Table II





Deferred Compensation Plan





The full effect of the deferred compensation plan on quarterly pretax income was $4.1 million of expense versus expense of $3.5 million last 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:






2012


2011


12/31

9/30

6/30

3/31


12/31

9/30

6/30

3/31

Stepan Company

$55.54

$48.06

$47.09

$43.90


$40.08

$33.59

$35.45

$36.25











The deferred compensation expense income statement impact is summarized below:



Three Months Ended

December  31


Twelve Months Ended

December 31

($ in thousands)

2012

2011


2012

2011







Deferred Compensation






   Administrative (Expense)

$ (3,990)

$ (4,240)


$ (10,251)

$ (1,529)

   Other, net – Mutual Fund Gain

(156)

705


1,480

38

       Total Pretax

$ (4,146)

$ (3,535)


$ (8,771)

$ (1,491)







       Total After Tax

$ (2,571)

$ (2,192)


$ (5,438)

$ (923)







Reconciliation of non-GAAP net income:



Three Months Ended

December 31


Twelve Months Ended

December 31

($ in thousands)

2012

2011


2012

2011







Net income excluding deferred

   compensation

 

$  18,010

 

$  15,371


 

$84,834

 

$72,900

Deferred compensation plan (expense)

(2,571)

(2,192)


(5,438)

(923)

Net income as reported

$  15,439

$  13,179


$79,396

$71,976







Reconciliation of non-GAAP EPS:



Three Months Ended

December 31


Twelve Months Ended

December 31


2012

2011


2012

2011







Earnings per diluted share excluding

   deferred compensation

 

$0.79

 

$0.68


 

$3.73

 

$3.25

Deferred compensation plan (expense)

(0.11)

(0.09)


(0.24)

(0.04)

Earnings per diluted share

$0.68

$0.59


$3.49

$3.21







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


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 December 31, 2012:





($ in millions)

Three Months

Ended December 31

Increase

(Decrease)

(Decrease) Due

to Foreign
Translation


2012

2011



Net Sales

$ 427.3

$ 444.2

$(16.9)

(2.1)

Gross Profit

70.1

60.1

10.0

(0.5)

Operating Income

24.6

21.1

3.5

(0.3)

Pretax Income

21.2

18.2

3.0

(0.3)
















($ in millions)

Twelve Months

Ended December 31

Increase

(Decrease)

(Decrease) Due

to Foreign
Translation


2012

2011



Net Sales       

$1,803.7

$1,843.1

($39.4)

(39.6)

Gross Profit

291.6

255.6

36.0

(5.2)

Operating Income

128.7

118.5

10.2

(2.7)

Pretax Income

115.7

104.9

10.8

(2.6)

Table IV




Stepan Company

Consolidated Balance Sheets

December 31, 2012 and December 31, 2011





2012

December 31

2011

December 31

ASSETS






Current Assets

$523,078

$479,742




Property, Plant & Equipment, Net

422,022

383,983




Other Assets

40,378

37,393




   Total Assets

$985,478

$901,118







LIABILITIES AND STOCKHOLDERS' EQUITY






Current Liabilities

$247,167

$233,226




Deferred Income Taxes

9,200

8,644




Long-term Debt

149,564

164,967




Other Non-current Liabilities

98,667

88,816




Total Stepan Company Stockholders' Equity

478,985

401,211




Noncontrolling Interest

1,895

4,254




   Total Liabilities and Stockholders' Equity

$985,478

$901,118

 

SOURCE Stepan Company

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