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Stepan Reports Fourth Consecutive Year of Record Earnings

NORTHFIELD, Ill., Feb. 14, 2012 /PRNewswire/ -- Stepan Company (NYSE: SCL) today reported record earnings for the fourth quarter and full year ended December 31, 2011.

    --  Net income rose 10 percent to $72.0 million for a fourth consecutive
        record year.
    --  Fourth quarter net income rose 55 percent to $13.2 million.
    --  Net income, excluding deferred compensation plan expense, rose 8 percent
        for the year to $72.9 million and 35 percent for the fourth quarter to
        $15.4 million.
    --  Net sales rose 29 percent for the year to $1.8 billion.  Sales volume
        rose 3 percent.  Higher selling prices resulting from higher raw
        material costs and improved mix of higher priced products accounted for
        a 24 percent increase in sales.



    SUMMARY
    -------

                              Three Months Ended                      Twelve Months Ended
                              ------------------                      -------------------
                                  December 31                             December 31
                                  -----------                             -----------
    ($ in
     thousands)
                            2011      2010  % Change              2011          2010  % Change
                            ----      ----  --------              ----          ----  --------

    Net Sales           $444,170  $360,788      + 23        $1,843,092    $1,431,122      + 29

    Net Income           $13,179    $8,491      + 55           $71,976       $65,427      + 10

    Net
     Income
     Excluding
       Deferred
        Compensation*    $15,371   $11,370      + 35           $72,900       $67,622       + 8

    Earnings per
     Diluted Share         $1.17     $0.76      + 54             $6.42         $5.90       + 9

     Earnings
     per
     Diluted
     Share
        Excluding
        Deferred
       Compensation        $1.36     $1.02      + 33             $6.50         $6.10       + 7

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



    FOURTH QUARTER AND FULL YEAR RESULTS
    ------------------------------------

                                   Three Months Ended               Twelve Months Ended
                                   ------------------               -------------------
                                       December 31                      December 31
                                       -----------                      -----------
    ($ in
     thousands)                                  % Change
                                 2011      2010  --------       2011        2010  % Change
                                 ----      ----                 ----        ----  --------

    Net Sales
        Surfactants          $331,430  $266,998      + 24 $1,361,956  $1,057,982      + 29
        Polymers               94,201    84,608      + 11    421,515     330,416      + 28
        Specialty
         Products              18,539     9,182     + 102     59,621      42,724      + 40
                               ------     -----               ------      ------
            Total Net Sales  $444,170  $360,788      + 23 $1,843,092  $1,431,122      + 29
                             ========  ========           ==========  ==========

The increase in sales was due to higher selling prices and volume.




                       Percentage Change in Net Sales
                       ------------------------------
                      Three Months     Twelve Months
                          Ended            Ended
                      December 31,      December 31,
                          2011              2011
                     -------------     -------------
    Selling Price              + 19              + 24
    Volume                      + 5               + 3
    Foreign
     Translation                - 1               + 2
                                ---               ---
       Total                   + 23              + 29
                               ====              ====

    --  Surfactant sales volume rose 5 percent for the quarter and 2 percent for
        the full year.  Improved volume of Functional surfactants used in
        agricultural, oilfield and biodiesel applications offset weakness in
        North American Consumer Product applications.  Latin American volume
        growth was led by a 22 percent increase in Brazil.

    --  Polymer sales volume grew by 2 percent for the quarter and 9 percent for
        the full year.  Sales volume of polyol, used primarily in rigid foam
        insulation, grew by 14 percent for the year due to higher demand for
        insulation in replacement roofing on commercial buildings and growing
        demand in metal panel insulation and adhesive applications.

    --  Specialty Products net sales rose 102 percent for the quarter and 40
        percent for the year in large part due to the June acquisition of the
        Lipid Nutrition product line.  Sales volume of this product line is
        consistent with expectations.

Gross profit increased by 19 percent to $60.1 million for the quarter and rose 8 percent to $255.6 million for the year.

    --  Surfactant gross profit improved by 28 percent to $43.0 million for the
        quarter and rose 8 percent for the year to $178.5 million.  Improved
        sales mix of Functional surfactants more than offset the impact of
        weaker Consumer Product volume.  Agricultural surfactant volume finished
        with a very strong fourth quarter and full year improvement.  Brazil
        contributed to the higher fourth quarter gross profit on the growing
        sales volumes made possible by our plant expansion completed during
        2011.

    --  Polymer gross profit grew by 11 percent to $61.6 million for the year
        driven by higher sales volumes of polyol.  The growth in polyol volume
        more than offset lower gross profit on phthalic anhydride (PA).  Fourth
        quarter Polymer gross profit declined 11 percent to $12.7 million due to
        weaker PA margins resulting from consuming higher priced raw material
        inventory.  Fire damage repairs to our second polyol reactor in Germany
        have been completed and no property damage loss was recorded as
        insurance is expected to cover the damage.  The fire did result in
        business interruption and higher costs of supplying product from the
        U.S. to Europe.  Business interruption insurance claims are expected to
        be settled in 2012, and consequently, no benefit was recorded in 2011.

    --  Specialty Products gross profit grew 6 percent to $19.0 million for the
        year and 68 percent to $5.3 million for the fourth quarter.  The fourth
        quarter improvement was attributable to the Lipid Nutrition product line
        acquired in June of 2011.



    OPERATING EXPENSES
    ------------------

                            Three Months Ended              Twelve Months Ended
                            ------------------              -------------------
                                December 31                     December 31
                                -----------                     -----------
    ($ in
     thousands)                            % Change
                          2011       2010  --------     2011       2010  % Change
                          ----       ----               ----       ----  --------

    Marketing          $11,921    $10,571      + 13  $45,807    $40,273       + 14
     Administrative
     -
     General            13,263     12,168       + 9   49,237     44,481       + 11
     Administrative
     -
     Deferred
         Compensation
         Plan
        Expense *        4,240      5,491      - 23    1,529      5,020       - 70
     Research,
     development
        and
         technical
         service         9,554      8,960       + 7   40,524     38,307        + 6
                         -----      -----             ------     ------
               Total   $38,978    $37,190       + 5 $137,097   $128,081        + 7
                       =======    =======           ========   ========

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

    --  Investment for future growth opportunities in the Netherlands,
        Singapore, Brazil, Poland and Philippines have increased total operating
        expenses by $2.1 million for the quarter and $7.2 million for the full
        year.

    --  Marketing expense rose 13 percent for the quarter and 14 percent for the
        year due to global growth initiatives.

    --  Administrative general expense rose by 9 percent for the quarter and 11
        percent for the full year, also led by global growth initiatives.  The
        increase is also the result of a $1.4 million credit in 2010 for lower
        estimated future environmental remediation costs.

PROVISION FOR INCOME TAXES

The full year effective tax rate was 30.8 percent versus 35.4 percent a year ago. The lower effective rate was primarily attributable to the implementation of a holding company structure that will provide a recurring benefit in lowering the tax rate on foreign earnings.

BALANCE SHEET

The Company's net debt level declined by $38.8 million for the quarter and rose $35.0 million for the year:




    ($ in
     millions)

    Net Debt        12/31/11   9/30/11   12/31/10
                    --------   -------   --------
       Total Debt     $199.5    $186.6     $191.6
       Cash             84.1      32.4      111.2
                        ----      ----      -----
       Net Debt       $115.4    $154.2      $80.4
                      ======    ======      =====

The fourth quarter decrease in net debt was attributable to lower seasonal working capital requirements. The full year increase in net debt was due to the inflationary impact of higher commodity raw material costs on inventory and receivables. Capital expenditures for the quarter and year-to-date periods were $22.2 million and $83.2 million, respectively.

OUTLOOK

The investments we have made over the last two years to accelerate the growth of the Company create the opportunity for continued earnings growth in 2012. Surfactant growth will come from our expanded operations in Brazil and continued growth in higher value Functional surfactants used in agricultural, oilfield and enhanced oil recovery.

Polyol volume is projected to continue to grow in 2012 as recommendations to use higher insulation levels to reduce energy consumption are implemented. Our polyol expansion in Germany was completed in 2011. Volume growth for our polyol has been strong primarily for use in replacement roofing. The eventual recovery of the new commercial construction market, while not expected in 2012, will create additional demand for the Company's polyol.

Specialty Products is positioned for growth in 2012 based on last year's Lipid Nutrition product line acquisition.

"In 2011 we achieved our fourth consecutive record income year and our forty-fourth consecutive annual dividend increase. Our balance sheet is strong and we are positioned to grow our Company 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 15, 2012. Telephone access to the live conference call will be available by dialing +1 (800) 942-7925. 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, 2011 and
                                              2010
                                      (Unaudited - 000's Omitted)


                                       Three Months Ended                    Twelve Months Ended
                                       ------------------                    -------------------
                                          December 31                            December 31
                                        -----------                        -----------
                                                          %
                                                                 Change
                                     2011       2010                     2011         2010  % Change
                                     ----       ----                     ----         ----  --------

     Net
     Sales                       $444,170   $360,788    +  23      $1,843,092   $1,431,122      +  29
     Cost
     of
     Sales                        384,068    310,269    +  24       1,587,539    1,195,144      +  33
                                  -------    -------                ---------    ---------
        Gross
        Profit                     60,102     50,519    +  19         255,553      235,978       +  8

     Operating
     Expenses:
       Marketing                   11,921     10,571    +  13          45,807       40,273      +  14
       Administrative              17,503     17,659     -  1          50,766       49,501       +  3
        Research,
        Development
            and
            Technical
            Services                9,554      8,960     +  7          40,524       38,307       +  6
                                    -----      -----                   ------       ------
                                   38,978     37,190     +  5         137,097      128,081       +  7

     Operating
     Income                        21,124     13,329    +  58         118,456      107,897      +  10
    Other
     Income
     (Expense):
        Interest,
        Net                        (2,582)    (1,571)   +  64          (9,095)      (6,341)     +  43
       Loss
        from
        Equity
        in
        Joint
        Ventures                     (956)      (460)  +  108          (3,616)      (1,663)    +  117
        Other,
        Net                           612        908    -  33            (851)       1,586      NM
                                      ---        ---                     ----        -----
                                   (2,926)    (1,123)  +  161         (13,562)      (6,418)    +  111

     Income
     Before
     Income
     Taxes                         18,198     12,206    +  49         104,894      101,479       +  3
     Provision
     for
     Income
     Taxes                          4,649      3,588    +  30          32,292       35,888      -  10
                                    -----      -----                   ------       ------
     Net
     Income                        13,549      8,618    +  57          72,602       65,591      +  11

     Net
     Income
     Attributable
     to
     Noncontrolling
     Interests                       (370)      (127)  +  191          (626)        (164)    +  282
                                     ----       ----                     ----         ----

     Net
     Income
     Attributable
     to
     Stepan
     Company                      $13,179     $8,491    +  55       $71,976      $65,427      +  10
                                  =======     ======                  =======      =======

    Net
     Income
     Per
     Common
     Share
     Attributable
     to
     Stepan
     Company
       Basic                        $1.25      $0.81    +  54           $6.88        $6.36       +  8
                                    =====      =====                    =====        =====
       Diluted                      $1.17      $0.76    +  54           $6.42        $5.90       +  9
                                    =====      =====                    =====        =====

    Shares
     Used
     to
     Compute
     Net
     Income
     Per
     Common
     Share
     Attributable
     to
     Stepan
     Company
       Basic                       10,418     10,205     +  2          10,363       10,163       +  2
                                   ======     ======                   ======       ======
       Diluted                     11,286     11,148     +  1          11,220       11,090       +  1
                                   ======     ======                   ======       ======

Table II

Deferred Compensation Plan

The full effect of the deferred compensation plan on quarterly pretax income was $3.5 million of expense versus expense of $4.6 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:




                                    2011                        2010
                                    ----                        ----
              12/31   9/30   6/30   3/31  12/31   9/30   6/30   3/31
              -----   ----   ----   ----  -----   ----   ----   ----
    Stepan
     Company $80.16 $67.18 $70.90 $72.50 $76.27 $59.11 $68.43 $55.89

The deferred compensation expense income statement impact is summarized below:




                           Three Months Ended      Twelve Months Ended
                              December  31             December 31
    ($ in thousands)          2011         2010     2011        2010
                              ----         ----     ----        ----

    Deferred Compensation
       Administrative
        (Expense)          $(4,240)     $(5,491) $(1,529)    $(5,020)
       Other, net - Mutual
        Fund Gain              705          847       38       1,479
                               ---          ---      ---       -----
           Total Pretax    $(3,535)     $(4,644) $(1,491)    $(3,541)
                           =======      =======  =======     =======

           Total After Tax $(2,192)     $(2,879)   $(923)    $(2,195)
                           =======      =======    =====     =======



    Reconciliation of non-GAAP net income:

                                    Three Months
                                       Ended         Twelve Months Ended
                                    December 31          December 31
    ($ in thousands)               2011      2010     2011        2010
                                   ----      ----     ----        ----

    Net income excluding
     deferred
       compensation             $15,371   $11,370  $72,900     $67,622
    Deferred compensation
     plan (expense)              (2,192)   (2,879)    (923)     (2,195)
                                 ------    ------     ----      ------
    Net income as reported      $13,179    $8,491  $71,976     $65,427
                                =======    ======  =======     =======



    Reconciliation of non-GAAP EPS:

                                                           Twelve Months
                                 Three Months Ended                      Ended
                                     December 31           December 31
                                    2011       2010    2011       2010
                                    ----       ----    ----       ----

    Earnings per diluted
     share excluding
       deferred compensation       $1.36      $1.02   $6.50      $6.10
    Deferred compensation
     plan (expense)                (0.19)     (0.26) (0.08)      (0.20)
                                   -----      -----   -----      -----
    Earnings per diluted
     share                         $1.17      $0.76   $6.42      $5.90
                                   =====      =====   =====      =====

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, 2011:




    ($ in                                          (Decrease)
     millions)        Three Months                               Due
                      Ended December
                            31        Increase   to Foreign
                    ---------------   --------  Translation
                                                  -----------
                     2011      2010
                     ----      ----
    Net Sales      $444.2    $360.8      $83.4         $(4.8)
    Gross Profit     60.1      50.5        9.6          (0.3)
    Operating
     Income          21.1      13.3        7.8          (0.2)
    Pretax Income    18.2      12.2        6.0          (0.1)




    ($ in                                           Increase
     millions)        Twelve Months                              Due
                      Ended December
                             31         Increase   to Foreign
                     ---------------    --------   Translation
                                                   -----------
                       2011      2010
                       ----      ----
    Net Sales      $1,843.1  $1,431.1     $412.0         $27.6
    Gross Profit      255.6     236.0       19.6           2.5
    Operating
     Income           118.5     107.9       10.6           1.2
    Pretax Income     104.9     101.5        3.4           1.0

Table IV



                             Stepan Company
                       Consolidated Balance Sheets
                 December 31, 2011 and December 31, 2010

                                              2011            2010
                                      December 31     December 31
                                      -----------     -----------
    ASSETS
    ------

    Current Assets                        $479,742        $427,826

    Property, Plant & Equipment,
     Net                                   383,983         353,585

    Other Assets                            37,393          30,020
                                            ------          ------

       Total Assets                       $901,118        $811,431
                                          ========        ========


    LIABILITIES AND STOCKHOLDERS'
     EQUITY
    -----------------------------

    Current Liabilities                   $233,226        $205,627

    Deferred Income Taxes                    8,644           5,154

    Long-term Debt                         164,967         159,963

    Other Non-current Liabilities           88,816          87,616

    Total Stepan Company
     Stockholders' Equity                  401,211         349,491
                                           -------         -------

    Minority Interest                        4,254           3,580

       Total Liabilities and
        Stockholders' Equity              $901,118        $811,431
                                          ========        ========

SOURCE Stepan Company

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