NORTHBROOK, Ill., April 26, 2022 /PRNewswire/ -- Stepan Company (NYSE: SCL) today reported:

First Quarter Highlights

  • Reported net income was a record $44.8 million, or $1.93 per diluted share versus $40.6 million, or $1.74 per diluted share, in the prior year.  Adjusted net income* was $40.7 million, or $1.76 per diluted share versus $42.4 million, or $1.82 per diluted share, in the prior year.  Total Company sales volume was flat versus the prior year. 
  • Surfactant operating income was a record $53.8 million versus $53.2 million in the prior year. This increase was primarily driven by improved product and customer mix that was mostly offset by ongoing global supply chain challenges and a 1% decline in global sales volume.  The lower sales volume was primarily due to lower demand for laundry products within the consumer products business.  Higher demand in the functional products, personal care and institutional cleaning end markets mostly offset the above.  Volume sold within the Tier 2 and Tier 3 customer channel continues to perform well.    
  • Polymer operating income was $14.1 million versus $18.0 million in the prior year.  This decrease was due to a January 2022 power outage at the Company's Millsdale, IL plant site that negatively impacted production.  The production disruption resulted in the declaration of force majeure for select products and higher sourcing, logistic and maintenance costs. The Company estimates these items negatively impacted Polymer's first quarter 2022 earnings by approximately $5.0 million pre-tax.  The force majeure was lifted on April 15th.  Global Polymer sales volume increased 2% versus the prior year.  Global rigid polyol volume was up 5% versus the prior year largely due to the 2021 INVISTA polyester polyol acquisition which closed at the end of January 2021.      
  • Specialty Product operating income was $3.7 million versus $2.6 million in the prior year.  This increase was primarily attributable to order timing differences within the food and flavor business and margin recovery within the medium chain triglycerides (MCTs) product line, partially offset by a decline in MCTs sales volume.

*

Adjusted net income is a non-GAAP measure which excludes deferred compensation income/expense, cash-settled stock appreciation rights (SARs) income/expense, legacy environmental remediation-related costs 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 share.



"The Company had a solid start to the year despite the power outage at the Company's Millsdale, IL plant site and ongoing global supply chain challenges.  Reported net income was up 10% versus the prior year first quarter while adjusted net income declined 4%" said Scott Behrens, President and Chief Executive Officer.  "Surfactant operating income was up 1% largely due to improved product and customer mix, driven by growth in our functional products business as a result of higher commodity prices and continued growth in the construction industry, that offset a 1% decline in sales volume and ongoing supply chain challenges.  Our Polymer operating income was down 21% primarily due to the Millsdale power outage and related production disruptions.  Global Polymer sales volume was up 2% year-over-year.  Our Specialty Product business results were up primarily due to order timing differences."      

Financial Summary



Three Months Ended

March 31


($ in thousands, except per share data)


2022



2021



%

Change


Net Sales


$

675,276



$

537,740




26

%

Operating Income


$

63,346



$

53,914




17

%

Net Income Attributable to Stepan


$

44,809



$

40,611




10

%

Earnings per Diluted Share


$

1.93



$

1.74




11

%














Adjusted Net Income *


$

40,728



$

42,372




(4)

%

Adjusted Earnings per Diluted Share *


$

1.76



$

1.82




(3)

%

* See Table II for reconciliations of non-GAAP adjusted net income and earnings per diluted share.

* * Net Income Attributable to Stepan = Net Income - Net Loss Attributable to Noncontrolling Interests.


 

Summary of First Quarter Adjusted Net Income Items

Adjusted net income excludes non-operational deferred compensation income/expense, cash-settled SARs income/expense, legacy environmental remediation-related costs and other significant and infrequent or non-recurring items.

  • Deferred Compensation:  The current year first quarter reported net income includes $3.9 million of after-tax income versus $1.5 million of after-tax expense in the prior year.
  • Cash Settled SARs:  These management incentive instruments provide cash to participants equal to the appreciation on the price of specified shares of Company stock over a specified period of time.  Because income or expense is recognized merely on the movement in the price of Company stock it has been excluded, similar to deferred compensation, to arrive at adjusted net income.  The current year quarter includes $0.4 million of after-tax income versus $0.2 million of after-tax expense in the prior year.
  • Business Restructuring:  The current year quarter includes $0.04 million of after-tax decommissioning expense related to the Company's Canadian plant closure versus $0.06 million of after-tax expense in the prior year.
  • Environmental Remediation – The first quarter of 2022 adjusted net income excludes $0.2 million of after-tax expense versus no environmental remediation expense excluded from adjusted net income in the prior year.    

Percentage Change in Net Sales

Net sales in the first quarter increased 26% year-over-year primarily due to higher selling prices that were mainly attributable to the pass-through of higher raw material costs and improved product and customer mix.  These higher average selling prices were slightly offset by the unfavorable impact of foreign currency translation.  Consolidated sales volume was flat year-over-year.        



Three Months Ended

March 31, 2022


Volume




Selling Price & Mix



28

%

Foreign Currency Translation



(2)

%

     Total



26

%

 

Segment Results 



Three Months Ended

March 31


($ in thousands)


2022



2021



%

Change


Net Sales













     Surfactants


$

468,266



$

370,936




26

%

     Polymers


$

187,079



$

150,385




24

%

     Specialty Products


$

19,931



$

16,419




21

%

          Total Net Sales


$

675,276



$

537,740




26

%





Three Months Ended

March 31


($ in thousands, all amounts pre-tax)


2022



2021



%

Change


Operating Income













     Surfactants


$

53,769



$

53,210




1

%

     Polymers


$

14,129



$

17,951




(21)

%

     Specialty Products


$

3,695



$

2,633




40

%

     Segment Operating Income


$

71,593



$

73,794




(3)

%

    Corporate Expenses


$

(8,247)



$

(19,880)




(59)

%

     Consolidated Operating Income


$

63,346



$

53,914




17

%

  

Total segment operating income for the first quarter of 2022 decreased $2.2 million, or 3%, versus the prior year quarter.  

  • Surfactant net sales were $468.3 million for the quarter, a 26% increase versus the prior year.  Selling prices were up 29% primarily due to the pass-through of higher raw material costs as well as improved product and customer mix. The unfavorable impact of foreign currency translation negatively impacted net sales by 2%.  Sales volume decreased 1% year-over-year primarily due to lower demand for laundry products in the consumer products business.  Higher global demand for products sold into the functional product, personal care and institutional cleaning end markets, largely offset the above.  Surfactant operating income for the quarter increased $0.6 million, or 1%, versus the prior year primarily due to improved product and customer mix that was mostly offset by supply chain challenges and a 1% decline in sales volume. 
  • Polymer net sales were $187.1 million in the quarter, a 24% increase versus the prior year.  Selling prices increased 26% primarily due to the pass through of higher raw material costs.  Sales volume increased 2% in the quarter primarily due to rigid polyol growth of 5% that was partially offset by an 8% decline in phthalic anhydride sales volume.  Both North American rigid polyol and phthalic anhydride sales volumes were negatively impacted by the first quarter 2022 Millsdale power outage.  The translation impact of a stronger U.S. dollar negatively impacted net sales by 4%.  Polymer operating income decreased $3.8 million, or 21%, primarily due to the Millsdale power outage that negatively impacted the quarter by an estimated $5.0 million pre-tax.      
  • Specialty Product net sales were $19.9 million for the quarter, a 21% increase versus the prior year.  Sales volume was down 12% between years while operating income improved $1.1 million, or 40%.  The operating income improvement was primarily attributable to order timing differences within the food and flavor business and improved margins within the MCTs product line.   

Corporate Expenses



Three Months Ended

March 31


($ in thousands)


2022



2021



%

Change


Total  -  Corporate Expenses


$

8,247



$

19,880




(59)

%

Less:













  Deferred Compensation Expense/(Income)


$

(7,501)



$

2,694



NM


  Business Restructuring Expense


$

52



$

81




(36)

%

Adjusted Corporate Expenses


$

15,696



$

17,105




(8)

%

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

  • Corporate expenses, excluding deferred compensation and business restructuring costs, decreased $1.4 million, or 8%, versus the prior year quarter.  This decrease was primarily due to lower acquisition-related expenses.    

Income Taxes

The Company's effective tax rate was 24.6% in the first quarter of 2022 versus 23.6% in the first quarter of 2021. This increase was primarily attributable to less favorable tax benefits derived from stock-based compensation awards exercised or distributed in the first quarter of 2022 versus the first quarter of 2021 and a less favorable geographical mix of income in the current year quarter.    

Shareholder Return

The Company paid $7.5 million of dividends to shareholders and repurchased $9.9 million of Company stock in the first quarter of 2022.  The Company has $140.1 million remaining under the share repurchase program authorized by its Board of Directors.  The Company has increased its dividend on the Company's common stock for 54 consecutive years.

Selected Balance Sheet Information

The Company's total debt increased by $173.5 million and cash increased by $76.8 million versus year-end 2021.  The increase in debt reflects borrowings against the Company's $350MM revolving credit agreement and the previously disclosed issuance of $75.0 million of senior notes during March 2022.  The increase in cash primarily reflects the above debt borrowings, partially offset by higher working capital requirements and capital expenditures.  The Company's net debt level increased $96.7 million versus year-end 2021 and the net debt ratio increased from 16% to 21% (net debt and net debt ratios are non-GAAP measures).

($ in millions)


March 31, 2022



December 31, 2021


Net Debt









     Total Debt


$

537.1



$

363.6


     Cash



236.0




159.2


          Net Debt


$

301.1



$

204.4


Equity



1,116.7




1,074.2


Net Debt + Equity


$

1,417.8



$

1,278.6


Net Debt / (Net Debt + Equity)



21

%



16

%

 

The major working capital components were:

($ in millions)


March 31, 2022



December 31, 2021




Net Receivables


$

504.5



$

419.5




Inventories



308.4




305.5




Accounts Payable



(350.8)




(323.4)




   Net Total


$

462.1



$

401.6




 

Capital spending was $60.3 million versus $37.6 million in the prior year quarter.  The increase was primarily due to increased expenditures in the U.S. for the advancement of the Company's new alkoxylation production facility in Pasadena, TX, which is expected to provide flexible capacity of 75,000 metric tons per year, and new capability and capacity to produce ether sulfates that will meet future regulatory limits on 1,4 dioxane.  For the full year, capital expenditures are expected to be in the range of $350 million to $375 million.

Outlook

"Looking forward, we believe that demand across our business will remain strong but the Company will continue to be challenged by external supply chain issues, including raw material availability and transportation constraints that impacted us in 2021 and during the first quarter of 2022," said Scott Behrens, President and Chief Executive Officer.  "From a segment perspective, we believe that Surfactant volumes within the functional product end-markets, inclusive of agricultural and oilfield, will improve versus 2021 driven by a favorable commodity pricing environment.  We believe our Polymer business will deliver growth versus the prior year and we continue to believe the long-term prospects for rigid polyols remain attractive as energy conservation efforts and more stringent building codes should increase demand.  We anticipate our Specialty Product business results will improve slightly year-over-year.  We are cautiously optimistic about the remainder of the year despite the current inflationary environment and ongoing supply chain challenges."   

 Conference Call

Stepan Company will host a conference call to discuss its first quarter results at 8:00 a.m. ET (7:00 a.m. CT) on April 26, 2022. The call can be accessed by phone and webcast. Telephone access will be available by dialing +1 (800) 734-8592, and the webcast can be accessed through the Investors/Conference Calls page at www.stepan.com. A webcast replay of the conference call will be available at the same location shortly after the call.

Supporting Slides

Slides supporting this press release will be made available at www.stepan.com through the Investors/Presentations page at approximately the same time as this press release is issued.

Corporate Profile

Stepan Company is a major manufacturer of specialty and intermediate chemicals used in a broad range of industries. Stepan is a leading merchant producer of surfactants, which are the key ingredients in consumer and industrial cleaning and disinfection compounds and in agricultural and oilfield solutions. The Company is also a leading supplier of polyurethane polyols used in the expanding thermal insulation market, and CASE (Coatings, Adhesives, Sealants, and Elastomers) industries.

Headquartered in Northbrook, Illinois, Stepan utilizes a network of modern production facilities located in North and South America, Europe and Asia.

The Company's common stock is traded on the New York Stock Exchange (NYSE) under the symbol SCL. For more information about Stepan Company please visit the Company online at www.stepan.com

More information about Stepan's sustainability program can be found on the Sustainability page at www.stepan.com

Contact: Luis E. Rojo 847-446-7500

Certain information in this news release 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. These statements include statements about Stepan Company's plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, Stepan Company's actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "guidance," "predict," "potential," "continue," "likely," "will," "would," "should," "illustrative" and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by Stepan Company and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond Stepan Company's control, that could cause actual results to differ materially from the forward-looking statements contained in this news release. Such risks, uncertainties and other important factors include, among other factors, the risks, uncertainties and factors described in Stepan Company's Form 10-K, Form 10-Q and Form 8-K reports and exhibits to those reports, and include (but are not limited to) risks and uncertainties related to the impact of the COVID-19 pandemic; accidents, unplanned production shutdowns or disruptions in manufacturing facilities; reduced demand due to customer product reformulations or new technologies; our inability to successfully develop or introduce new products; compliance with laws; our ability to identify suitable acquisition candidates and successfully complete and integrate acquisitions; global competition; volatility of raw material and energy costs and supply; disruptions in transportation or significant changes in transportation costs; downturns in certain industries and general economic downturns; international business risks, including currency exchange rate fluctuations, legal restrictions and taxes; unfavorable resolution of litigation against us; maintaining and protecting intellectual property rights; our ability to access capital markets; global political, military, security or other instability; costs related to expansion or other capital projects; interruption or breaches of information technology systems; our ability to retain executive management and key personnel; and our debt covenants.

These forward-looking statements are made only as of the date hereof, and Stepan Company undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

* * * * *

Tables follow

 

Table I 


STEPAN COMPANY
For the Three Months Ended March 31, 2022 and 2021
(Unaudited – '000s Omitted)  






Three Months Ended

March 31




2022



2021


Net Sales


$

675,276



$

537,740


Cost of Sales



566,057




428,760


     Gross Profit



109,219




108,980


Operating Expenses:









     Selling



15,277




14,504


     Administrative



21,572




22,638


     Research, Development and Technical Services



16,473




15,149


     Deferred Compensation (Income) Expense



(7,501)




2,694





45,821




54,985











     Business Restructuring



52




81


Operating Income



63,346




53,914











Other Income (Expense):









     Interest, Net



(2,306)




(1,524)


     Other, Net



(1,650)




746





(3,956)




(778)











Income Before Income Taxes



59,390




53,136


Provision for Income Taxes



14,581




12,525


Net Income



44,809




40,611


Net Loss Attributable to Noncontrolling Interests









Net Income Attributable to Stepan Company


$

44,809



$

40,611


Net Income Per Common Share Attributable to Stepan Company









     Basic


$

1.96



$

1.77


     Diluted


$

1.93



$

1.74


Shares Used to Compute Net Income Per Common

 Share Attributable to Stepan Company









     Basic



22,896




22,974


     Diluted



23,167




23,330


 

 

Table II




Reconciliations of Non-GAAP Net Income and Earnings per Diluted Share*






Three Months Ended

March 31


($ in thousands, except per share amounts)


2022



EPS



2021



EPS


Net Income Reported


$

44,809



$

1.93



$

40,611



$

1.74



















Deferred Compensation (Income) Expense


$

(3,948)



$

(0.17)



$

1,501



$

0.07


Business Restructuring



39



$

0.00




61



$

0.00


Cash Settled Stock Appreciation Rights



(402)



$

(0.01)




199



$

0.01


Environmental Remediation



230



$

0.01



-



-


Adjusted Net Income


$

40,728



$

1.76



$

42,372



$

1.82


 

* 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 the impact of 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, and are neither a substitute for, nor superior to, measures of financial performance prepared in accordance with GAAP.

 

Reconciliations of Pre-Tax to After-Tax Adjustments








Three Months Ended

March 31



($ in thousands, except per share amounts)


2022



EPS



2021



EPS



Pre-Tax Adjustments


















Deferred Compensation (Income) Expense


$

(5,195)







$

1,975







Business Restructuring



52








81







Cash Settled Stock Appreciation Rights



(529)








261







Environmental Remediation



303














   Total Pre-Tax Adjustments


$

(5,369)







$

2,317







Cumulative Tax Effect on Adjustments


$

1,288







$

(556)







   After-Tax Adjustments


$

(4,081)



$

(0.17)



$

1,761



$

0.08



 

 

Table III




Deferred Compensation Plan




The full effect of the deferred compensation plans on quarterly pre-tax income was $5.2 million of income versus $2.0 million of expense in the prior year.  The accounting for the deferred compensation plans results in operating income when the price of Stepan Company common stock or mutual funds held in the plans 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 Company common stock were as follows:






2022



2021




3/31



12/31



9/30



6/30



3/31


Stepan Company


$

98.81



$

124.29



$

112.94



$

120.27



$

127.11























 

The deferred compensation income statement impact is summarized below:



Three Months Ended

March 31


($ in thousands)


2022



2021


Deferred Compensation









     Operating Income (Expense)


$

7,501



$

(2,694)


     Other, net – Mutual Fund Gain (Loss)



(2,306)




719


          Total Pre-Tax Income (Expense)


$

5,195



$

(1,975)


          Total After Tax Income (Expense)


$

3,948



$

(1,501)


 

 

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-month period ending March 31, 2022 as compared to 2021: 


($ in millions)


Three Months Ended

March 31



Increase



Change
Due to Foreign

Currency

Translation




2022



2021










Net Sales


$

675.3



$

537.7



$

137.6



$

(11.6)


Gross Profit



109.2




109.0




0.2




(1.7)


Operating Income



63.3




53.9




9.4




(1.1)


Pretax Income



59.4




53.1




6.3




(1.1)


 

 

Table V




Stepan Company

Consolidated Balance Sheets

March 31, 2022 and December 31, 2021






March 31, 2022



December 31, 2021


ASSETS









Current Assets


$

1,081,871



$

913,368


Property, Plant & Equipment, Net



892,581




850,604


Other Assets



298,144




301,640


Total Assets


$

2,272,596



$

2,065,612


LIABILITIES AND STOCKHOLDERS' EQUITY









Current Liabilities


$

611,062



$

500,476


Deferred Income Taxes



10,963




12,491


Long-term Debt



397,760




322,862


Other Non-current Liabilities



136,073




155,590


Total Stepan Company Stockholders' Equity



1,116,738




1,074,193


Noncontrolling Interest



-




-


Total Liabilities and Stockholders' Equity


$

2,272,596



$

2,065,612


 

 

 

 

SOURCE Stepan Company

Copyright 2022 PR Newswire

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