NORTHFIELD, Ill., July 31 /PRNewswire-FirstCall/ -- Stepan Company
(NYSE: SCL) today reported second quarter results for the period
ended June 30, 2007. SUMMARY Three Months Ended June 30 Six Months
Ended June 30 ($ in thousands) 2007 2006 % Change 2007 2006 %
Change Net Sales $336,156 $292,033 + 15 $649,160 $581,645 + 12 Net
Income 4,737 3,077 + 54 10,424 6,126 + 70 Earnings per Diluted
Share $0.47 $0.31 + 52 $1.03 $0.62 + 66 SECOND QUARTER RESULTS Net
income for the quarter was $4.7 million, or $0.47 per diluted
share, compared to $3.1 million, or $0.31 per diluted share, a year
ago. Gross profit rose by $5.0 million, or 15 percent, due to a
nine percent increase in volume. The surfactant and polymer
segments both recorded improved gross profit on higher volumes.
Pretax income of $7.5 million was up $3.1 million, or 69 percent.
Following is a reconciliation of pretax income excluding certain
significant quarterly and year-to-date items. Three Months Ended
June 30 Six Months Ended June 30 ($ in thousands) 2007 2006 2007
2006 Reported Pretax Income $7,459 $4,404 $15,539 $8,569 (Gain) on
Sale of Product Line (4,290) - (4,290) - Goodwill Impairment Charge
3,467 - 3,467 - Deferred Compensation Expense 1,995 916 631 2,580
Pretax Income Excluding Significant Items $8,631 $5,320 $15,347
$11,149 As previously reported, the Company sold its specialty
ester personal care surfactant product line on April 30, 2007. The
business represented approximately $15 million in annual net sales.
The sale proceeds included cash plus the transfer to Stepan of a
specialty agricultural surfactant product line. The Company
contractually agreed to produce product for the buyer for up to one
year. The $4.3 million pretax gain is net of costs associated with
the manufacturing agreement, write-downs for equipment and
inventory and severance charges. The Company also recorded a
non-cash goodwill impairment charge of $3.5 million. The Company
tests its goodwill for impairment in the second quarter of each
year in accordance with generally accepted accounting principles.
The Company concluded that the entire goodwill related to its
subsidiary in the United Kingdom was impaired as a result of lower
discounted cash flow forecasts from the business. Also affecting
the quarter was deferred compensation expense of $2.0 million
compared to $0.9 million of expense in the year ago quarter due to
stock market appreciation. The accounting requirement for the
Company's deferred compensation plan results in expense when the
price of Stepan Company stock or mutual funds held for the plan
rise and income when they decline. Net sales increased 15 percent
during the quarter due to higher volume (9%), higher selling prices
(4%) and the impact of foreign exchange (2%). YEAR-TO-DATE RESULTS
Net income for the six month period was $10.4 million, or $1.03 per
diluted share, compared to $6.1 million, or $0.62 per diluted
share, last year. Gross profit increased $7.5 million, or 11
percent, due to improved surfactant and polymer sales volume.
Pretax income rose $7.0 million (81 percent) due to improved
operating results in all segments and lower deferred compensation
expense. See discussion on the following page. Year-to-date net
sales increased 12 percent due to higher volume (9%), foreign
exchange impact (2%) and selling prices (1%). SEGMENT RESULTS Three
Months Ended June 30 Six Months Ended June 30 ($ in thousands) 2007
2006 % Change 2007 2006 % Change Net Sales Surfactants $242,765
$219,089 + 11 $479,241 $444,366 + 8 Polymers 84,892 64,989 + 31
153,574 122,881 + 25 Specialty Products 8,499 7,955 + 7 16,345
14,398 + 14 Total Net Sales $336,156 $292,033 + 15 $649,160
$581,645 + 12 An eight percent surfactant sales volume improvement
led to a $2.8 million (13 percent) improvement in surfactant gross
profit, excluding the gain from the product line sale. Most of the
volume and gross profit improvement occurred in North America
across all product lines except for biodiesel, which experienced
lower profitability. Higher raw material costs for biodiesel have
led to lower profit margins. European surfactant volume and gross
profit improved by 11 percent and 17 percent, respectively. The
plant in France has changed from a five to a seven day a week
operation creating increased capacity to accommodate higher sales
demand. Excluding the $3.5 million U.K. goodwill impairment charge,
European gross profit improved slightly. Latin America reported
lower gross profit as Mexico experienced lower profit margins on
fabric softener due to rising raw material costs and outsourcing
costs as demand exceeded capacity. A new reactor in Mexico was
placed into service during the quarter, which should eliminate
outsourcing costs. Polymer gross profit grew by $1.9 million (18
percent) driven by global polyol volume. A 51 percent increase in
European polyol volume combined with margin improvement offset the
decline in North America polyol profitability due to lower margins.
The polyol joint venture in China had a small loss due to higher
raw material costs. Volume in China grew by 29 percent. Specialty
products gross profit was relatively unchanged as improvement in
food ingredient profitability was offset by weaker pharmaceutical
profits. OPERATING EXPENSES Three Months Ended June 30 Six Months
Ended June 30 ($ in thousands) 2007 2006 % Change 2007 2006 %
Change Marketing $9,109 $8,556 + 6 $18,041 $16,998 + 6
Administrative - General 9,520 9,500 - 18,600 18,369 + 1
Administrative - Deferred Compensation Obligations 1,995 916 NM 631
2,580 NM Research, development and technical service 7,954 7,313 +
9 15,583 14,493 + 8 Total $28,578 $26,285 + 9 $52,855 $52,440 + 1
Excluding deferred compensation expense, operating expenses rose
five percent for both the three and six month periods. Higher
marketing and research costs were largely attributable to salary
and benefit costs. OTHER INCOME AND EXPENSE Interest expense grew
by 15 percent due to higher average debt levels brought about by
higher working capital requirements. Working capital requirements
have grown due to improved sales volume and the impact of rising
raw material costs. The loss from our equity in the Philippine
joint venture increased slightly. The Philippine fabric softener
product line continues to improve in profitability, while commodity
laundry products are generating a loss. PROVISION FOR INCOME TAXES
The effective tax rate rose to 37.6 percent for the quarter
compared to 30.7 percent a year ago. The increase in the effective
tax rate was primarily due to the recording of Stepan U.K. goodwill
impairment for which no tax benefit was realized. This was
partially offset by a reduction in the tax provision attributable
to the recognition of German tax loss carryforward benefits.
OUTLOOK "Global polyol and North American surfactants should
continue to drive profit improvement in the second half," said F.
Quinn Stepan, Jr., President and Chief Executive Officer. "We have
taken steps to improve our profitability going forward. The sale of
the personal care ester product line will lead to improved results
from our Maywood, New Jersey plant. Last year's downsizing and
anticipated volume growth should improve profits in Europe. In
July, we negotiated a new labor agreement for Millsdale, our
largest manufacturing site, which includes freezing the current
defined benefit plan and replacing it with a defined contribution
plan. This change is consistent with those implemented in 2006 for
most of the U.S. workforce. One time costs associated with the
retirement plan changes, estimated to be $1.4 million pretax, will
be incurred in the third quarter. Plans to expand biodiesel
capacity are on hold," said Mr. Stepan. "We have recently
introduced several new technologies to the market, including our
next generation polyol, which should favorably impact earnings in
2008. For the current year, we are on track to deliver significant
earnings improvement over 2006," said Mr. Stepan. CONFERENCE CALL
Stepan Company will host a conference call to discuss the second
quarter results at 2:00 p.m. Eastern Daylight Time on August 1,
2007. To listen to a live webcast of this call, please go to our
Internet website at: http://www.stepan.com/, click on investor
relations, next click on conference calls and follow the directions
on the screen. 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. * * * * *
table follows 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, 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. STEPAN COMPANY Statements of Income For
the Three and Six Months Ended June 30, 2007 and 2006 (Unaudited -
000's Omitted) Three Months Ended Six Months Ended June 30 June 30
2007 2006 % Change 2007 2006 % Change Net Sales $336,156 $292,033 +
15 $649,160 $581,645 + 12 Cost of Sales 297,882 258,789 + 15
576,077 516,067 + 12 Gross Profit 38,274 33,244 + 15 73,083 65,578
+ 11 Operating Expenses: Marketing 9,109 8,556 + 6 18,041 16,998 +
6 Administrative 11,515 10,416 + 11 19,231 20,949 - 8 Research,
development and technical services 7,954 7,313 + 9 15,583 14,493 +
8 28,578 26,285 + 9 52,855 52,440 + 1 Gain on sale of product line
(4,290) - + - (4,290) - + - Goodwill Impairment Charge 3,467 - + -
3,467 - + - Operating Income 10,519 6,959 + 51 21,051 13,138 + 60
Other Income (Expense): Interest, net (2,515) (2,179) + 15 (4,823)
(4,240) + 14 Loss from equity in Joint Venture (10) (8) + 25 (136)
(103) + 32 Other, net (535) (368) + 45 (553) (226) +145 (3,060)
(2,555) + 20 (5,512) (4,569) + 21 Income Before Income Taxes and
Minority Interest 7,459 4,404 + 69 15,539 8,569 + 81 Provision for
Income Taxes 2,805 1,352 +107 5,199 2,518 +106 Minority Interest
(83) (25) +232 (84) (75) + 12 Net Income $4,737 $3,077 + 54 $10,424
$6,126 + 70 Net Income Per Common Share Basic $0.49 $0.32 + 53
$1.08 $0.63 + 71 Diluted $0.47 $0.31 + 52 $1.03 $0.62 + 66 Shares
Used to Compute Net Income Per Common Share Basic 9,304 9,124 + 2
9,298 9,085 + 2 Diluted 10,085 9,957 + 1 10,079 9,886 + 2
DATASOURCE: Stepan Company CONTACT: James E. Hurlbutt of Stepan
Company, +1-847-446-7500 Web site: http://www.stepan.com/
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