NORTHFIELD, Ill., July 29 /PRNewswire-FirstCall/ -- Stepan Company
(NYSE: SCL) today reported second quarter results for the period
ended June 30, 2008. SUMMARY Three Months Ended Six Months Ended
June 30 June 30 % % ($ in thousands) 2008 2007 Change 2008 2007
Change Net Sales $420,399 $336,156 + 25 $801,850 $649,160 + 24 Net
Income 9,761 4,737 + 106 18,508 10,424 + 78 Earnings per Diluted
Share $0.93 $0.47 + 98 $1.79 $1.03 + 74 SECOND QUARTER RESULTS Net
income for the quarter was $9.8 million, or $0.93 per diluted
share, compared to $4.7 million, or $0.47 per diluted share, a year
ago. Gross profit rose by $11.7 million, or 31 percent, on flat
volume. The surfactant and polymer segments both recorded improved
gross profit. Surfactant gross profit grew by $9.8 million (42
percent) on improved customer and product mix, as volume declined
by one percent. Polymer gross profit rose by $2.5 million (20
percent) on improved margins and a five percent increase in volume.
Pretax income of $14.5 million was up $7.0 million, or 95 percent.
Following is a reconciliation of pretax income excluding certain
significant quarterly and year-to-date items: Three Months Ended
Six Months Ended June 30 June 30 ($ in thousands) 2008 2007 2008
2007 Reported Pretax Income $14,510 $7,459 $27,307 $15,539 (Gain)
on Sale of Product Line - (4,290) - (4,290) Goodwill Impairment
Charge - 3,467 - 3,467 Deferred Compensation: Administration
Expense 2,466 1,995 3,140 631 Other - Mutual Fund (Gain) / Loss
(226) - 1,001 - Non GAAP Pretax Income Excluding Above Items
$16,750 $8,631 $31,448 $15,347 Deferred compensation expense was
$2.5 million compared to $2.0 million in the year ago quarter. 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. Stepan
Company common share price rose by $7.39 per share during the
quarter. Net sales increased 25 percent during the quarter,
primarily due to higher selling prices (21 percent) and the
favorable impact of foreign currency translation (four percent).
Sales volume was flat. Rising crude oil derivative prices and the
inflationary impact across most chemical feedstocks led to the
higher selling prices. YEAR-TO-DATE RESULTS Net income for the six
month period was $18.5 million, or $1.79 per diluted share,
compared to $10.4 million, or $1.03 per diluted share, last year.
Gross profit increased $22.8 million, or 31 percent, on a one
percent decline in volume. The improved results were led by a $21.2
million (46 percent) increase in surfactant gross profit. Improved
customer and product mix, as well as recovery of fabric softener
margins led to the improvement in surfactant gross profit.
Surfactant volumes declined by two percent. Polymer gross profit
grew by $1.6 million (seven percent) due to a four percent increase
in volume. Pretax income rose $11.8 million (76 percent) due to the
improved gross profit, partially offset by an $8.5 million (16
percent) increase in operating expenses largely attributable to a
$2.5 million increase in deferred compensation expense. See the
operating expense discussion below. Year-to-date net sales
increased 24 percent due to higher selling prices (21 percent) and
foreign translation impact (four percent), while volume declines
reduced net sales by one percent. SEGMENT RESULTS Three Months
Ended Six Months Ended June 30 June 30 % % ($ in thousands) 2008
2007 Change 2008 2007 Change Net Sales Surfactants $308,012
$242,765 + 27 $598,336 $479,241 + 25 Polymers 103,088 84,892 + 21
183,924 153,574 + 20 Specialty Products 9,299 8,499 + 9 19,590
16,345 + 20 Total Net Sales $420,399 $336,156 + 25 $801,850
$649,160 + 24 Surfactant gross profit increased $9.8 million, or 42
percent, during the quarter on volume that declined by one percent.
The increase reflects continued improvement in customer and product
mix, as well as recovery of higher raw material costs in selling
prices. Fabric softener margins recovered from erosion during 2007.
Sales of higher value added surfactants in the distributor market,
agricultural and oilfield drilling products contributed to the
improved gross profit. The slight decline in volume was due to
lower personal care sales volume due to a customer reformulation
from low active to high active products that result in lower
volumes. Commodity laundry and fabric softener volumes improved.
Biodiesel continues to generate a small profit versus year ago
losses due to the higher diesel prices and our use of lower cost
tallow as a feedstock in conjunction with soybean oil. Surfactants
represent 75 percent of Company sales. Polymer gross profit grew by
$2.5 million, or 20 percent, as volume grew by five percent. The
Company's polyol product experienced a 13 percent increase in
volume and represented most of the polymer segment improvement in
profit. Stepan's polyol is used primarily in rigid foam insulation
for commercial roofing. The majority of this market is for
replacement roofs versus new construction. This market remains
strong, in part due to the desire for greater energy savings
achieved from increased insulation. The polymer segment experienced
lower sales volume of phthalic anhydride (PA) due to the decline in
demand from the automotive, recreational vehicles and boating
industries, where PA is used in unsaturated polyester resins for
plastic and composite materials. PA profit declined on the lower
volume. Polymer sales represent 23 percent of Company sales.
Specialty Products gross profit remained unchanged for the quarter
as improved pharmaceutical volume was offset by weaker food
ingredient volume. Specialty Products represent two percent of
Company sales. OPERATING EXPENSES Three Months Ended Six Months
Ended June 30 June 30 ($ in thousands) % % 2008 2007 Change 2008
2007 Change Marketing $10,400 $9,109 + 14 $20,180 $18,041 + 12
Administrative - General 10,690 9,520 + 12 20,800 18,600 + 12
Administrative - Deferred Compensation Obligations 2,466 1,995 + 24
3,140 631 N.M. Research, development and technical service 8,858
7,954 + 11 17,274 15,583 + 11 Total $32,414 $28,578 + 13 $61,394
$52,855 + 16 The major contributors to the increase in all
categories of operating expenses were incentive based compensation
charges and higher foreign operating expenses due to the
translation effect against the weaker U.S. dollar. Incentive based
compensation includes stock awards (based on long term incentive
targets), bonuses and profit sharing. The quarter and year-to- date
impact of these items on the total operating expense increase is
summarized below: Operating Expense Increase Three Months Six
Months Ended June 30 Ended June 30 Incentive Based Compensation
$1,182 $2,286 Foreign Translation Effect 839 1,636 Deferred
Compensation 471 2,509 Other 1,344 2,108 Total Operating Expense
Increase $3,836 $8,539 The remaining "Other" operating expense
increases represent a five and four percent increase for the
quarter and year-to-date periods, respectively. OTHER INCOME AND
EXPENSE Interest expense grew by two percent for the quarter and
six month period due to higher average debt levels brought about by
higher working capital requirements. Working capital requirements
have grown due to increased sales and the impact of rising raw
material costs. The loss from our equity in the Philippine joint
venture increased due to production outages and reliability of raw
material supply. Included in other, net expense on the income
statement is $0.2 million of income for the quarter and a $1.0
million loss year-to-date on mutual fund investments held for our
deferred compensation plan. In January 2008, the Company adopted
new accounting rule Statement of Financial Accounting Standards No.
159, The Fair Value Option for Financial Assets and Financial
Liabilities, which allows for the marking to market of financial
instruments such as these in the income statement, which were
previously recorded in accumulated other comprehensive income in
the stockholders' equity section of the balance sheet. PROVISION
FOR INCOME TAXES The effective tax rate declined to 32.8 percent
for the quarter compared to 37.6 percent a year ago. The decrease
in the effective tax rate was primarily due to the recording of
Stepan U.K. goodwill impairment during the prior year for which no
tax benefit was realized. OUTLOOK "We are pleased we were able to
deliver strong second quarter earnings and build on the momentum we
established in the first quarter," said F. Quinn Stepan, Jr.,
President and Chief Executive Officer. Net income was up 106
percent for the quarter and 78 percent year-to-date. Profitability
of our global surfactant business continued to benefit from an
improved customer and product mix, reduced outsourcing and our
restructuring efforts, as well as recaptured margins. Our polymer
results were driven by global polyol volumes as high energy prices
led to increased demand for insulation. Phthalic anhydride sales
were down due to the slow economy. During the fourth quarter of
2008, our phthalic anhydride and polyol manufacturing facilities at
Millsdale will undergo their triennial maintenance turnaround. We
expect slightly higher maintenance and outsourcing costs in the
fourth quarter. "While we remain concerned about the economic
environment, we believe our improved profitability is sustainable,"
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 July 30, 2008. 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. 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.
CONTACT: JAMES E. HURLBUTT (847) 446-7500 STEPAN COMPANY Statements
of Income For the Three and Six Months Ended June 30, 2008 and 2007
(Unaudited - 000's Omitted) Three Months Ended Six Months Ended
June 30 June 30 % % 2008 2007 Change 2008 2007 Change Net Sales
$420,399 $336,156 + 25 $801,850 $649,160 + 24 Cost of Sales 370,398
297,882 + 24 705,991 576,077 + 23 Gross Profit 50,001 38,274 + 31
95,859 73,083 + 31 Operating Expenses: Marketing 10,400 9,109 + 14
20,180 18,041 + 12 Administrative 13,156 11,515 + 14 23,940 19,231
+ 24 Research, development and technical services 8,858 7,954 + 11
17,274 15,583 + 11 32,414 28,578 + 13 61,394 52,855 + 16 Net gain
on sale of product line -- (4,290) NM -- (4,290) NM Goodwill
Impairment Charge -- 3,467 NM -- 3,467 NM Operating Income 17,587
10,519 + 67 34,465 21,051 + 64 Other Income (Expense): Interest,
net (2,573) (2,515) + 2 (4,920) (4,823) + 2 Loss from equity in
Joint Venture (600) (10) NM (877) (136) NM Other, net 96 (535) NM
(1,361) (553) + 146 (3,077) (3,060) + 1 (7,158) (5,512) + 30 Income
Before Income Taxes and Minority Interest 14,510 7,459 + 95 27,307
15,539 + 76 Provision for Income Taxes 4,759 2,805 + 70 8,826 5,199
+ 70 Minority Interest (10) (83) - 88 (27) (84) - 68 Net Income
$9,761 $4,737 + 106 $18,508 $10,424 + 78 Net Income Per Common
Share Basic $1.00 $0.49 + 104 $1.91 $1.08 + 77 Diluted $0.93 $0.47
+ 98 $1.79 $1.03 + 74 Shares Used to Compute Net Income Per Common
Share Basic 9,526 9,304 + 2 9,465 9,298 + 2 Diluted 10,463 10,085 +
4 10,352 10,079 + 3 DATASOURCE: Stepan Company CONTACT: James E.
Hurlbutt, Stepan Company, +1-847-446-7500 Web site:
http://www.stepan.com/
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