NORTHFIELD, Ill., Oct. 22 /PRNewswire-FirstCall/ -- Stepan Company
(NYSE: SCL) today reported record third quarter and year-to-date
results for the period ended September 30, 2008, and announced a
4.8 percent increase in the Company's quarterly cash dividend to
$0.22 per share. This brings the annual dividend rate to $0.88 per
share and marks the forty-first consecutive year in which the
dividend on its common stock has been increased. SUMMARY Three
Months Ended Nine Months Ended September 30 September 30 ($ in
thousands) 2008 2007 % Change 2008 2007 % Change ---- ---- --------
---- ---- -------- Net Income $17,000 $3,086 + 451 $35,508 $13,510
+ 163 Earnings per Diluted Share $1.59 $0.31 + 413 $3.39 $1.34 +
153 Net Sales $432,947 $338,398 + 28 $1,234,797 $987,558 + 25 THIRD
QUARTER RESULTS Net income for the quarter was $17.0 million, or
$1.59 per diluted share, compared to $3.1 million, or $0.31 per
diluted share, a year ago. Net income included a $6.1 million after
tax gain ($0.57 per diluted share) on the sale of a product line
and a $5.2 million after tax gain ($0.49 per diluted share) on the
sale of land. Gross profit grew by $7.9 million, or 23 percent, on
sales volume growth of three percent. -- Surfactant gross profit
grew by $10.1 million, or 46 percent, on a two percent increase in
volume. Improved customer and product mix and recovery of past
margin erosion caused by the rise of raw material costs over the
prior year led to the improvement. -- Polymer gross profit declined
by $1.1 million on a five percent increase in volume. Higher raw
material costs and logistic costs led to the decline. Increased
sales volume in Europe exceeded local capacity resulting in
sourcing from other locations within Stepan's global network.
Pretax income was $24.4 million compared to $4.6 million a year
ago. Following is a reconciliation of pretax income excluding
certain significant quarterly and year-to-date items: Three Months
Ended Nine Months Ended ($ in Thousands) September 30 September 30
2008 2007 2008 2007 ---- ---- ---- ---- Reported Pretax Income
$24,410 $4,555 $51,717 $20,094 (Gain) on Sale of Product (9,929) --
(9,929) (4,255) (Gain) on Sale of Land (8,469) -- (8,469) --
Goodwill Impairment Charge -- -- -- 3,467 Deferred Compensation
Administrative Expense 1,245 887 4,385 1,519 Other - Mutual Fund
(Gain) Loss 1,517 -- 2,518 -- ------- ------ ------- -------
Non-GAAP Pretax Income Excluding above items $8,774 $5,442 $40,222
$20,825 ======= ====== ======= ======= The above table reconciles
directly to reported pretax income and is provided to assist the
reader in understanding the significant items which management
believes have had significant impact on the earnings of the Company
and affect comparability from period to period. -- As previously
reported, the Company sold a product line within its urethane
system business to Bayer Material Science LLC. The Company will
continue to produce these products for Bayer during a transition
period. The product line sold represents $16.0 million in annual
net sales. The pretax gain on this sale is $9.9 million, or $6.1
million after tax ($0.57 per diluted share). -- On September 29,
2008, the Company sold farmland adjacent to its Millsdale, Illinois
manufacturing site and used the proceeds to acquire an office
building near the current corporate headquarters in a tax deferred
like kind exchange under Internal Revenue Code 1031. The 60,000
square foot building will be occupied by personnel currently
located in facilities nearing the end of its lease term. The $8.5
million gain on the land sale will be used for the building
acquisition and any necessary renovations. -- The full effect of
the deferred compensation plan on income was $2.8 million of
expense versus $0.9 million in the year ago quarter. The accounting
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. The Company also recognizes
the change in value of the mutual funds as investment income or
loss. Net sales increased 28 percent during the quarter, primarily
due to higher selling prices (23 percent), increased volume (three
percent) and foreign translation impact (two percent). YEAR-TO-DATE
RESULTS Net income for the nine month period was $35.5 million, or
$3.39 per diluted share, compared to $13.5 million, or $1.34 per
diluted share, last year. Gross profit increased $30.7 million, or
28 percent, on flat volume. Surfactant gross profit rose $31.3
million, or 46 percent, on improved customer and product mix and
recovery of past margin erosion caused by rising raw material
costs. Surfactant volume was down by one percent. Polymer gross
profit rose by $0.5 million (two percent) on a four percent volume
gain. Pretax income grew by $31.6 million, or 157 percent, which
includes the $9.9 million gain on the product line sale, $8.5
million gain on land sale and deferred compensation expense impact
of $6.9 million summarized earlier. Operating expenses rose $14.3
million (18 percent). See the operating expense discussion below.
Year-to-date net sales increased 25 percent due to higher selling
prices (22 percent) and foreign translation impact (three percent).
Sales volume was unchanged over the year. SEGMENT RESULTS Three
Months Ended Nine Months Ended September 30 September 30 ($ in
thousands) 2008 2007 % Change 2008 2007 % Change ---- ---- --------
---- ---- -------- Net Sales Surfactants $318,388 $243,196 + 31
$916,724 $722,437 + 27 Polymers 103,518 86,301 + 20 287,442 239,875
+ 20 Specialty Products 11,041 8,901 + 24 30,631 25,246 + 21 ------
----- ------ ------ Total Net Sales $432,947 $338,398 + 28
$1,234,797 $987,558 + 25 ======== ======== ========== ========
Surfactant gross profit increased $10.1 million, or 46 percent, to
$32.2 million on two percent growth in volume. For the nine month
period the increase was $31.3 million, or 46 percent, on a one
percent decline in volume. The increase was driven by improved
customer and product mix coupled with recovery of higher raw
material costs in selling prices. In particular, fabric softener
margins recovered after declining during 2007. Sales of higher
value added surfactants in the distributor, agricultural and
oilfield markets continued to grow. Biodiesel profitability
improved from a year ago due to our use of lower cost tallow as a
feedstock together with the traditional soybean oil formulation.
The recent decline in crude oil has yet to result in lower raw
material costs, in part due to tightness of supply due to hurricane
related production outages in the United States Gulf Coast. We
anticipate raw material pricing to decline over the next several
months. Surfactants represent 75 percent of year-to-date Company
sales. Polymer gross profit declined $1.1 million, or 11 percent,
on volume that grew by five percent in the quarter. For nine
months, Polymer gross profit grew by $0.5 million, or two percent,
on a four percent growth in volume. The weaker quarterly gross
profit was attributable to lower margins on polyol as volume grew
by 15 percent. The combination of higher raw material costs and the
added cost of shipping polyol from our global plant infrastructure
to supplement capacity in Europe adversely affected margins.
Debottlenecking activities at our plant in Germany have brought
capacity close to current demand levels. The Company plans to
expand its German polyol plant to meet the projected demand growth
in the rigid insulation foam market, driven by energy saving
opportunities. Recent price increases are expected to restore
margins. Phthalic anhydride (PA) sales volume to the merchant
market is down 12 percent for the quarter and 15 percent
year-to-date due to weakness in the automotive, boating and
recreational vehicle markets. PA volume used captively continues to
grow based on the volume growth of polyol products. Polymer segment
sales represent 23 percent of year-to-date sales. Specialty
Products gross profit declined $0.9 million, or 29 percent, for the
quarter and $0.8 million, or 10 percent, for the nine months. Lower
pharmaceutical volume and food ingredient margins precipitated the
earnings decline. OPERATING EXPENSES Three Months Ended Nine Months
Ended September 30 September 30 ($ in thousands) % % 2008 2007
Change 2008 2007 Change ---- ---- ------ ---- ---- ------ Marketing
$11,290 $8,899 + 27 $31,470 $26,940 + 17 Administrative - General
10,531 8,861 + 19 31,331 27,460 + 14 Administrative - Deferred
Compensation Obligations 1,245 887 + 40 4,385 1,519 NM Research,
development and technical service 9,293 7,983 + 16 26,567 23,566 +
13 ----- ----- ------ ------ Total $32,359 $26,630 + 22 $93,753
$79,485 + 18 ======= ======= ======= ======= The major contributors
to the increase in all categories of operating expenses were
incentive based compensation and pension expense. Incentive based
compensation includes stock awards (based on long term targets),
bonuses and profit sharing contributions. The quarter and
year-to-date impact of the significant items affecting the
operating expense increase is summarized below: Three Months Ended
Nine Months Ended September 30 September 30 ------------------
----------------- Incentive Based Compensation, Pension and other
Benefits $2,800 $5,300 Deferred Compensation Expense 400 2,900
Foreign Exchange 500 2,100 Bad Debt Expense 700 600 Consulting 800
800 Other 500 2,600 ------ ------- Total Operating Expense Increase
$5,700 $14,300 ====== ======= The higher bad debt expense reflects
increased reserves for potential risks at specific customers given
the current economic environment. The increase in consulting cost
relates to a project to reengineer the purchasing function to drive
cost savings throughout the Company. The remaining "Other" category
represents a two percent quarterly and a three percent year-to-date
increase in operating expenses. OTHER INCOME AND EXPENSE Interest
expense grew by two percent for the quarter and nine month period
due to higher average debt levels brought about by higher working
capital levels. Working capital requirements have grown due to the
impact of rising raw materials on receivables and inventories. The
loss from our equity in the Philippine joint venture was $1.4
million up from $0.1 million in the year ago period. Included in
other, net expense on the income statement is $1.5 million loss for
the quarter and $2.5 million loss year-to-date on mutual fund
investments held for our deferred compensation plan. Partially
offsetting this expense is foreign exchange gains of $0.9 million
for the quarter and $0.6 million year-to-date attributable to the
strengthening U.S. dollar. PROVISION FOR INCOME TAXES The effective
tax rate declined to 30.2 percent for the quarter, from 32.0
percent a year ago. The year-to-date effective tax rate declined to
31.3 percent from the year ago rate of 33.1 percent due to the
favorable impact of increased foreign generated income taxable at
lower rates than in the U.S. DIVIDEND INCREASE On October 21, 2008,
the Board of Directors of Stepan Company declared a 4.8 percent
increase in the Company's quarterly cash dividend on its common
stock to $0.22 per share. The quarterly dividend is payable on
December 15, 2008, to stockholders of record on November 28, 2008.
The increase brings the annual dividend rate to $0.88 per share.
The Board of Directors today also declared a quarterly cash
dividend on its 5.5 percent convertible preferred stock, at the
quarterly dividend rate of $0.34375 per share, or at the annual
rate of $1.375 per share. The dividend is payable on November 28,
2008, to preferred stockholders of record on November 14, 2008. The
Board of Directors today also declared a quarterly cash dividend on
its 5.5 percent convertible preferred stock, at the quarterly
dividend rate of $0.34375 per share, or at the annual rate of
$1.375 per share. The dividend is payable on February 27, 2009, to
preferred stockholders of record on February 13, 2009. OUTLOOK
"Excluding our product line and land sale gains, we are pleased we
were able to deliver strong third quarter earnings and continue the
momentum we established in the first two quarters," said F. Quinn
Stepan, Jr., President and Chief Executive Officer. Surfactant
operating income continued to drive Company results on improved
customer and product mix, reduced outsourcing and recaptured
margins. A significant portion of our surfactant sales are tied to
consumer spending on laundry and personal wash products. These
markets have historically been less impacted than others by a
recession. The rebuilding of customer inventories impacted by the
U.S. Gulf Coast hurricanes should partially off-set the historical
slow down of fourth quarter surfactant sales. Polyol volume
continued to grow due to higher global insulation standards but
margins declined during the third quarter. Price increases for
polyol have been announced for the fourth quarter. Merchant
phthalic anhydride sales are not expected to recover for several
quarters due to the impact of the recession, however, Stepan's
internal use of phthalic anhydride is growing in its polyol product
line. During the fourth quarter of 2008, our phthalic anhydride and
polyol manufacturing facilities at Millsdale, Illinois will undergo
their triennial maintenance turnaround. Consequently, higher
outsourcing and maintenance costs will negatively impact fourth
quarter polymer results. Our cost reduction and cash generating
initiatives should help us minimize the recession's impact on our
business. Despite the difficult economic environment, we will
deliver record results for the year. CONFERENCE CALL Stepan Company
will host a conference call to discuss the third quarter results at
2:00 p.m. Eastern Daylight Time on October 22, 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. 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 Nine Months Ended
September 30, 2008 and 2007 (Unaudited - 000's Omitted) Three
Months Nine Months Ended Ended September 30 September 30 % % 2008
2007 Change 2008 2007 Change ---- ---- ------ ---- ---- ------ Net
Sales $432,947 $338,398 +28 $1,234,797 $987,558 +25 Cost of Sales
390,162 303,530 +29 1,096,153 879,607 +25 ------- ------- ---------
------- Gross Profit 42,785 34,868 +23 138,644 107,951 +28
Operating Expenses: Marketing 11,290 8,899 +27 31,470 26,940 +17
Administrative 11,776 9,748 +21 35,716 28,979 +23 Research,
development and technical services 9,293 7,983 +16 26,567 23,566
+13 ----- ----- ------ ------ 32,359 26,630 +22 93,753 79,485 +18
Sale of Product Line (9,929) 35 NM (9,929) (4,255) NM Sale of Land
(8,469) - NM (8,469) - NM Goodwill Impairment Charge - - - - 3,467
NM Operating Income 28,824 8,203 +251 63,289 29,254 +116 Other
Income (Expense): Interest, net (2,447) (2,395) +2 (7,367) (7,218)
+2 Loss from equity in Joint Venture (1,368) (66) NM (2,245) (202)
NM Other, net (599) (1,187) -50 (1,960) (1,740) +13 ----- -------
------- ------- (4,414) (3,648) +21 (11,572) (9,160) +26 Income
Before Income Taxes and Minority Interest 24,410 4,555 +436 51,717
20,094 +157 Provision for Income Taxes 7,379 1,457 +406 16,205
6,656 +143 Minority Interest 31 12 +158 4 (72) NM Net Income
$17,000 $3,086 +451 $35,508 $13,510 +163 ======= ====== =======
======= Net Income Per Common Share Basic $1.75 $0.31 +465 $3.67
$1.39 +164 ===== ===== ===== ===== Diluted $1.59 $0.31 +413 $3.39
$1.34 +153 ===== ===== ===== ===== Shares Used to Compute Net
Income Per Common Share Basic 9,628 9,325 +3 9,521 9,113 +4 =====
===== ===== ===== Diluted 10,672 10,119 +5 10,461 9,918 +5 ======
====== ====== ===== Contact: JAMES E. HURLBUTT (847) 446-7500
DATASOURCE: Stepan Company CONTACT: James E. Hurlbutt,
+1-847-446-7500 Web Site: http://www.stepan.com/en/
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