Stepan Reports Fourth Quarter and Record Full Year 2016 Results

NORTHFIELD, Ill., Feb. 22, 2017 /PRNewswire/ -- Stepan Company (NYSE: SCL) today reported:

Fourth Quarter Highlights

• Reported net income was $8.4 million, or $0.36 per diluted share versus $12.9 million, or $0.56 per diluted share, in the prior year.  Adjusted net income was $12.3 million, or $0.52 per diluted share versus $17.0 million, or $0.74 per diluted share, in the prior year.*
• Total company sales volume increased 1% for the quarter as a result of higher polyol volumes, which benefited from increased demand from the insulation market in the United States and Europe.
• The fourth quarter 2016 results were negatively impacted by $8.9 million of pre-tax non-recurring costs, of which $8.3 million impacted Surfactants and $0.6 million impacted Polymers. The after-tax impact was $6.1 million, or $0.26 per diluted share.
• Surfactant operating income was $14.6 million versus $24.3 million in the prior year. This decrease was primarily attributable to certain non-recurring items including European product claim commitments and environmental remediation expense in the United States.  Global Surfactant sales volume was down 1% versus the prior year.
• Polymer operating income was $16.5 million versus $18.1 million in the prior year. The decrease was mostly attributable to a scheduled maintenance shutdown of the Company's Phthalic Anhydride operations and higher manufacturing costs associated with the Company's new production facility in China.  Global Polymer volume was up 6% versus the prior year. 
• Specialty Product operating income was $4.2 million, up $3.3 million versus the prior year, primarily due to sustained improvements within Lipid Nutrition.
• The Company closed on its previously announced acquisition of Tebras/PBC in Brazil.

Full Year Highlights

• Reported net income was a record $86.2 million, or $3.73 per diluted share, a 13% increase versus $76.0 million, or $3.32 per diluted share, in the prior year.  Adjusted net income was a record $98.2 million, or $4.25 per diluted share, a 24% increase versus $79.4 million, or $3.46 per diluted share, in the prior year.*
• Surfactant operating income was $99.8 million, a 4% decrease versus prior year.  The Polymer segment delivered its seventh consecutive year of record operating income with $96.8 million, a 20% increase versus prior year.  Specialty Product operating income was $10.7 million versus $4.4 million in the prior year.
• Total company sales volume increased 6%. Surfactant, Polymer and Specialty Product sales volume increased 5%, 12% and 8%, respectively. 
• The effect of foreign currency translation negatively impacted net income by $2.7 million, or $0.12 per diluted share, versus prior year.

"2016 was a very good year as the Company delivered record reported and adjusted net income," said F. Quinn Stepan, Jr., President and Chief Executive Officer. "Strong global Polymer volumes, increased asset utilization and enhanced internal efficiencies continued to deliver results.

For the full year, the Surfactant segment delivered $99.8 million of operating income while overcoming certain non-recurring items. Operating income improved in the US, Asia and Latin America.

Polymers delivered its seventh consecutive year of record operating income, primarily due to higher volumes in Rigid Polyols which benefited from new customers and global energy conservation efforts.

Specialty Product results were up significantly for the year as the segment benefited from structural actions taken in 2015.

Our internal efficiency program, called DRIVE, delivered $15.0 million of pre-tax benefit."

Summary of Fourth Quarter Adjusted Net Income Items

Adjusted net income excludes non-operational deferred compensation income/expense and other significant and infrequent or non-recurring items.

• Deferred Compensation:  Both the current and prior year quarters include $2.7 million of after-tax expense.
• Business Restructuring and Asset Impairments:  The current year quarter includes $4.0 million of after-tax expense attributable to $1.3 million of severance and final decommissioning costs related to the Canadian plant shutdown, a $1.3 million asset write-down at the Bahia, Brazil site, and a $1.4 million asset write-down related to our investment in Louisiana due to our decision to make nonionic surfactants at the site in Pasedena, Texas that we acquired from Sun Products Corporation.
• Contract Termination Settlement:  The current year quarter includes $2.8 million of after-tax income generated on a negotiated customer contract termination fee related to the Bahia, Brazil site.

Percentage Change in Net Sales

Quarterly net sales were flat versus prior year.  Slightly higher sales volume and selling prices were offset by the negative impact of foreign currency translation resulting from the stronger U.S. dollar.  Sales volumes were up 1% mostly due to strong global polyol growth. Selling prices were up slightly due to the pass-through of higher raw material costs within the Surfactant segment.

Total segment operating income decreased $8.0 million versus the prior year quarter. Total segment operating income increased $17.9 million for the full year.

• Surfactant net sales were $282.5 million for the quarter, a 1% decrease versus prior year.  The translation impact of a stronger U.S. dollar decreased sales by 2%.  Sales volume was down 1% versus the prior year due to lower North American consumer product volume, partially offset by higher volume in Latin America, Asia and Europe. Slightly higher selling prices favorably impacted net sales by 2%. Surfactant operating income decreased $9.7 million versus the prior year.  This decrease was mostly attributable to non-recurring costs reported within the results, including European product claim commitments and environmental remediation expense in the United States. Results were also negatively impacted by accelerated depreciation related to the Canadian plant closure, partially offset by a contract termination settlement in Brazil.  
• Polymer net sales were $116.3 million for the quarter, a 2% increase versus prior year.  Sales volume increased 6% in the quarter primarily due to continued growth in polyols used in rigid foam insulation and insulated metal panels. Slightly lower selling prices unfavorably impacted net sales by 2%.  The translation impact of a stronger U.S. dollar unfavorably impacted net sales by 2%.  Polymer operating income decreased $1.6 million versus the prior year.  This decrease was primarily attributable to a scheduled maintenance shutdown of the Company's Phthalic Anhydride operations and higher manufacturing costs associated with the Company's new production facility in China.  The decrease was partially offset by higher global Rigid Polyol demand from increased insulation standards and growth in construction.
• Specialty Products net sales were $21.8 million, $1.0 million higher than prior year.  Operating income increased $3.4 million versus the prior year.  This increase was primarily within our Lipid Nutrition business due to higher volumes, improved margins and lower costs due to structural actions taken in 2015.

• Corporate expenses, excluding deferred compensation, decreased $2.7 million, or 15%, for the quarter.  This decrease was mostly attributable to lower consulting expenses, as external resources related to our efficiency efforts were not used in the current year. 

Income Taxes

During the fourth quarter of 2016, the Company benefited from a more favorable geographical mix of income versus the prior year, resulting in a lower quarterly tax provision.  The 2016 full year effective tax rate was 24% compared to 26% in the prior year.  The full year decrease was mostly attributable to a more favorable mix of income and a tax benefit derived from the early adoption of ASU 2016-09/Stock Compensation. 

Selected Balance Sheet Information

The Company's net debt level decreased $27.8 million for the quarter while the net debt ratio dropped from 16% to 13%.  The decrease in net debt was attributable to an $18.7 million increase in cash combined with a $9.1 million decline in total debt.  The cash increase in the fourth quarter was primarily attributable to improved working capital components. 

The major working capital components were:

The Company had full year capital expenditures of $103 million in 2016 versus $119 million in the prior year.

Outlook

"After record results in 2016, we are positioned for further growth in 2017," said F. Quinn Stepan, Jr., Chairman, President and Chief Executive Officer. "Although we had several events that negatively impacted the fourth quarter of 2016, our base business remains strong. Benefits from our product and end market diversification efforts, continued growth in core polymer markets, and enhanced internal efficiencies should positively impact 2017."

Conference Call

Stepan Company will host a conference call to discuss its fourth quarter and full year 2016 results at 10:00 a.m. ET (9:00 a.m. CT) on February 22, 2017. The call can be accessed by phone and webcast. Telephone access will be available by dialing +1 (888) 224-8023, and the webcast can be accessed through the Investor Relations/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 under the Investor Relations center 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 compounds.  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 Northfield, Illinois, Stepan utilizes a network of modern production facilities located in North and South America, Europe and Asia.

The 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

Contact: Scott D. Beamer       (847) 446-7500

Tables follow

Certain information in this presentation 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 (the Exchange Act). 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, the 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," "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 8-K and Form 10-Q reports and exhibits to those reports, and include (but are not limited to) risks and uncertainties related to disruptions in production or accidents at manufacturing facilities, global competition, volatility of raw material and energy costs, disruptions in transportation or significant changes in transportation costs, reduced demand due to customer product reformulations or new technologies, the probability of future acquisitions and the uncertainties related to the integration of acquired businesses, maintaining and protecting intellectual property rights, international business risks, including currency exchange rate fluctuations, legal restrictions and taxes, our ability to estimate and maintain appropriate levels of recorded liabilities, our debt covenants, our ability to access capital markets, downturns in certain industries and general economic downturns, global political, military, security or other instability, costs related to expansion or other capital projects, interruption or breaches of information technology systems, the costs and other effects of governmental regulation and legal and administrative proceedings and our ability to retain executive management and key personnel.

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.

The Company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP (Generally Accepted Accounting Principles) measures, are useful for evaluating the Company's operating performance and provide better clarity on the impact of nonoperational 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.

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SOURCE Stepan Company