Stepan Co. (SCL) Tops Q1 EPS by 4c, Revenues Miss

Stepan Co. (NYSE: SCL) reported Q1 EPS of $1.31, $0.04 better than the analyst estimate of $1.27. Revenue for the quarter came in at $489.17 million versus the consensus estimate of $510.57 million.

First Quarter Highlights

• Reported net income was $25.0 million, or $1.07 per diluted share versus $32.0 million, or $1.37 per diluted share, in the prior year. Adjusted net income* was $30.6 million, or $1.31 per diluted share versus $33.6 million, or $1.44 per diluted share, in the prior year. Global sales volume grew 3% quarter-over-quarter. Each of the three segments delivered sales volume growth during the first quarter of 2019.
• Surfactant operating income was $37.2 million versus $41.5 million in the prior year. This decrease was primarily attributable to a $2.3 million operating loss incurred at the Ecatepec, Mexico facility as a result of a sulfonation equipment failure in January of 2019. The Company's insurance provider has acknowledged this incident is a covered event and the Company is pursuing insurance recovery for damaged equipment, incremental supply chain expenses and business interruption. The unfavorable impact of foreign currency translation negatively impacted results by $0.8 million. Global Surfactant sales volume increased 3% versus the prior year. Higher demand within the functional product and personal care end markets was partially offset by lower demand for products sold to the Company's distribution partners.
• Polymer operating income was $12.1 million versus $17.3 million in the prior year. This $5.2 million decrease was primarily attributable to the non-recurrence of a $2.1 million class action settlement received in 2018, lower margins and volumes for North American specialty polyols and phthalic anhydride, higher European costs associated with a planned maintenance shutdown in Germany to debottleneck capacity and lower North American rigid polyol margins. Global Polymer sales volume increased 3% versus the prior year. North American and European rigid polyol sales volume grew 10% and 7%, respectively.
• Specialty Product operating income was $3.1 million versus a $0.4 million operating loss in the prior year. This increase was primarily attributable to favorable order timing differences within our flavor business.
• The effect of foreign currency translation negatively impacted net income by $0.9 million, or $0.04 per diluted share, versus prior year.
• During the first quarter of 2019 the Company elected to change its method of accounting for U.S. inventories from the last in, first out (LIFO) basis to the first in, first out (FIFO) basis. The Company believes this change is preferable as it provides a better matching of costs with the physical flow of inventory, better reflects the current value of inventories and improves comparability with the Company's industry peers. The Company has retrospectively applied this change to its prior year financial statement comparables and denoted impacted prior year columns "As Adjusted". The net effects on prior year results of changing from the LIFO method to the FIFO method are $1.2 million of additional income in the first quarter of 2018 and $1.6 million of additional expense for full year 2018.

Outlook

"Looking forward, we believe our Surfactant business will continue to benefit from our diversification efforts into functional products, new technologies, improved internal efficiencies and expanded sales into our broad customer base globally. We believe our Polymer business will benefit from the growing market for insulation materials and we are optimistic the business will deliver both full year volume growth and incremental margin improvement versus 2018. We believe our Specialty Product segment will deliver better margins and combined with restructuring efforts this segment should provide second half benefits. Overall, we remain optimistic about the balance of the year," said F. Quinn Stepan, Jr., Chairman, President and Chief Executive Officer.

For earnings history and earnings-related data on Stepan Co. (SCL) click here.

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