Stepan Co. (SCL) Tops Q2 EPS by 45c, Revenues Beat

Stepan Co. (NYSE: SCL) reported Q2 EPS of $1.65, $0.45 better than the analyst estimate of $1.20. Revenue for the quarter came in at $460.55 million versus the consensus estimate of $451.33 million.

Second Quarter Highlights

• Reported net income was a record $35.7 million, or $1.54 per diluted share, versus $30.2 million, or $1.30 per diluted share, in the prior year. Adjusted net income* was a record $38.3 million, or $1.65 per diluted share, versus $35.1 million, or $1.50 per diluted share, in the prior year. Total Company sales volume increased 4% versus the prior year.
• Surfactant operating income was a record $48.5 million versus $32.1 million in the prior year. This increase was primarily attributable to a 10% increase in global Surfactant volume and an improved product mix. The sales volume growth was principally due to higher demand in the global consumer product end markets driven by increased demand for cleaning and disinfection products as a result of COVID-19, and a $5.0 million operating income improvement in Mexico. As previously announced, the Company plans to acquire Clariant's anionic surfactant business and associated sulfonation equipment in Mexico.
• Polymer operating income was $15.5 million versus $22.8 million in the prior year. This decrease was mostly attributable to a 13% decline in sales volume versus prior year. Global rigid polyol sales volume declined 8% driven by Europe and North America, due to COVID-19 construction project delays and cancellations, partially offset by strong growth in China. Lower volume and higher raw material inventory cost within the phthalic anhydride business also contributed to the decline in operating income versus the prior year.
• Specialty Product operating income was $3.2 million versus $6.0 million in the prior year. This decrease was primarily attributable to order timing differences within our food and flavor business and lower margins within our medium chain triglycerides (MCT) product line.
• The effect of foreign currency translation negatively impacted net sales by 4% and net income by $2.5 million, or $0.11 per diluted share, versus the prior year.
• The Company had negative net debt at quarter-end as cash balances of $272.9 million exceeded total debt of $207.9 million. The Company has access to a committed $350.0 million revolving credit agreement and has only $9.3 million of remaining debt maturing in 2020. The Company believes it has sufficient liquidity to operate in the challenging near term environment.

Outlook

"2020 will continue to be a difficult year for the world, our country and our industry. We believe Stepan's business remains better positioned to perform than most as we demonstrated in the second quarter. Our teams are working to minimize vulnerabilities and capture opportunities that are available to us," said F. Quinn Stepan, Jr., Chairman, President and Chief Executive Officer.

"We believe our Surfactant volume in the consumer product end markets should remain strong as a result of heightened demand for disinfection, cleaning and personal wash products. We anticipate that demand for surfactants within the agricultural market will approximate last year and that the oilfield market will remain down for the balance of 2020. Although the long-term prospects for our Polymer business remain attractive as energy conservation efforts and more stringent building codes should increase demand, we believe the business will be challenged in the short term as re-roofing and new construction projects continue to be deferred or canceled. Additionally, we continue to anticipate higher North American costs due to the Illinois River lock closure occurring during the second half of 2020. Our Specialty Product business should approximate prior year results. We have a strong balance sheet and significant cash on hand. Given our strong balance sheet and available liquidity we believe we are well positioned to operate in the challenging near-term environment."

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

You May Also Be Interested In

• Genco rejects Diana Shipping takeover bid as undervalued
• Allogene (ALLO) Reiterated at Market Outperform by Citizens: 'ALPHA3 Trial is On-Track'
• Rothschild Redburn Upgrades Apple (AAPL) to Buy