Stepan Earns $1.04 per Share

This morning, Stepan (SCL) reported adjusted Q1 earnings of $1.04 per share. That includes the impact of a power outage at their Millsdale plant. Excluding that, Stepan is doing quite well. The consensus of the three analysts who follow Stepan was for earnings of 78 cents per share.

If you’re not familiar with Stepan, the company is a major manufacturer of specialty and intermediate chemicals that are used in a broad range of industries.

Although Stepan is classified with other specialty chemical companies, it’s unique in the industry. Stepan doesn’t have a competitor or competitors to precisely match its businesses because its products have a specific focus.

Stepan makes surfactants, the key ingredients in consumer and industrial cleaning compounds. That includes things like detergents, fabric softeners, shampoos, and lotions. Surfactants make them clean and foam.

Stepan has three operating divisions. For Q1, Surfactants had operating income of $36.2 million. Polymers was at $7.5 million, and Specialty Products did $4.0 million.

The company is also in a strong position financially. Stepan currently has more than $250 million more in cash than in debt. Plus, it has access to a credit line of $350 million.

CEO F. Quinn Stepan, Jr. said:

“Excluding the impact of the Millsdale power outage, the Company had a solid start to the year. Surfactant operating income, excluding the Millsdale incident, was up significantly. Global Surfactant sales volume declined 1% due to strong volumes in the global consumer product end markets driven by increased demand for cleaning and disinfection products, as a result of COVID-19, offset by lower demand within our Functional Product end markets.

Mexican operations delivered strong year-over-year earnings growth. The Polymer business was down primarily due to the Millsdale power outage, impacting mostly our phthalic anhydride business. Rigid Polyol volume was flat as growth within North America and China was fully offset by lower demand in Europe as a result of COVID-19. Global Specialty Polyols results were up with all regions growing operating income year-over-year. Our Specialty Product business results were higher due to improved volume and margins within our MCTs product line due to pantry loading and higher demand in the infant nutrition market, as a result of the COVID-19 outbreak.”

Compared with last year’s Q1, Surfactant sales were down 6%. Polymer was down 11%. Specialty Products was off by 15%. Last quarter, Stepan paid out $6.2 million in dividends and bought back 260,605 shares for $7.2 million. Stepan has increased its dividend every year for 52 years.

The outlook from the CEO:

“2020 is going to be a difficult year for the world, our country, our industry and Stepan Company. However, we believe that in the current environment our business is positioned better than most,” said F. Quinn Stepan, Jr., Chairman, President and Chief Executive Officer. “With empty store shelves around the world for disinfection and cleaning products, our surfactant volume in the Consumer Products end markets should remain relatively strong. Falling raw material prices may provide an opportunity for margin improvement. With dramatically lower oil prices, demand for surfactants within the oil field end-markets will be down. We anticipate our Agriculture business should approximate last year. Overall, we believe our Surfactant business should remain relatively recession resistant.

Our Polymer business most likely will face a reduction in demand as people defer or cancel re-roofing and new construction projects. We also anticipate higher North American costs due to the Illinois River lock closure scheduled during the second half of 2020. The long term prospect of this business remains attractive as energy conservation efforts and more stringent building codes should increase demand.

Our Specialty Product business should continue to benefit from higher MCT demand in the infant nutrition market as pantry loading and retail restocking occur. Our flavor and pharmaceutical product sales should be stable for the year.

We have a strong Balance Sheet with significant cash on hand. We have a $350.0 million revolver which is essentially untapped. Our debt maturity in 2020 is only $23.6 million. Given our balance sheet and available liquidity, we are well positioned to operate in the challenging near-term environment. We have paid a dividend for 62 consecutive years and expect to do so in the future. Despite the difficult current environment, we remain optimistic about the future at Stepan Company and our ability to deliver value for our customers and shareholders.”

The shares are basically unchanged today.

Posted by on April 21st, 2020 at 11:17 am


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