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Stepan Company Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 4, 2010 02:35PM
Stepan Company (SCL) filed Quarterly Report for the period ended 2010-09-30. Stepan Company has a market cap of $692.4 million; its shares were traded at around $70.29 with a P/E ratio of 11.6 and P/S ratio of 0.5. The dividend yield of Stepan Company stocks is 1.4%. Stepan Company had an annual average earning growth of 10.9% over the past 10 years.SCL is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:
On July 19, 2010, the Company acquired controlling interest of Stepan Philippines Inc. (SPI), raising the Companys ownership interest in the entity from 50 percent to 88.8 percent. The Company paid $3.7 million of cash to acquire the interests of one owner, transferred $2.0 million of cash to SPI as an additional capital investment and capitalized a $3.9 million liability originally due the Company pursuant to a royalty agreement between the Company and SPI. The Company also guaranteed approximately $8.7 million of debt owed by SPI to a related party of the selling partner.
Net income for the third quarter of 2010 declined two percent to $19.2 million, or $1.73 per diluted share, compared to $19.5 million, or $1.80 per diluted share, for the third quarter of 2009. Below is a summary discussion of the major factors leading to the quarter-over-quarter changes in net sales, profits and expenses. A detailed discussion of segment operating performance for the third quarter of 2010 follows the summary.
Consolidated net sales increased $40.6 million, or 12 percent, quarter over quarter. Higher average selling prices and sales volumes accounted for approximately $33.0 million and $11.9 million, respectively, of the net sales increase. The net effects of foreign currency translation reduced the quarter-over-quarter net sales change by $4.3 million. The increase in average selling prices reflected higher raw material costs. Sales volumes increased four percent, reflecting improvements in the economy and successful execution of specific opportunities in core markets. Polymers and surfactants segments sales volumes were up eight percent and three percent, respectively.
Operating income for the third quarter of 2010 declined $2.5 million, or seven percent, from operating income for the third quarter of 2009. Gross profit fell $10.5 million, or 15 percent. Surfactants segment gross profit was down $6.7 million, or 15 percent; polymers segment gross profit decreased $4.6 million, or 24 percent; and gross profit for the specialty products segment remained essentially unchanged quarter over quarter. The impact of higher raw material costs more than offset the effects of higher sales volume and average selling prices. In addition, 2010 gross profit included expenses related to a one-month lockout of the hourly workers at the Companys Millsdale (Illinois) manufacturing site. A labor agreement dispute led to the lockout; during the lockout period the plant was operated by salaried personnel. The dispute was settled in August 2010.
Equity in joint ventures, which included results for the 50-percent owned SPI (through July 19, 2010, when the Company acquired controlling interest in SPI) and TIORCO joint ventures, was $0.1 million of income for the third quarter of 2010 compared to $2.4 million of expense for third quarter of 2009. Equity in SPIs income improved $2.6 million between quarters. The improvement was attributable in part to higher sales volumes and margins. Also, the Company recorded a $0.7 million gain related to revaluing its original 50 percent interest in the joint venture as part of the Companys acquisition of controlling interest in SPI. The prior year SPI results included approximately $1.2 million of expense for the reserve of value added tax receivable balances that were in dispute with the Philippine tax authorities. The equity in TIORCOs loss declined $0.1 million quarter-over-quarter. The Company also sells surfactant products to TIORCO customers. The sales and resulting income from the sales are included in the Companys surfactants segment operating results.
Surfactants net sales for the third quarter of 2010 increased $24.0 million, or 10 percent, from net sales for the same quarter of 2009. Higher average selling prices and sales volume accounted for approximately $18.8 million and $6.7 million, respectively, of the net sales increase. The effects of foreign currency translation reduced the net sales change by $1.5 million. A quarter-to-quarter comparison of net sales by region follows:
Stocks Discussed: SCL,