US Stepan sees sharp fall in '03 profits on cost hikes

11 February 2004 19:14  [Source: ICIS news]

HOUSTON (CNI)--Specialty and intermediate chemicals manufacturer Stepan reported Wednesday a 76% decline in 2003 profits to just under $5m (Euro4m) despite a 5% increase in sales to $785m with the company citing higher raw material and natural gas costs.

Northfield, Illinois-based Stepan also reported a fourth quarter loss of $3.4m and noted that as a consequence the company "is not in compliance with certain covenants in its US loan agreements." Stepan said in a statement that it is in talks with its lenders to obtain an amendment or waiver to those agreements to cure the non-compliance.

The company said it has imposed a salary freeze for this year.

Operating income for the year ended 31 December fell 71% to $9.8m, the company said.

Although the firm's 2003 sales revenue increased by more than $36m, Stepan noted that some $21m of that increase was due to favourable currency translations. The balance of the sales boost was attributed to "higher selling prices due to higher raw material costs."

The decline in year-over-year profits was laid to lower North American surfactant volume, higher raw material, natural gas and pension costs.

Stepan chairman and chief executive Quinn Stepan said: "A variety of significant factors combined to make 2003 one of the most challenging and difficult years that the company has experienced."

He said a 44% decline in surfactant earnings accounted for the majority of the firm's decline in annual operating income. "North American surfactant volume declined by 5%," Stepan said, "due to the switch to greater internal production by two customers, which built new manufacturing facilities, and weakness in our laundry and cleaning markets."

"Higher raw material and energy costs also contributed to the weaker earnings," he noted, and "European surfactant earnings declined due to quarterly lower margins in the UK and lower sales volume in Germany."

Surfactants typically account for nearly 80% of the company's revenues, Stepan said.

Looking forward, Stepan noted that the company took aggressive actions to reduce costs, including a headcount reduction and a 2004 salary freeze, but that cost-cutting "can not and will not be a substitute for growing our business in the markets and regions that we have targeted for growth."

He said the company would continue to focus efforts on expanding surfactant business in agricultural, emulsion polymerisation and oilfield markets and also will seek surfactant target opportunities this year in fabric softeners and personal care specialties.

By: Joe Kamalick
+1 713 525 2653

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