Stepan Reports Higher Second Quarter and First Half Sales and Earnings

NORTHFIELD, Ill., July 29  /PRNewswire-FirstCall/ -- Stepan Company (NYSE: SCL) today reported second quarter results for the period ended June 30, 2008.

  SUMMARY
                          Three Months Ended           Six Months Ended
                              June 30                      June 30
                                          %                           %
  ($ in thousands)     2008      2007   Change      2008      2007   Change

  Net Sales         $420,399  $336,156    + 25   $801,850  $649,160   + 24

  Net Income           9,761     4,737   + 106     18,508    10,424   + 78

  Earnings per
   Diluted Share       $0.93     $0.47    + 98      $1.79     $1.03   + 74


  SECOND QUARTER RESULTS


Net income for the quarter was $9.8 million, or $0.93 per diluted share, compared to $4.7 million, or $0.47 per diluted share, a year ago.  Gross profit rose by $11.7 million, or 31 percent, on flat volume.  The surfactant and polymer segments both recorded improved gross profit.  Surfactant gross profit grew by $9.8 million (42 percent) on improved customer and product mix, as volume declined by one percent.  Polymer gross profit rose by $2.5 million (20 percent) on improved margins and a five percent increase in volume.

Pretax income of $14.5 million was up $7.0 million, or 95 percent. Following is a reconciliation of pretax income excluding certain significant quarterly and year-to-date items:

                                   Three Months Ended    Six Months Ended
                                        June 30              June 30
  ($ in thousands)                  2008       2007      2008       2007

  Reported Pretax Income          $14,510     $7,459   $27,307    $15,539

  (Gain) on Sale of Product Line        -     (4,290)        -     (4,290)

  Goodwill Impairment Charge            -      3,467         -      3,467

  Deferred Compensation:

    Administration Expense          2,466      1,995     3,140        631

    Other - Mutual Fund
     (Gain) / Loss                   (226)         -     1,001          -

      Non GAAP Pretax Income
       Excluding Above Items      $16,750     $8,631   $31,448    $15,347




Deferred compensation expense was $2.5 million compared to $2.0 million in the year ago quarter.  The accounting requirement for the Company's deferred compensation plan results in expense when the price of Stepan Company stock or mutual funds held for the plan rise and income when they decline.  Stepan Company common share price rose by $7.39 per share during the quarter.

Net sales increased 25 percent during the quarter, primarily due to higher selling prices (21 percent) and the favorable impact of foreign currency translation (four percent).  Sales volume was flat.  Rising crude oil derivative prices and the inflationary impact across most chemical feedstocks led to the higher selling prices.

YEAR-TO-DATE RESULTS

Net income for the six month period was $18.5 million, or $1.79 per diluted share, compared to $10.4 million, or $1.03 per diluted share, last year.  Gross profit increased $22.8 million, or 31 percent, on a one percent decline in volume.  The improved results were led by a $21.2 million (46 percent) increase in surfactant gross profit.  Improved customer and product mix, as well as recovery of fabric softener margins led to the improvement in surfactant gross profit. Surfactant volumes declined by two percent.  Polymer gross profit grew by $1.6 million (seven percent) due to a four percent increase in volume.

Pretax income rose $11.8 million (76 percent) due to the improved gross profit, partially offset by an $8.5 million (16 percent) increase in operating expenses largely attributable to a $2.5 million increase in deferred compensation expense.  See the operating expense discussion below.

Year-to-date net sales increased 24 percent due to higher selling prices (21 percent) and foreign translation impact (four percent), while volume declines reduced net sales by one percent.

  SEGMENT RESULTS

                          Three Months Ended           Six Months Ended
                               June 30                     June 30
                                           %                           %
  ($ in thousands)      2008      2007   Change     2008      2007   Change

  Net Sales
  Surfactants        $308,012  $242,765   + 27   $598,336  $479,241   + 25
  Polymers            103,088    84,892   + 21    183,924   153,574   + 20
  Specialty Products    9,299     8,499    + 9     19,590    16,345   + 20
    Total Net Sales  $420,399  $336,156   + 25   $801,850  $649,160   + 24




Surfactant gross profit increased $9.8 million, or 42 percent, during the quarter on volume that declined by one percent.  The increase reflects continued improvement in customer and product mix, as well as recovery of higher raw material costs in selling prices.  Fabric softener margins recovered from erosion during 2007.  Sales of higher value added surfactants in the distributor market, agricultural and oilfield drilling products contributed to the improved gross profit.  The slight decline in volume was due to lower personal care sales volume due to a customer reformulation from low active to high active products that result in lower volumes.  Commodity laundry and fabric softener volumes improved.  Biodiesel continues to generate a small profit versus year ago losses due to the higher diesel prices and our use of lower cost tallow as a feedstock in conjunction with soybean oil. Surfactants represent 75 percent of Company sales.

Polymer gross profit grew by $2.5 million, or 20 percent, as volume grew by five percent.  The Company's polyol product experienced a 13 percent increase in volume and represented most of the polymer segment improvement in profit.  Stepan's polyol is used primarily in rigid foam insulation for commercial roofing.  The majority of this market is for replacement roofs versus new construction.  This market remains strong, in part due to the desire for greater energy savings achieved from increased insulation.  The polymer segment experienced lower sales volume of phthalic anhydride (PA) due to the decline in demand from the automotive, recreational vehicles and boating industries, where PA is used in unsaturated polyester resins for plastic and composite materials.  PA profit declined on the lower volume. Polymer sales represent 23 percent of Company sales.

Specialty Products gross profit remained unchanged for the quarter as improved pharmaceutical volume was offset by weaker food ingredient volume. Specialty Products represent two percent of Company sales.

  OPERATING EXPENSES

                          Three Months Ended          Six Months Ended
                              June 30                     June 30
  ($ in thousands)                         %                          %
                        2008     2007    Change     2008     2007   Change

  Marketing           $10,400   $9,109    + 14    $20,180  $18,041   + 12
  Administrative -
   General             10,690    9,520    + 12     20,800   18,600   + 12
  Administrative -
   Deferred
   Compensation
   Obligations          2,466    1,995    + 24      3,140      631   N.M.
  Research,
   development
   and technical
   service              8,858    7,954    + 11     17,274   15,583   + 11
      Total           $32,414  $28,578    + 13    $61,394  $52,855   + 16




The major contributors to the increase in all categories of operating expenses were incentive based compensation charges and higher foreign operating expenses due to the translation effect against the weaker U.S. dollar.  Incentive based compensation includes stock awards (based on long term incentive targets), bonuses and profit sharing.  The quarter and year-to- date impact of these items on the total operating expense increase is summarized below:

                                               Operating Expense Increase

                                             Three Months       Six Months
                                             Ended June 30     Ended June 30

  Incentive Based Compensation                    $1,182          $2,286
  Foreign Translation Effect                         839           1,636
  Deferred Compensation                              471           2,509
  Other                                            1,344           2,108
     Total Operating Expense Increase             $3,836          $8,539




The remaining "Other" operating expense increases represent a five and four percent increase for the quarter and year-to-date periods, respectively.

OTHER INCOME AND EXPENSE

Interest expense grew by two percent for the quarter and six month period due to higher average debt levels brought about by higher working capital requirements.  Working capital requirements have grown due to increased sales and the impact of rising raw material costs.  The loss from our equity in the Philippine joint venture increased due to production outages and reliability of raw material supply.

Included in other, net expense on the income statement is $0.2 million of income for the quarter and a $1.0 million loss year-to-date on mutual fund investments held for our deferred compensation plan.  In January 2008, the Company adopted new accounting rule Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which allows for the marking to market of financial instruments such as these in the income statement, which were previously recorded in accumulated other comprehensive income in the stockholders' equity section of the balance sheet.

PROVISION FOR INCOME TAXES

The effective tax rate declined to 32.8 percent for the quarter compared to 37.6 percent a year ago.  The decrease in the effective tax rate was primarily due to the recording of Stepan U.K. goodwill impairment during the prior year for which no tax benefit was realized.

OUTLOOK

"We are pleased we were able to deliver strong second quarter earnings and build on the momentum we established in the first quarter," said F. Quinn Stepan, Jr., President and Chief Executive Officer.  Net income was up 106 percent for the quarter and 78 percent year-to-date.  Profitability of our global surfactant business continued to benefit from an improved customer and product mix, reduced outsourcing and our restructuring efforts, as well as recaptured margins.  Our polymer results were driven by global polyol volumes as high energy prices led to increased demand for insulation.  Phthalic anhydride sales were down due to the slow economy.  During the fourth quarter of 2008, our phthalic anhydride and polyol manufacturing facilities at Millsdale will undergo their triennial maintenance turnaround. We expect slightly higher maintenance and outsourcing costs in the fourth quarter. "While we remain concerned about the economic environment, we believe our improved profitability is sustainable," said Mr. Stepan.

CONFERENCE CALL

Stepan Company will host a conference call to discuss the second quarter results at 2:00 p.m. Eastern Daylight Time on July 30, 2008. To listen to a live webcast of this call, please go to our Internet website at: http://www.stepan.com/, click on investor relations, next click on conference calls and follow the directions on the screen.

Stepan Company, headquartered in Northfield, Illinois, is a leading producer of specialty and intermediate chemicals used in household, industrial, personal care, agricultural, food and insulation related products. The common and the convertible preferred stocks are traded on the New York and Chicago Stock Exchanges under the symbols SCL and SCLPR.

Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these uncertainties are described in Stepan Company's Form 10-K, Form 8-K and Form 10-Q reports and exhibits to those reports, and include (but are not limited to), prospects for our foreign operations, foreign currency fluctuations, certain global and regional economic conditions, the probability of future acquisitions and the uncertainties related to the integration of acquired businesses, the probability of new products, the loss of one or more key customer or supplier relationships, the costs and other effects of governmental regulation and legal and administrative proceedings, including the expenditures necessary to address and resolve environmental claims and proceedings, and general economic conditions.  These forward-looking statements are made only as of the date hereof, and Stepan Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

  CONTACT:  JAMES E. HURLBUTT
            [phone]



                               STEPAN COMPANY
                            Statements of Income
          For the Three and Six Months Ended June 30, 2008 and 2007
                         (Unaudited - 000's Omitted)

                          Three Months Ended           Six Months Ended
                               June 30                     June 30
                                            %                           %
                        2008      2007    Change    2008      2007    Change

  Net Sales          $420,399  $336,156    + 25  $801,850  $649,160    + 24
  Cost of Sales       370,398   297,882    + 24   705,991   576,077    + 23
    Gross Profit       50,001    38,274    + 31    95,859    73,083    + 31

  Operating Expenses:
    Marketing          10,400     9,109    + 14    20,180    18,041    + 12
    Administrative     13,156    11,515    + 14    23,940    19,231    + 24
    Research,
     development
     and technical
     services           8,858     7,954    + 11    17,274    15,583    + 11
                       32,414    28,578    + 13    61,394    52,855    + 16

    Net gain on sale
     of product line       --    (4,290)     NM        --    (4,290)     NM
    Goodwill
     Impairment Charge     --     3,467      NM        --     3,467      NM

  Operating Income     17,587    10,519    + 67    34,465    21,051    + 64
  Other Income
   (Expense):
    Interest, net      (2,573)   (2,515)    + 2    (4,920)   (4,823)    + 2
    Loss from equity
     in Joint Venture    (600)      (10)     NM      (877)     (136)     NM
    Other, net             96      (535)     NM    (1,361)     (553)  + 146
                       (3,077)   (3,060)    + 1    (7,158)   (5,512)   + 30

  Income Before
   Income Taxes and
    Minority Interest  14,510     7,459    + 95    27,307    15,539    + 76

  Provision for
   Income Taxes         4,759     2,805    + 70     8,826     5,199    + 70

  Minority Interest       (10)      (83)   - 88       (27)      (84)   - 68

  Net Income           $9,761    $4,737   + 106   $18,508   $10,424    + 78

  Net Income Per
   Common Share
    Basic               $1.00     $0.49   + 104     $1.91     $1.08    + 77
    Diluted             $0.93     $0.47    + 98     $1.79     $1.03    + 74

  Shares Used to
   Compute Net Income
   Per Common Share
    Basic               9,526     9,304     + 2     9,465     9,298     + 2
    Diluted            10,463    10,085     + 4    10,352    10,079     + 3


DATASOURCE: Stepan Company



CONTACT: James E. Hurlbutt, Stepan Company, [phone]



Web site:  http://www.stepan.com/ 

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