SCL - Earnings call transcript Q3 2019

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Operator

Greetings and welcome to the Stepan Company Third Quarter 2019 Earnings Conference Call.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded, Wednesday, October 23rd, 2019.

I would now like to turn the conference over to Luis Rojo, Vice President of Finance and Chief Financial Officer. ahead. go Please

Luis Rojo

thank XXXX and joining Company's Stepan Good review. you quarter financial third morning for

Commission Before Securities note historical and operations, begin, cause not forward-looking factors involve we limited please and and regional actual statements, and call this risks in filings. for materially, detailed which economic contains results conference to, to conditions, are including, that prospects global not uncertainties facts. Exchange differ statements that These our could information but in foreign our

Whether presentation, are or at earnings hope and release the the have time you these Relations us joining over and make available that issued, review you helpful. is available find We Investor slides phone, online same to as you at section when the we website. the perspective information we of www.stepan.com made which the encourage under the investor our slide we approximately

call Quinn Officer. Chairman, Now, turn would like I to the and Mr. over President with to our Jr., Chief that, Stepan, Executive

Quinn Stepan

you, net income Thank challenging year's company's months, And net and the nine for of all ahead net environment, current Despite you quarterly us through thank today. record. and exceeded joining prior the adjusted adjusted income year. Good last is income Luis. morning

had year. patterns, growth. polyol For to due but strong lower slow rigid North growth business income America Mexico. third order down recovery in global the and quarter Product significant by volume of due Surfactant a for will were profit commodity was quarter, Polymer the customer The the earnings driven to volumes in Specialty our deliver down business

$XX.X per share or Third $XX.X in $X.XX the quarter million adjusted share million was year. versus diluted income prior per $X.XX or net diluted

income or million diluted was net versus XXXX. diluted per $X.XX adjusted $XX.X per share million in nine-month First or $X.XX share $XX.X

improved product the nine demand consumer first and volume business the and The the the foreign months in for wet in of global weather by improvement. equipment negatively results markets up for impacted have margin months farm and nine income operating belt, translation. significantly first growth US is quarter the slight Ecatepec been failure, during strength Surfactant end Polymer currency the the on weak

North months the year. to operating our polyol offset prior slightly due last rigid pharmaceutical compared grown within Specialty respectively nine income medium triglyceride first chain margins. European American year XX% volumes quarter, during largely versus was X% timing Product and unfavorable and down have business, by improved to product order primarily

dividend the the $X.XXX in per now fourth The year consecutive company by that cash Stepan's common dividend XXnd XXXX of increased its company quarter dividend The XXXX. XX%, or increased the has payable on its is quarterly December marking XXth, $X.XXX stock quarterly share cash cash share on stockholders. per to

results. this our details quarter point, I Luis to few more third At walk about a would through like

Luis Rojo

slide Thank you, Quinn. follow generally My the comments presentation. will

Slide with quarter recap $XX.X start increase quarter. of X X% third quarter XXXX. Let's Adjusted the income versus XXXX Appendix II was the million, measure, million adjusted And in net to in release. $XX.X third and the for Because of the press can the to comparable of provide the reconciliations is a GAAP be measures. of non-GAAP net income a presentation these II we Table found full

diluted expense $X.X net deferred remained net share of deferred reported or income compensation quarter and compensation to million adjustment this expenses. or restructuring the share. $X.X diluted million for $X.XX of expense deferred for $X.XX compensation to per expense Specifically, income compared exclude Adjusted quarter for per

from exclude discussion. cash-settled as stock the price, well rights expense our as The movement to stock deferred employees. deferred liabilities operational these related our with company's compensation item compensation this numbers a represent Because for plan our we net appreciation change the in

related to related in for per net XXXX. diluted and business charges, of plant decommissioning share shutdown in Canadian $X.XX to restructuring or Adjusted million the after-tax costs closure income sulfonation exclude $X.X also the the the XXXX quarter Germany ongoing

We additional after-tax expenses decommissioning million XXXX. in $X.X of expect an

total X the in this figures compared after-tax breaks Because company for noted is net net Slide here income. adjusted the on and income, earnings the third year's bridge shows an down quarter increase third to quarter, the last are basis.

go segment will year. to more versus in detail, Specialty and We but at Products up the while Polymer prior summarize, were down, each Surfactant was

for one-time was XXXX. in US tax of by the Favorable income cash The related rate in decrease company's the XX.X% This primarily was nine first partially net in tax nine higher interest of interest for effective versus months year-over-year repatriation credit, R&D the company project XX.X% XXXX. expense to the after first tax months XXXX. XXXX to US favorable offset was due higher

be full the in to XX%. range effective the XXXX expect to XX% year rate tax of We

X sales Slide prior segment Surfactant Surfactants results on decreased for costs operating primarily equipment the the higher Surfactant with to Ecatepec, versus income lower volume, million the internal residual quarter. Mexico. the quarter a the supply $XXX and versus were due $X.X associated sales year. in failure focuses the quarter, XX% the company year, decrease Asian-US million net prior impact for inventory-related in of chain

exit product Sales lower in weather the in business the belt farm the X%, lower US Germany demand its due volume US consumer mostly market. XXXX, decreased agricultural commodity in demand to and wet to from the company due sulfonation in

same United of Asia the most dollar In in The due is material support Surfactant in small in translation North our costs. Selling lower is stronger of relatively to because Asia show sales that business and prices category to Surfactant in bridge, production net region X%, used the the the and States. the America US business primarily a pass-through we by raw decreased were down impact of X%.

lower related driven United demand due the by system. soft higher the decrease chain weather wet North inventory in The consumer agricultural to was farm and commodity to product supply primarily belt Asian-US America States internal volumes, costs

event. we company's the the European The strong insurance fully a of gradually headwinds Latin Ecatepec, and down Brazil provider incident increased FX despite benefits by is equipment are and exit year. market. America the is facility to the Germany, in business and margin the operational agricultural one-time prior sulfonation business. is in has sulfonation results failure, acknowledged Ecatepec FX low Mexico growth coverage this due regaining driven the The in now

to offset prior more Polymer year. X% of and the $X turning quarter, the by X% income the Now prices and Total volumes. partially a product to sales volume sales and versus lower growth X%. dollar polyol due stronger declined impacted versus PA favorable sales the polyol a of translation on operating was volume negatively Selling higher US increased Global million rigid net million X%. X% sales year, specialty prior by increased impact for mix. Polymers Slide X. $XXX primarily Polymer were net down

driven increased China North volumes increased European and storage polyol of America margin X% polyol to by insulation. improvement. Asia. results X% strong demand increased increased rigid slight construction. a polyol to and Strong Global due margin growth improvement. in results growth rigid improved XX% polyol to due North standards due was in driven driven in and America insulation by by volume slight volume growth, on results growth cold demand increased market

decreased Finally, due lower results PA volumes. to

year. MCT were our timing net to X% quarter. income by year, for improved decrease order offset Specialty the primarily $X.X million $XX due unfavorable decreased versus Products Products the versus volume Sales with the for sales business, the product XX% pharmaceutical partially declined quarter, our within margins million differences the prior Specialty prior a line. operating

Turning to X. Slide

as to no debt. Our balance sheet have continue remains net strong we

During the stock. repurchased months of paid $XX.X of nine company dividends million first company million XXXX, $XX.X the of and

Beginning increase on Slide X, shareholder our value. you Quinn and plans on update to now will strategic priorities

Quinn Stepan

you, Luis. Thank

will strategy value headwinds. our Surfactant deliver despite believe Looking forward, we current the our shareholders for

full-year X Tier strong Our growth our versus incremental as X continued margin deliver cost-out We given as focus the polyol on end business market and improvement and Polymer XXXX, should future customers, remain will improve months. nine diversification, the activities growth first Tier optimistic in our rigid margins. volume well

versus results XXXX net Overall, full nine-month growth. have believe of year the adjusted an deliver the on of to its year despite another Specialty earnings. year We we income strength Product challenges, improve current opportunity will

XX, strategy. we've be good component Turning made our to key efforts, diversification progress of to on a our which Slide continues market

markets during volume wet our the the our in to for to Latin functional end weather, America agricultural XX%. demand volume Although the quarter, products in decreased North due America increased lower agricultural

months, nine last versus is up agricultural first year. global the During volume our

alkoxylates expanding technical dedicated are and products new our over XX in introduced with new the have resources We presence months. specialty XX past

to position priority order Next, a our customer in X continues intimacy Tier of be key maintain customer deliver growth our our within our Tier base and Surfactant focus businesses. in several on to X and to leadership

X% X and in Tier and the volumes primarily due X Tier customer exit during North America competitive pressure the Germany. sulfonation business in from decreased to Surfactant our However, quarter,

about optimistic by market global increased volumes increased continued strong X% rigid market efforts. to the construction. during polyol of and conservation the We rigid quarter due growth standards remain in insulation driven Global growth to energy polyol due demand

Innovation our key strategy. of is a part

to the STEPANQUAT is we leader As environment. customers in positively launch haircare are a continue customer value-added well ingredient of and work of market, this safer for the responding on mild that to polyester rigid North next new The underway. developing conditioner for Personal Helia Care base. technologies our American the generation polyol is

North have During we the now Brazil and introduced STEPANQUAT to Helia in quarter, and Latin product America India. also America, sell continue the we in

value cost of excellence create part best operational saving from sulfonation We of drive practices, our believe network and integral Ecatepec application will Next, acquisition. the our is strategy. long-term that an synergies opportunities

the on of our plant. operations Surfactant savings We are the Germany shutdown also Wesseling, delivering at

will and further around capacity to improve utilization base We and our the for efficiently optimize customers to world. asset opportunities continue examine to serve our more

all from be excellence Operational can within delivered our company. groups

from significantly improved During have the our this contributions we calendar finance year, team.

delivered due improved of interest We and -- reduced reduced have position. which and tax cash past line efficient, bottom an our all have rate net effective receivables, expenses,

important years. extremely and growth to represents tool next over M&A meaningful a EPS EBITDA the few Finally, as means an deliver

to the continue opportunities new we gaps M&A add balance Given platform in chemistries. of product our and to fill portfolio strength sheet, pursue will our

and focus, shareholders. We and to we core continuous improvement, positioned innovation accomplish customer Our integrity, opportunities people first, provides market you, growth sustainability are our and how describe we for opportunities The well challenges. will feel capture plan. values, our

At prepared like our questions. the for call. time, concludes instructions review portion we of today's for turn the remarks. please to the would call over Jennifer, This this question

Operator

question [Operator comes from Jason Thank our line with proceed Review. Rodgers Please And Instructions] Lakes first question. of the Great with your you.

Jason Rodgers

morning. good Yes,

Quinn Stepan

Jason. morning, Good

Jason Rodgers

able be related -- costs you you chain? to the the would quantify Would sorry, able to to inventory one-time the Asian-US be supply quantify

Luis Rojo

everything around million -- when Yeah, it's roughly you you when $X include in.

Jason Rodgers

America regards was And was North then, called in that Surfactants, to some competitive out? the pressure. -- worse that as for the smaller customers as competitive a environment? that Is around Was that All comments new phenomenon? in that far you're getting the Is targeting why right. mentioned that you

Quinn Stepan

States, and seeing being increase having on shipped I think from in of margins space. into an slight United impact we're it's commodity material the a that -- increase the of in offshore some in

Jason Rodgers

All rebound quarter right. And the in then, North after far wet any agricultural business the current America in weather? in so the

Quinn Stepan

up higher to We performance the the be the the basis, are But But is anticipating are from generally fourth quarter quarter expect business, to up on typically and the we the be sequentially third anticipating seeing a we the a kind quarter. quarter. are seasonality with anyway. -- we global business fourth associated there in in fourth of ag

Jason Rodgers

Okay. Thank you.

Quinn Stepan

Thank Jason. you,

Operator

Global next from with Mike Harrison Seaport line your question Securities. question. Our of Please comes proceed the with

Mike Harrison

Hi, good morning.

Quinn Stepan

Mike. morning, Good

Luis Rojo

Mike. morning, Good

Mike Harrison

you've the America, performance, in at of well supply it's North as trends depressed, the unusual the cost both if outage. volume cost as Surfactant I it and as cost America as look The just well Ecatepec we chain that like the some inventory or Latin think, mentioned, seems particularly

a talk something into QX than to you could look and little recovery going could income Is come Can timeline sooner what remain back and is that? QX, volume or the for it like? bit that depressed about something that's operating that

Quinn Stepan

point the at significant space look SKUs XXXX were commodity up the versus I into would this growth some tell be We've QX. that that QX that the don't at had we you business we customer our into implementations in the time. As in see QX delayed or in I will anticipate XXXX new today, in of but volumes quarter,

Mike Harrison

increase today your a Maybe To business? Surfactants of side utilization down and where business. Specialty comment on of our sulfonation can All extent, that, maybe diversification your strategy, is business? try sits And some the idea or we maybe volumes tied that part question to your the this commodity the right. on on you reliance side within capacity the Surfactants of commodity this into work

Quinn Stepan

functional effort Yeah, of in markets. Surfactants, to strategy functional skewed it's to in our marketing more the part growth the toward part of our continue certainly a grow and have markets key and a forward we significant of R&D going

that is priority so, And a for company. our

we also regional priority Tier X and to can almost in and XX XX-year X, help grow a have local leverage resources -- in that Tier a customers to grow basis regional markets. we them smaller to It's space customers, the that in dedicated those on smaller our continue increased the their accounts, history

So that our strategy. is of a fundamental part

de-emphasizing capacity kind that in pressures economically are American utilization we'll utilization, would XX% We're of some I to work capacity with to still excess basis, From customers those it's With there today, segment. within some regard products, global attractive XX% commodity the probably to we our a to but us, have of a on capacity we North business, operating the at network. say. sell when do so to and larger continue

Mike Harrison

then, All the a business. right. question on And Polymers

of margin, it rigid helping polyols down were your was terms better sounds were specialty polyols mentioned was while up, You down. in that is and volumes mix Polymers like something but PA

just understand QX? the or in margin there maybe generate lines us differences, between some weaker maybe stronger that or some mix that what you of can saw of provide some detail these So, to on help was are improvement you and regional product maybe differences additional

Quinn Stepan

generally in phthalic less improved an about Yeah, Polymers, talking about anhydride rigid polyol. and we're talk when more mix we

Luis Rojo

That's a driver, Mike.

Mike Harrison

low. came wide last for question number, guidance the All And a looks in. XX% really like gives was QX then, of us that terms rate. of rate XX% on right. tax I But the It R&D just full-year QX very the me tax for range QX that tax kind credits mentioned you to in know is rate.

and the wondering just you if understand around to can what end takes might you lower help puts So of that the or get us higher range.

Luis Rojo

Yeah.

rate, wide volatility range As within a of you the given on the know, tax we provide new always countries. potential mix project the or

a of significantly. For any insurance Mexico, mix can in we change type course example, tax get rate of if the XX%

will the about our will rate right now, tax that a forecasting is look XX% say, for what QX you and in have range. midpoint give kind is before if So, the we I the that at we're what talked range, of with consistent ongoing XX%, you rate

Mike Harrison

right. All

you Sounds very much. Thank good.

Luis Rojo

Mike. Thanks, Thanks.

Operator

your next Instructions) with of Stifel. Please comes Anderson proceed question from question. line with Vincent (Operator Our the

Vincent Anderson

quarter. Yeah. Good morning this nice and job in polyols

Quinn Stepan

Vincent. Thanks,

Vincent Anderson

that of closure it to related when Yeah. I indirect dig a due bit you're could How direct and we to was or product was lower mix those able normalize? leading hoping margins little Germany? much margins functional the Surfactants into sort if was more we can How the of of plant and in expenses willing. all expect much to to the up

Luis Rojo

I we need is Vincent, on the -- And year-to-date LIFO you the into quarters you in the to year-to-date are and to a basis Surfactants if you look due similar on in the what say year. change first significant for the we losses account then LIFO margins will Mexico. that at to last three exclude take that ballpark the base, have

healthy at the Surfactant when a margins on reverse are you position you global business. our out, if So, that look

the you it's but more X.X%. Last we at if margins, closed LIFO, exclude X.X% like year,

if you in piece, stable are -- the margins again, are and to exclude grow. healthy we So, our Mexico

items look impacted XX% So, and to on are QX. course, of few encourage Surfactants. a we mean, again, have all in I decent QX in with that's particularly the you a saw margins, sales why, as basis well you in your Surfactants, dropping and at I was would SG&A But long-term a more numbers position by X.X% of the as impacting and you the in overhead, fixed the cost cost

say slight and slightly improvement margin the delta what margin, Polymers is of and growing from last a big and in America is Products point Polymers, margins China almost Polymers a significantly nice year, year. then of Europe. are is up this Specialty instead XX% XX% our to But jump will also a because China of the overall to XX% so a North margins in of We in year last growing XX% also I

So margin we situation. about our feel good

Vincent Anderson

And either a roll-off into there would significant or so clear, plant to it's Okay, be quarter sulfonation short-term that next not the thank you. as expense to XXXX? if were closure just related one-time

Luis Rojo

No.

Vincent Anderson

Okay, US. recently thanks. growth roughly agricultural outside look then, you products? US so And how nice the tough, that was the came much growth you able Are of I introduced at posted obviously demand, from quantify to the but if some your

Luis Rojo

the here I have don't work Yeah, have number with I me. don't that it can offline. We here.

Vincent Anderson

servicing care current underrepresented Okay. the whether label And about service curious your your then, your personal a I private you forward? going ability was current market strategy feel label as bit just maybe on portfolio for is more a broadly that's customer in the and that strategy. what producers, private to

Quinn Stepan

historically personal in with would some label segment are a fairly say and or particularly had America. today North under-represented the that Europe that I core with the of key in relationships, the has has in asset. our in German large Stepan we presence marketplace primarily today, closure private

have we in with presence of a segment, recently a presence key one are core that don't North of lost America. share a within have was not the that. we to that players with someone all our shift leading We customers of many But supplying... and There some share

Vincent Anderson

Thanks. great. Okay,

Quinn Stepan

the In space. care personal

Vincent Anderson

more those largest your actually, are I the imports if know can Right, competitive are interested just to just seeing in, with right. more specifically regards coming on sneak products, and commoditized be to would from impact? generally the where which And one I product

Quinn Stepan

the coming And limited the acid say, typically smaller States. United some the would on in customers, in Yeah. relatively either those would I sulfonic Korea, of of and particularly they're commodity China, the and in in Israel. West are I presence adding coming say, from sulphates Coast East from

Vincent Anderson

That's very helpful. Thank you.

Operator

a -- we we And are showing do question. Instructions] have apologize, I [Operator

Please the question from go Securities. Our ahead. question with of Harrison line follow-up Seaport Mike Global is a

Mike Harrison

Hi.

on Polymers. more couple a Just

Luis, operating you're toward I reference, that for Polymers. heard of you a heading margin First all, number XX%

a think the call more to I you on last reference of kind XX% of XX.X%.

say is bit little a margin fair that ago better tracking in Polymers? than is So, three months what to your it had anticipated you

Luis Rojo

will I better, China say the of because is situation. mainly it

Mike Harrison

it, Got okay.

about we've and to help number. wondering where you volume in the China you regard do just cold that opportunity, market market is now. cold that growth bit within the talked that the situation big XX% frame-up in if storage with of storage can I'm So But sit kind little right How this past. guys a

context XX-plus-percent about the think should of insulation? longer-term storage we how wondering opportunity cold volume growth in Just in that

Quinn Stepan

Yeah.

a back penetration on good is is I've should or team China if the its anticipate. So, the we storage I've in believe is still question. growth sustainable we to our in It's been Mike, pushing cold storage of China. what of that's try question understand a that presence and to And that been infancy and told, what what cold

United And take States a is rate of at and China, the if it XX% we US, compare would look China we kind XX%. the XX%, at to adoption maybe a in

So to cold it we significant opportunities over and grow sustainable do period there believe of a in storage time. are is

from we've a to to terms relatively a that million so a a small meaningful, XX% sized small we're the loss growing decent income. base, of Now, a in swing $X and is year-over-year swinging from operation kind operating been of gain

space, certainly. XXXX believe nice and in and growth it's sustainable So into that we 'XX

Mike Harrison

volumes Polymers, within you on can that Okay. phthalic lower, And what you're seeing were in comment then, pricing? PA mentioned you anhydride

Quinn Stepan

go the do economy could kind our base. is and a indicator but I Tier in X, been of what I PA that X where seeing we say, think pricing are of somewhat has PA Tier would stable, customer forward

that those do a we perspective, has areas so, growth a two for concerned And in slowdown XXXX. market from overall bit demand in segments little and two some those in see

Mike Harrison

Interesting.

what you you. maybe like? provide and corporate know an lower is adjusted question on But look focus been last it's little bit QX, that but I the for a know expense I corporate then, expense Thank guidance that can efforts. some of that's your any just corporate number And early, around that on year-on-year. expense a any of XXXX basis could some thoughts, was Okay. was thoughts

Luis Rojo

in our and expect the that first in the the XXXX. delivering What the we to future need to growing business future you say balancing continue are to the process be right need in our trends that continue we for Look creating we with platform. three for in several areas budgeting to continue quarters the will will investments bottom and as now similar I capabilities seen middle is our that we growth of make QX for the line we that have to and the

portfolio So, we contemplating as are of etc. always IP, a investment opportunities,

sure that make XXXX that found will balanced. is we robust have So we budget

Mike Harrison

right, very much. All thanks

Quinn Stepan

Thanks, Mike.

Operator

We this on further lines no questions time. the have at audio

Quinn Stepan

today's We appreciate very much. you Thank fourth joining us to our XXXX forward and Thank you Good. reporting on Company. ownership in much your call. on Stepan quarter for call. We you look interest to very

Operator

you lines. today's and for and conclude gentlemen, We your participation your disconnect you Ladies this does call. conference ask kindly thank that

Stepan (SCL) 23 Oct 192019 Q3 Earnings call transcript