SCL - Earnings call transcript Q1 2024

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Operator

Good day, and thank you for standing by. Welcome to the Stepan Company First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.I would now like to hand the conference over to your speaker today, Luis Rojo, CFO. Please go ahead.

Luis Rojo

Good morning, and thank you for joining Stepan Company first quarter 2024 financial review.

note which in are please contains conference begin, statements, forward-looking not we that this information call Before historical facts. free risks adjusted materially, addition, call of limited in our involve non-GAAP results this regional economic foreign conference statements and and EBITDA are factors could and net cash that measures. adjusted These detailed and cause operations, to flow, global differ discussion prospects Exchange including, will to not Securities and include conditions, but which income, for our uncertainties actual Commission filing.In We provide section comparable available GAAP we the in at press measures our made of and release, reconciliations to have Investors the earnings presentation the website. www.stepan.com under which presentation. joining the and over us you phone, you're to online investor encourage Whether slide we review the approximately find Mr. the like and I We time is to call available same turn release earnings that, to these as information you and the slides we that the would issued, at the perspective helpful.With hope when make over and Scott our Executive President Behrens, Chief Officer.

Scott Behrens

reported additional double-digit Oilfield growth other inventory up due impact and recovery of mostly our destocking strong end in of ongoing anhydride continued distribution offset Global lower X%. priorities, will volume, Luis strategic weakness thank and joining results.The on I site, our adjusted Volume discuss was first market issues core up on volumes volume due $XX.X highlights you sales for quarter Personal agricultural provide key financial our Millsdale company excluding morning, operational million, Surfactants performance, updates to while and we'll Good up across our to also agricultural Global in the and the year-over-year. our from results. PA to in sales to first with share and share quarter plan and partners. first us EBITDA our quarter volumes XXXX markets Care today details our was at volume X% X% experienced all year-over-year. phthalic markets. the

currency supply chain and cost lower levels, confidence that productivity to disciplined in Latin a and in expected, lower Overall, for free digits, of volume foreign company in expenditures the sales grew Rigid less returned favorable the first last From efforts will line prices and and to lower attributable to Laundry $XX in in generated mix. quarter and perspective, volumes while run of reduction mid-single of Specialty These X% year-over-year, mix.Net Cleaning and track us The taken Polyols raw stabilized up product as offset volumes selling recovered with free in Mexico workforce Cleaning quarter grew is the were global Within have goal that businesses double-digits. was American double-digits $XX.X we above, Products were as despite was XX% cash XXXX costs Consumer, favorable volumes and strong historical positive Polymers, believe by course. has volume its record. mainly prices Specialty impact XXXX. in our sales partially flow due destocking deliver and of volume, selling global on XXXX Institutional our product surfactant As sales margins quarter Mexico.First a to unfavorable mentioned a with we primarily flow. we decreased as expectations material cash close in pass-through the were our positive XXXX these million million increase company translation.We through results capital of actions give

Texas.During will of that and alkoxylation $XXX XX, first quarterly us of increased allow in the results. help in stock its to pre-commissioning our million facility the declared The common to XXXX. and performance cash these delivering share, per Directors. costs Stepan's first paid dividends on million remain by and any XX higher some the at interruptions on expect our operating in quarter paid the our we and a to in and of our We our $X.X has has operational business reductions now the invest first Pasadena, strength June business the our share ability $X.XXX Stepan of company in at about of company Board payable expenses our dividend and years.With program of details Millsdale our XXXX, continue to growth, offset repurchase repurchase will to X diversity of new its to related Yesterday, generate not remaining shareholders. company consecutive during dividend under shareholders.Luis strong stock end Directors did return our XXXX to several markets authorized quarter months Board share cash cash volume for site confident

Luis Rojo

million, on compared for diluted was XXXX. higher net diluted adjusted or by and My driven effective income. break net adjusted Slide first income Thank quarter The net is the down net an not of adjusted in to for company $XX.X basis.First share shows $X.XX will decrease you income, generally is Scott. quarter comments quarter versus bridge first the share the tax per Because slide after-tax per $XX.X net year was the first a follow $X.XX total presentation. the quarter, compared last income reduction X last XXXX income figure rate this year. to here million, or the

year, last We year. GILTI versus quarter XXXX million depreciation million X of increase for from year company election $XX.X are higher in total the $XX.X year over tax shows projecting first a Adjusted effective resulting expected Pasadena the anticipated foreign quarter. due tax our credits, for to deduction first disallowance capital X% and prior adjusted to bridge bonus the a a of for investment.Slide EBITDA the was EBITDA compared the rate

the X% business end continued market inventory solution volume offset with construction and the to the to prior products, a the X channel America versus corporate customer Surfactants alkoxylation $XXX We XX% the focus net quarter, in growth industrial specialty global offset to segment product volume in prior adjusted facility summarize, pricing will Latin for the double-digit quarter being by XX%, was expenses recovering and mix company's and our favorable positively lower flat the year. Texas million segment contributed the This interruptions pass-through margin material $X.X more the production growth results. adjusted growth.Slide the Volume associated Millsdale double-digit were sales decrease built due for currency strong personal EBITDA competitive but costs, also oilfield we million net agricultural end a expenses by with increased Surfactants pressures pre-operating We plant and driven primarily increase translation strong the down that site. a was America growth low less Selling by adjusted versus in and cover improvement our polymers. surfactants year. was on in expenses continue new investments X,X-dioxane destocking.Foreign were by in within due care partners. deliver detail, also Europe. and the Latin Pasadena, distribution and by at was business. each or demand The in we surfactants in year-over-year. partially of sales partially EBITDA as at Lower impacted EBITDA prices raw to also the grew and from Surfactants X%. offset operational delivered lower grew market.We

material Specialty in grew X% X, quarter, on the EBITDA net Excluding Polyols due $XXX to increased growth in increase growth year. a costs. in in expenses, a business.Now, quarter, regions. sales polymer Selling increase double-digits the was the raw Polyols versus million one-time adjusted Volume Rigid in the Slide primarily volume of interruption. X% XX% experienced the lower all these prices driven pass-through decreased This the operational by to Surfactants partially decrease PA XX%, were offset Polyols. Global prior for excellent and Millsdale lower X% by Rigid due volumes

net impacted or Foreign $X.X issue. communicated currency operational EBITDA to higher to primarily adjusted due decreased XX%, X%.Polymer the million translation Millsdale previous by sales the due expenses positively

EBITDA adjusted a double-digit year. were the million and Products expenses, unit $X.X up increased the Volume in we the the net decrease our the EBITDA versus prior increase Specialty to one-time Slide business.Finally, while on X, grew was or due versus The both adjusted EBITDA within line.Turning progress in margins cash position. adjusted year, product higher making primarily these million, quarter, was MCT XX% volume Polymers continue sales prior XX%. to $XX for Excluding

For the $XX.X and at first $XX million was up million, XXXX. cash from quarter, versus was flow operation free positive million $XXX cash

million. $X optimizing to we another levels were reduce our We continued inventory and able

in quarter, During update will million XX investments. $XX dividends.Now capital Slide and strategic you on we on again CapEx Investments our priorities and the Scott XX, deployed and

Scott Behrens

growth. year, in incremental million the in respectively, solution savings million are last savings. are operating new our modest This several manufacturing related cost Products out Specialty $XX volume our in double-digits.Our the to Cleaning our the industrial volume network, was and largely delivered record surfactants focus process, comments quarter, and new Cleaning, first the our cost and XXXX.As and Polyols goal expected the Pasadena on deliver and along with the markets Laundry end with Mexico. low investments. and and and pre-tax I'll on growth around in American cost productivity performance cost Rigid The expenses and encouraged stabilized and volume construction additional expenses delivering my was our of centered overall pre-tax by growth double-digit out $XX have the X,X-dioxane personal Latin of $XX its gradual Millsdale across in Surfactants markets delivered X% track Institutional program in Specialty strategy was related growth and deliver X% Luis. initiatives initiatives, care, strong inflation.We Consumer improved site, volumes reduction while company higher to chain million in commissioning strong performance up initiated recognized offset expect future. volume in the supply Thanks business we major operational to labor businesses end of capital grew issue, operational with underway expenses partners. large by and XXXX, to cost progress in oilfield, distribution our

the will at strategy center of remain innovation. our always Our and customers

Tier customers deliver need. longstanding our ability technical Our to value manufacture at and the and X products scale the capacity they quality

can technical increasing XXXX, provide.During customer Stepan year. X customers segment the new Tier Tier our the Tier We base Tier XXX who and X continue diversify customers, services approximately reach to quarter by expanding our and the we and the to versus of volumes highly first added X that prior value support X

collaborations and technical are portfolio sustainable make more on journey increasingly we customers future on helping with a Our them. happy are transition this towards our focused their be to product

and sustainable X Tier priority be a to efficient Insulation Our continues X strategy enabler chemicals, oilfield of and a functional markets in more remains a agricultural and Tier Stepan. including energy and diversification key markets for world. critical

due low of unit business XXXX continues to at to facility that the X,X-dioxane Slide fourth on investment, Polymers a in volume the year, the and alkoxylation a capacity has the program the investment our continued destocking, Pasadena on Our developing products.Moving new alkoxylation the construction technologies completing now production the agricultural its cost serving largest XX% supports efficiency expect plant of Rigid that the in very of our Polyol business increase American underlining Stepan market. customers' performance installed attractive The start After contractor quarter can energy growth the complete we now next-generation margins. merchant to during XXXX to X-year focus approximately up delay. quarter is production and Texas Pasadena, capital last excluding insulation North first XX,

experienced by the All first impacted than series minimize in production able other prior and with and in PA combined in been maintenance qualifications disruptions the power year impact anhydride customers product were a completed.As volumes was interruption, phthalic our have we ramp with year site back volumes network. anhydride phthalic our polyol but unit more restart several supply double-digits already polyol addition should continue since has we weather Millsdale throughout strong treatment in The are experienced our producing operations through unit production temperatures unplanned disruptions January to the Our reported to our to and our and and Millsdale earnings customer below grew and versus of main plant. freezing February restarted quarter call, the also wastewater been operational to issues the with products.In is challenges as power to operations.

year. maintenance issues infrastructure Our these We operational first higher improvements. team from in the addressing costs. through spending second These of to levels similar back higher results been related has impacted expense these quarter the and anticipate expenses anticipate and and lower issues actively to to expenses.We issues to be normal first quarter half to second operational the process tolling go quarter primarily and

to Rigid continue the year.We volumes should higher of on second half incremental expenses pressures, prior the assets, Polyols reductions the Looking as improve we continue in with incentive-based growth ongoing investment agricultural forward, inflationary cost surfactant in alkoxylation versus of associated flow commissioning the in our Pasadena in compensation new year issues due the with including will finish pre-tax expenses the year. in our delivering second and million focused higher benefit from offset to the recovery volumes, Pasadena recovery sales cash business on associated at expected to gradually volumes improve construction Millsdale.Free operational to the $XX and believe of agricultural half this and remain help we

remarks. concludes Diddy prepared we like flow. cost on EBITDA instructions our turn cash growth reductions and position Continued and review remain improved to confident growth initiatives.This At over market the continued today's full-year and please [ growth adjusted call for should us portion would the focus this performance, of free gradual for volumes, call. in time, questions. We in the positive long-term deliver innovation ] operational our to our question

Operator

[Operator Anderson from comes Instructions] of And Stifel. first question Vincent our

Vincent Anderson

answered if Apologies of you've advance any this. Yes. in

am guys sounds and there quite income a today. moving the little You because I margins came the operating bit regardless. surfactants, a of are quarter, in it with start I in to strong like than little wanted faster the here issues but lot But was

the or just agriculture? materials? all it gains, to Tier offset were, the have And X, big that, are kind So talk raw whether was then leverage, can from enough you X cost second what fixed Tier the been of and maybe about oilfield positives mix to headwinds those

Luis Rojo

because you said Look, remarks, Luis. surfactant that of up we disruption our adjusted if is is in expenses one-time X% our we exclude And in double-digits, up for prepared is actually, year. slightly testament the the a good this adjusted actually of last had Vincent, versus surfactant improvement. EBITDA in which Millsdale, as EBITDA margin was

several but flat So places with growing overall volumes saw you in flat, overall surfactants, volumes flat. double-digits,

of negative So is EBITDA numbers. despite the growth in Ag that the the the mix is driver a fact adjusted margins, significant

business operating destocking, will very, exclude the up you EBITDA income, our If adjusted be Ag very our double-digits. this strong in

Ag impact. a So is negative

Vincent Anderson

and tie to plant wastewater. a opportunity now crop maybe understand address. I I of your And what not an it's seem every understand that feels that are of exactly that and haven't then to opportunity so, needs complex that you that Millsdale like this that I'm I'm whether very to where It's some this trying you to cycle point, large really of loose to at would longer-term but year It up kind -- kind appreciate ends these sure just is deep had shorter-term go plant. opportunities or maintenance I'm try projects in power how trying ask -- of up. to your one of into maybe there that is just have kind plants. turnarounds, to one, an older within of scheduled plant

Scott Behrens

Yes, Vincent. great question,

providers. all, we with against disruptions do that infrastructure reinvestment real plan to that that be on frequent follow a X X power that we're of site, do that's and for long-term and years, more external year. First power a working over The our issue we or last the execute every have seem

this country, and in is more know, you infrastructure As there the aging is reinvestment. energy

maintenance other to treatment the to of at one second the that of do kind infrastructure and the is unexpectedly. improve it -- site, up regards our actively site. of managing get into the focus worked our wastewater plant, primary it's on.With infrastructure on unexpected the rectified We're we our power being say, assets This that's So And in and turnarounds We reliability do should Millsdale quality creeped assets. here all I outage. be would an quarter. our

continue for it for to sites us global So focus It our our of customers. to a then and for reliability is large, in our main older reinvest it's and improved one improve very network. is

Vincent Anderson

least, And trying volumes, given to feel one, of you indications, the demand polyol get of they're disruptions this is your of seeing -- very like or feel the just quarter, of for do your or at tracking just out or last managing one a some I'm what customers a volumes, a terms terms they're there disconnect these put insulation projects? in little timing you're of how maybe your bit inventory there still do in

Scott Behrens

think I is yes. answer directionally, the

is growth due disconnected I things may think recovery be from path. But with a numbers and that some from demand of may base volume of be our their some the what some we're little for if marketing track overall, that think to on lot the see of closely have you ours pleased more reported to our I you'll operational pent-up they're that -- [ the their doing of tracking. may issues re-roofing clear a programs. have, in I think earlier, can a It's seems customer expecting ]. we to release There projects, we customers be the

Luis Rojo

growth the all also And in and strong. and growing plus the polymers growth -- Polyols Vincent based growing X% which the broad is with regions Specialty was pretty

Operator

our Research Mike Harrison next Seaport comes of question And from Partners.

Michael Harrison

quantify Millsdale missed Surfactants did I impact segments? between of was and this, split the outage in overall if the and you Polymers Apologies that how but QX the

Luis Rojo

expecting the the exact release, included impact, early. remark, his between of in remember we're around Yes. included same QX. it the half-on-half we I $X was expecting in Mike, put call businesses. a we in February, and that pre-tax Scott $X.X the We And it's said know income, million kind number, were we of million as in

Michael Harrison

XX% was to anticipating. understand minus do weaker price And we price, Maybe guess, headwinds what quite to stabilize? when then were mix was how those that the expect is, I was much mix also price of trying on you are to decline mix XX% a in that curious, how mix? get help than that I'm its half, number, bit up was destocking that, that course into to second if how mix pick demand much Ag recovery we And run price Ag the Ag in from related back expecting second you half? as and much to number does business the just

Luis Rojo

Mike. question, great Yes,

As is impact still in where the negative goods the number. Ag a also that million, of into you saw But increases pricing, majority of of cost $XXX and overhead. sold you that mix big XX%, said despite course, down is

-- prices on So are down you the raw are material that reduction that saw. price percentage more basis significantly a so going

how that's that's how in when -- per are you are So X businesses pound. we we dollars margins improving look the at

Scott Behrens

Mike, I'll off And, we're a coming add, quarter XXXX record Ag first business.

mix Ag So price And, this is recovery the definitely destocking. Ag a in yes, the impacted half second be improvement it when will significant year from restarts. the that

Michael Harrison

better now? going are the get sense the gives And a up Ag I'm business you second just Ag just bit those saying are little up of to I volumes color you to in give to customers how that, on your or follow in to trying guess, at right you confident can half? confidence that on what of the a start are pick what business

Scott Behrens

world's Yes, mixed protein Mike, little QX will from whether or But it's remember perspective, the in will a remain. of to it I'd have bag, say QX. what always and customer food we for a a is demand start bit

once the still is this demand through gets So the level destocking inventory, at it there. farmer the phase,

I'd versus QX when, a a matter not there's if. now, right QX. of of say So XX-XX mix it's And I think probably

Michael Harrison

on looking be from year a weak, place. be higher last just question Obviously, the in Millsdale where at here, guess, then additional quarter, improvement past from helpful, outage. in the this we you're that given me Millsdale last cadence in level color for been $X in lot is, just without million to EBITDA EBITDA then issues? there outlook, the have I adjusted further terms presumably last QX million year. modeling earnings provide and of were are in you're moving QX but And get versus to the number Should think, unusually you improvement first as was would $XX we and pieces I growth of would any willing the pointing

Luis Rojo

that or -- expenses in formal Mike, and on we some the don't you provide to QX. Yes, foresee for quarter provide we the and perspective trying are know year, the but we for that's guidance why that

of second expect I hide mean, all half saying, So And impact good a we model half. Ag the are expecting in business have the first the that. of we're versus recovery. quarter. you the second of in your and Ag is second recovery mean, course, can EBITDA in cannot and, we some of then, a in we because I course, should Ag us for our that improvement half the positive

Operator

next of our Storms Stonegate. from And Dave question comes

David Joseph Storms

see or on expect capturing up still on hoping to is Latin and there? a Great share Just volumes there to could touch we there. America market second. defending we for coming more follow, focus Can pricing

Scott Behrens

priority Yes. Great the Dave, question. our was to recover -- the volumes.

imports we remember, talked about prior in you If the competitive quarters.

Our goal was to share. recover the

So now remains improve, the priority. hope over right our pricing time but will that it's [indiscernible]. that There's reestablishing

David Joseph Storms

environment. Great And improving, one on trying X customer X more acquisition Tier more the just more to compare that contract up, to as Is how you there? to Tier well? picked me contact What that some obviously, X up looking that customers. and pick then like does is cycle customers and see the to Tier for

Scott Behrens

is Tier contracted technical That's from smaller not really around type customers X the contracted it's X, a think But service. those be where Tier we customers, more The the differentiate the to business, relationships. ourselves of tend transactional I basis. world

QX contract that help But those but with we're had pleased pretty sense segment, we shelf, results. within under a which formulations saying customers that there's that's a a customer stabilized business. there on that when So nothing record volumes can loyalty, umbrella new you put is these we in the fully of put

Operator

Behrens back for like it Thank At I'd closing to time, this remarks. you. to turn Scott

Scott Behrens

day. ownership for Thank us in a great joining much in We have call. today's your interest you appreciate Stepan company, on please very and

Operator

disconnect. This participating. you Thank conference And concludes now call. may for today's you

Stepan (SCL) 30 Apr 242024 Q1 Earnings call transcript