Stepan(US:SCL)2023-02-28 17:14Business Segments and Operations - Stepan Company operates in three reportable segments: Surfactants, Polymers, and Specialty Products[13]. - The Company is one of the leading global producers of surfactants, competing with large global and regional producers[17]. - The Company operates five surfactant manufacturing sites in the United States and additional sites in Europe, Latin America, and Asia[109]. - Surfactants accounted for 68% of the Company's consolidated net sales in 2022[109]. Financial Performance - Consolidated net sales increased by $427.3 million, or 18%, from $2,346.0 million in 2021 to $2,773.3 million in 2022, primarily due to higher average selling prices[117]. - Net income attributable to the Company rose by 7% to $147.2 million, or $6.38 per diluted share, compared to $137.8 million, or $5.92 per diluted share in 2021[116]. - Adjusted net income also increased by 7% to $153.5 million, or $6.65 per diluted share, from $143.5 million, or $6.16 per diluted share in 2021[116]. - Operating income increased by $36.5 million, or 21%, from 2021, with Polymer and Specialty Products segments contributing $9.3 million and $15.7 million increases, respectively[118]. - Total operating income for 2022 was $207.3 million, an increase of $36.6 million, or 21%, from $170.8 million in 2021[123]. - The gross profit for 2022 was $427.1 million, compared to $395.8 million in 2021, reflecting a growth of approximately 7.5%[200]. - Comprehensive income for 2022 was $132.9 million, compared to $121.5 million in 2021, showing an increase of approximately 9.9%[203]. Capital Expenditures and Investments - Capital expenditures for environmental compliance were $11.8 million in 2022, representing approximately 4% of total capital expenditures for that year[22]. - The company estimates total capital expenditures for 2023 will range from $240.0 million to $270.0 million, including investments in a new alkoxylation plant and equipment upgrades[154]. - Expenditures for property, plant, and equipment were $301,553 thousand in 2022, an increase from $194,482 thousand in 2021, showing a rise of 55%[208]. Environmental Compliance and Risks - Recurring costs for waste treatment and environmental compliance were approximately $37.2 million in 2022[22]. - The Company has made capital investments to reduce 1,4 dioxane content in ethoxylated surfactants to comply with recent regulations[22]. - Increased regulatory scrutiny regarding 1,4 dioxane may reduce demand for certain products, prompting the company to invest in modifying its manufacturing processes[48]. - Environmental compliance costs and liabilities may have a material adverse effect on the Company's financial position and results of operations[63]. - The Company has recorded a liability for environmental remediation costs, with significant ongoing legal proceedings related to environmental assessments[91]. Supply Chain and Operational Challenges - The company experienced production disruptions in 2021 and 2022 due to COVID-19, impacting staffing and production capacity[39]. - In 2021 and 2022, supply chain disruptions and inflationary pressures led to increased raw material prices, affecting the company's operating costs[42]. - The company disclosed that supply chain disruptions and labor shortages delayed the expected startup of its Pasadena, Texas facility from Q4 2023 to H1 2024[46]. - Severe weather in Texas in 2021 caused production disruptions for several suppliers, resulting in feedstock issues for the company's Surfactants segment[42]. Debt and Financial Position - As of December 31, 2022, the Company had $397.9 million in debt, with maturities ranging from 2023 to 2032[79]. - The Company’s credit ratings are crucial for accessing capital markets, and downgrades could increase costs and limit liquidity[78]. - Consolidated balance sheet debt increased from $363.6 million on December 31, 2021, to $587.1 million on December 31, 2022[157]. - The ratio of total debt to total debt plus shareholders' equity was 33.5 percent as of December 31, 2022, compared to 25.3 percent a year earlier[158]. Human Resources and Talent Management - The Company employed 2,453 persons as of December 31, 2022, a slight increase from 2,439 in 2021[23]. - The Company aims to attract and retain top talent through competitive benefits and professional development opportunities[25]. - The Company’s future success depends on retaining key personnel, and losing them could materially impact its operations[86]. International Operations and Currency Risks - The Company generated approximately 43% of its net sales from international operations in the year ended December 31, 2022[72]. - The Company is exposed to fluctuations in foreign currency exchange rates, which may adversely affect its profitability in U.S. dollars[76]. - The Company faces risks related to international operations, including high inflation and political instability[73]. Shareholder Returns and Stock Performance - The Company repurchased a total of 30,552 shares in the fourth quarter of 2022, with an average price of $95.94 per share[103]. - The Company has approximately $125 million remaining under its share repurchase program[103]. - The Company’s stock performance showed a cumulative return of $141.88 as of December 31, 2022, compared to $100.00 in 2017[106]. Legal and Regulatory Compliance - The Company is subject to various liability claims, including product liability and environmental claims, which could significantly impact its financial results[68]. - Non-compliance with anti-corruption laws could negatively affect the Company's reputation and operational results[69]. - The Company maintains policies to comply with anti-corruption laws, but violations could materially affect its reputation and financial position[71].