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Stepan(SCL) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported adjusted net income of $12.1 million for Q2 2023, a significant decline from $53 million in the prior year, primarily due to a 19% decrease in sales volume [3][23][84] - Adjusted EBITDA for the quarter was $45.8 million, down from $96.7 million in the prior year, reflecting the decline in sales volume [22] - The effective tax rate decreased to 20% in the first half of 2023 from 25% in the first half of 2022, attributed to more favorable tax benefits [4] Business Line Data and Key Metrics Changes - Polymers segment net sales were $164.5 million, a 31% decrease year-over-year, with a 29% decline in volume primarily due to lower demand and inventory destocking [5][82] - Surfactants segment net sales were $392 million, a 19% decrease compared to the prior year, with a 15% decline in volume and a 5% decrease in selling prices [87] - Specialty Products segment net sales were $23.8 million, a 14% decrease year-over-year, with a 16% decline in volume [88] Market Data and Key Metrics Changes - The company experienced lower demand across most markets, with significant inventory destocking impacting sales [3][5] - The Asia region showed some improvement in demand following the reopening of China, partially offsetting declines in North America and Europe [5] Company Strategy and Development Direction - The company plans to reduce capital spending by $70 million to $80 million in the second half of the year and aims to decrease inventories by $40 million [7][8] - The company is focusing on long-term strategic growth and innovation initiatives, despite disappointing first-half financial results [8] - The construction of a new alkoxylation production facility in Pasadena, Texas is approximately 35% complete, with an expected startup in mid-2024 [90] Management's Comments on Operating Environment and Future Outlook - Management believes that the second half of 2023 will see incremental improvements in volume and margins, driven by a gradual recovery in demand and lower raw material costs [8][32] - The company anticipates that destocking activities are predominantly behind them, with expectations for a normal demand pattern in the second half of the year [56] Other Important Information - The company paid $8.2 million in dividends during the second quarter and has a remaining $125 million under its share repurchase program [84] - The company is implementing cost control measures, including a voluntary early retirement program, to improve earnings in 2024 [26][91] Q&A Session Summary Question: Volume trends in Surfactants and Polymers - Management indicated that they believe volumes have stabilized in both segments, with expectations for incremental growth in the second half of the year [11][12] Question: Import pressures in Latin America - Management noted that competitive pricing pressures and imports have impacted the Mexico business, while Brazil has experienced less pressure [47] Question: Customer acquisition environment - The company reported a higher level of churn in the Surfactant business but noted successful new customer acquisitions [51] Question: Nature of customer destocking activity - Management characterized destocking as predominantly in the agricultural segment, with expectations for a return to normal inventory levels by the end of Q3 [56] Question: Timeline for Pasadena expansion - Delays in construction have pushed the expected startup to mid-2024, but demand for the product line remains strong [59][60]