Stepan(SCL) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Reported net income reached a record $44.8 million or $1.93 per diluted share, while adjusted net income was $40.7 million or $1.76 per diluted share, marking the third best quarter ever on an adjusted net income basis [9] - Adjusted net income for Q1 2022 was $40.7 million or $1.76 per diluted share, compared to $42.4 million or $1.82 per diluted share for Q1 2021 [16] - The effective tax rate increased to 24.6% in Q1 2022 from 23.6% in the same quarter last year, primarily due to a less favorable geographical mix of income [17] Business Line Data and Key Metrics Changes - Surfactant net sales were $468 million, a 26% increase year-over-year, with selling prices up 29% due to higher raw material costs [18] - Polymer net sales were $187 million, up 24% from the prior year, with selling prices 26% higher [19] - Specialty Product business results improved due to order timing differences and margin recovery in the MCT product line [11] Market Data and Key Metrics Changes - Global agricultural volumes increased high-single-digits in Q1 2022, driven by high commodity prices and increased planted acreage [24] - Oilfield volumes increased mid-single-digits, with robust demand for products used in oilfields as crude prices remained elevated [25] - The Polymer business in China was flat compared to the previous year, impacted by COVID lockdowns [20] Company Strategy and Development Direction - The company continues to focus on diversification into functional products, with strong growth in agricultural and oilfield markets [24] - Investments in the Millsdale plant are prioritized to improve productivity and capacity, with ongoing CapEx throughout the year [27] - The company plans to pursue strategic M&A opportunities and invest in new product platforms, including biosurfactants [32][33] Management's Comments on Operating Environment and Future Outlook - The operating environment remains challenging due to raw material and transportation constraints, cost inflation, and COVID-19 variants [8] - Management is cautiously optimistic about the balance of the year, expecting strong demand in surfactants and agricultural chemicals [34] - External supply chain challenges and inflationary pressures are acknowledged as ongoing headwinds [36] Other Important Information - The Board declared a quarterly cash dividend of $0.335 per share, marking 54 consecutive years of dividend increases [12] - The company repurchased $10 million of its stock during the first quarter, with $140.1 million remaining under the share repurchase program [12] Q&A Session Summary Question: Margin performance in surfactants and polymers segments - Management indicated they have effectively managed pricing to cover inflationary pressures, but acknowledged ongoing inflation may impact margins in Q2 and Q3 [42][43] Question: Millsdale outage resolution and future prevention - Management confirmed that production is back to full capacity and improvements are being made to prevent future power disruptions [45][46] Question: Weakness in Laundry within Surfactants - The softness in Laundry is attributed to raw material constraints and inflation impacting consumer demand, particularly in developing regions [47][48] Question: Investments at the Wilmington site - Future investments at the Wilmington site will focus on enhancing production capabilities but will not be on the same scale as other major projects [50] Question: Quality of INVISTA assets compared to Stepan's portfolio - Management stated that INVISTA's technology complements Stepan's portfolio, providing more choices for customers [52][53] Question: Logistics issues and ethylene oxide transportation - Logistics issues are broad-based and not specific to ethylene oxide [54] Question: Staffing and skilled labor for new projects - Management reported no issues with staffing and highlighted a motivated workforce aligned with growth strategies [55] Question: Competitive dynamics in the Surfactants business - No significant changes in competitive dynamics were noted, with overall market demand holding up despite supply chain constraints [70]