Stepan(US:SCL)2021-10-20 17:58Financial Data and Key Metrics Changes - Adjusted third quarter net income was $36.4 million, flat compared to the prior year, with year-to-date adjusted net income at $121 million or $5.20 per diluted share, up 22% versus the first nine months of 2020 [5][9][10] - The effective tax rate for the first nine months of 2021 was 20%, down from 24% in the same period last year, primarily due to a favorable tax benefit recognized in Q3 2021 [10] Business Segment Data and Key Metrics Changes - Surfactants segment net sales were $388 million, a 16% increase year-over-year, with selling prices up 20% but volume down 6% due to lower consumer demand [11][12] - Polymer segment net sales were $199 million, up 70% from the prior year, with selling prices increasing 44% and volume growing 27%, largely driven by the INVISTA acquisition [13][15] - Specialty Products net sales increased by 15%, with operating income rising 53% due to order timing differences and improved margins [15] Market Data and Key Metrics Changes - Global supply chain disruptions and raw material price inflation negatively impacted all business segments, with estimated supply chain disruption costs of approximately $7 million in Q3 [6][12][54] - Institutional cleaning and disinfection volumes are growing as economies reopen, while consumer product demand is stabilizing but lower than peak pandemic levels [18][64] Company Strategy and Development Direction - The company is focusing on diversifying into functional markets, with double-digit growth in global agricultural volume and strong demand in oilfield products due to higher oil prices [19][23] - A $220 million investment is planned for a new alkoxylation production facility in Pasadena, Texas, aimed at meeting long-term growth expectations in both Surfactant and Polymer businesses [20][30] - The company aims to improve operational productivity and product mix to enhance Surfactant operating income and margins [19][21] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future opportunities despite ongoing supply chain challenges, with expectations for gradual improvement in raw material availability [36][47] - The company anticipates growth in the Polymer business due to recovery from pandemic-related delays and the successful integration of the INVISTA acquisition [25][67] Other Important Information - The Board declared a quarterly cash dividend of $0.335 per share, marking a 9.8% increase, and authorized a $150 million stock repurchase program [7] - The company executed a $50 million private placement note at a fixed interest rate of around 2% to fund growth opportunities [16][43] Q&A Session Summary Question: Can you walk through the decision to invest in the Texas capacity? - The investment of $220 million at the Pasadena site is to meet long-term growth expectations in Surfactant and Polymer businesses, leveraging existing infrastructure [30] Question: Is the new facility replacing old assets or restarting idled assets? - The existing assets at the site were dismantled to make way for new alkoxylation capabilities, utilizing existing storage and logistics infrastructure [31] Question: What is the expected impact of raw material costs on margins? - Additional inflation is expected in Q4, but the slope of inflation is believed to be reducing, with plans to recover margins gradually through price increases [34] Question: How is the institutional growth demand characterized? - Institutional demand is real and driven by the reopening of economies, while consumer demand is more complex due to potential destocking [64] Question: What is the outlook for the Polymer business regarding isocyanate shortages? - There is pent-up demand in the polyol customer base, and supply chain issues are expected to improve, leading to growth in 2022 [67]