Stepan(SCL) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record third quarter adjusted net income of $36.4 million or $1.56 per diluted share, a 30% increase from $27.9 million or $1.20 per diluted share in the same quarter last year [7][12] - Year-to-date adjusted net income reached $98.9 million, up 5.5% from the previous year [7] - The effective tax rate for the first nine months of 2020 was 23.7%, compared to 17.3% in the same period of 2019, primarily due to a one-time tax benefit in 2019 [15] Business Line Data and Key Metrics Changes - Surfactant segment net sales were $334 million for the quarter, an 11% increase year-over-year, driven by strong demand for cleaning and disinfection products [16] - Surfactant operating income increased by $21.5 million or 109% compared to the prior year, largely due to sales volume growth and improved product mix [17] - Polymer segment net sales decreased by 14% to $116.7 million, with a 5% decline in sales volume attributed to lower demand in North America due to construction delays [18] - Specialty product net sales were $14 million, a 17% decrease year-over-year, primarily due to lower margins and order timing differences [21] Market Data and Key Metrics Changes - Mexican operations showed strong earnings growth compared to the prior year quarter, while the Polymer business faced challenges due to construction project delays in North America [8][18] - The agricultural business grew by 5%, with North America being the primary driver of this growth [26] Company Strategy and Development Direction - The company is focusing on increasing production capabilities for low 1,4-dioxane sulfates to meet new regulatory requirements by January 2023 [25] - The diversification strategy into Functional Products remains a key priority, with continued investment in new capacity to support growth in the agricultural market [26] - M&A activities are seen as a vital tool for delivering meaningful EPS and EBITDA growth, with the recent acquisition of Clariant's Mexican sulfate business expected to contribute approximately $3 million in EBITDA [28][54] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about sustained demand for cleaning and disinfection products due to changing consumer habits, with expectations of continued growth into 2021 and 2022 [57][59] - The Polymer business is anticipated to see gradual improvement in 2021 as customers become more comfortable returning to construction projects [64] - The company remains committed to delivering productivity gains and addressing capacity constraints in response to increased demand [75] Other Important Information - The board declared a quarterly cash dividend of $0.305 per share, marking an 11% increase and the 53rd consecutive year of dividend payments [10] - The company ended the quarter with a strong balance sheet, having negative net debt with cash exceeding total debt [22] Q&A Session Summary Question: Can you provide details on the surfactant price mix? - Management noted a strong seven-point price mix overall in the surfactant business, driven by growth in tier 2 and tier 3 customers [35] Question: What is the outlook for the agricultural business? - Growth in the agricultural business in Q3 was primarily from North America, with expectations for growth in Q4 and 2021 as customer inventories have been depleted [43][44] Question: Can you discuss the Clariant acquisition? - The acquisition is expected to contribute about $3 million of EBITDA and is seen as complementary to existing operations [54] Question: What is the outlook for the European surfactants business? - The European results were impacted by the loss of a large fabric softener business, but overall progress was noted due to improved product mix [55] Question: What are the expectations for the Polymers business? - Management anticipates gradual improvement in the Polymers business in 2021, with customers optimistic about growth [64][105] Question: Is there consideration for a stock split? - The board regularly considers stock splits, but no immediate plans were made due to the current global pandemic situation [111]