Stepan(US:SCL)2024-04-30 17:10Financial Data and Key Metrics Changes - The company generated positive free cash flow of $11.4 million, with capital expenditures returning to historical levels [2] - First quarter adjusted net income was $14.7 million, or $0.64 per diluted share, down from $16.4 million, or $0.71 per diluted share in the same quarter last year, primarily due to a higher effective tax rate [3] - Adjusted EBITDA for the first quarter was $51.2 million, a 5% increase year-over-year [15] Business Line Data and Key Metrics Changes - Surfactants segment net sales were $391 million, a 16% decrease year-over-year, with selling prices down 18% [16] - Polymer net sales were $146 million, a 10% decrease year-over-year, with volume increasing by 1% [18] - Specialty Products net sales were $15 million, a 33% decrease year-over-year, but adjusted EBITDA increased by 49% [19] Market Data and Key Metrics Changes - Global sales volume increased by 1% year-over-year, with strong recovery in volumes across core markets, excluding agricultural and phthalic anhydride [8] - Latin American surfactant volumes grew strong double-digits, with record volumes in Mexico [22] - The agricultural market experienced volume weakness due to continued inventory destocking [8] Company Strategy and Development Direction - The company is on track to deliver a $50 million cost reduction goal for 2024 through supply chain and workforce productivity actions [2] - The focus remains on improving operational performance and diversifying the customer base, particularly in Tier 2 and Tier 3 markets [23][24] - The company is investing in next-generation Rigid Polyol technologies to enhance energy efficiency in insulation products [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength and diversity of the business, anticipating gradual improvement in sales volumes due to recovery in Rigid Polyols and surfactant volumes [32] - The company expects to see a recovery in agricultural volumes in the second half of the year, which should positively impact EBITDA [55] - Management acknowledged ongoing operational issues at the Millsdale site but is focused on addressing these challenges [31] Other Important Information - The company paid $8.5 million in dividends during the first quarter and has $125 million remaining under the share repurchase program [11] - Construction on the new alkoxylation production facility in Pasadena, Texas is approximately 90% complete, with startup expected in Q4 2024 [28] Q&A Session Summary Question: Regarding operating income and surfactants margins - Management noted that adjusted EBITDA for surfactants was slightly up 4% year-over-year, with margin improvements despite agricultural mix headwinds [39] Question: Opportunities for maintenance at Millsdale plant - Management confirmed a long-term infrastructure reinvestment plan is in place for the Millsdale site, focusing on improving power reliability and addressing unexpected maintenance outages [41] Question: Impact of Millsdale outage on Q1 - The Millsdale outage had an estimated impact of $5.8 million on pre-tax income, split evenly between the Polymers and Surfactants segments [48] Question: Price mix number and expectations for stabilization - Management indicated that the majority of the 18% decline in price mix was due to pricing, with expectations for improvement as agricultural recovery occurs [50][52] Question: Customer confidence in agricultural business recovery - Management expressed confidence that agricultural demand will rebound post-destocking, with a 50-50 chance of recovery starting in Q3 or Q4 [53] Question: Outlook for adjusted EBITDA growth - Management suggested that while they do not provide formal guidance, they expect improvement in adjusted EBITDA in the second half of the year due to agricultural recovery [55]