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Stepan (SCL) Q2 Earnings call transcript Jul 31, 2024

AInvestWednesday, Jul 31, 2024 9:22 pm ET
2min read

In its latest earnings call, Stepan Company provided a comprehensive update on its second-quarter 2024 financial performance, showcasing a resilient business model that has weathered operational challenges and external factors. The call, led by Vice President and CFO Luis Rojo and President and CEO Scott Behrens, provided insights into the company's strategic priorities, financial health, and market dynamics.

Financial Highlights and Challenges

Stepan Company reported a second-quarter adjusted EBITDA of $47.7 million, up 4% year-over-year, driven by strong volume recovery across most core markets. However, the company faced challenges in the agricultural market due to inventory destocking and operational issues at its Millsdale site, which resulted in lower talc anhydride volumes. Global sales volume, excluding these impacted areas, grew by 6%. Surfactants, a key segment, experienced double-digit volume growth in several end markets, including laundry and cleaning, Construction and Industrial Solutions, and oilfield, as well as within distribution partners.

Despite these positive developments, Stepan Company was hit by a criminal social engineering scheme that led to fraudulently induced outbound payments, causing a $3.5 million pretax charge in the quarter. The company is investigating the full extent of the fraud scheme and expects to record a similar charge in the third quarter of 2024. However, the incident is not expected to materially impact the company's business or its ability to serve customers.

Strategic Priorities and Capital Investments

Stepan Company's strategic priorities remain centered on diversification and cost reduction initiatives. The company is on track to deliver its $50 million cost reduction goal for 2024 through disciplined efforts in the supply chain and workforce productivity actions. This strategic focus is aimed at offsetting higher operating costs at the Millsdale site and pre-commissioning expenses at the new alkylation facility in Pasadena, Texas.

The company's capital investment program includes the construction of a new alkoxylation production facility in Pasadena, which is expected to start up in the mid-fourth quarter of 2024. This investment is part of Stepan Company's ongoing efforts to expand its installed low-nordoxane production capacity and support the growing demand for sustainable insulation solutions.

Looking Ahead

Stepan Company is optimistic about its prospects for the second half of 2024, with expectations of improved adjusted EBITDA and positive free cash flow. Despite the challenges faced in the first half, the company's strategic priorities, including its focus on customer satisfaction and cost reduction initiatives, position it well for future growth.

As the company navigates through operational challenges and external factors, it remains committed to delivering value to its shareholders and stakeholders. The ongoing recovery in rigid polyols and the anticipated recovery of the agricultural chemicals business are expected to drive improved earnings and cash flow in the second half of 2024.

In conclusion, Stepan Company's second-quarter earnings call underscores its resilience and strategic focus amid operational challenges and external factors. With a clear vision for growth and a robust capital investment program, Stepan Company is well-positioned to navigate the evolving business landscape and deliver value to its stakeholders.

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