Stepan Reports Third Quarter 2024 Results
NORTHBROOK, Ill., Oct. 30, 2024 /PRNewswire/ -- Stepan Company (NYSE:SCL) today reported:
Third Quarter 2024 Highlights
Reported net income was $23.6 million, up 88% versus prior year. Adjusted net income(1) was $23.7 million, up 61% versus prior year, largely due to higher margins and a lower effective tax rate. The year-over-year change in effective tax rate positively impacted net income by $6.8 million, or $0.30 per diluted share.
EBITDA(2) was $53.0 million and Adjusted EBITDA(2) was $53.1 million, up 18% and 11% respectively, year-over-year.
Global sales volume was down 1% year-over-year. Double digit growth in several Surfactant end markets was fully offset by demand weakness in Polymers.
Cash from Operations was $22.7 million during the quarter. Free cash flow(3) for the quarter was a negative $4.0 million.
The Company is on track to deliver its $50 million cost out goal for 2024 and recognized $13.3 million in pre-tax savings in the third quarter.
YTD 2024 Highlights
Reported net income was $47.0 million, up 14% versus prior year. Adjusted net income(1) was $47.7 million, up 10% year-over-year.
EBITDA(2) was $151.0 million and Adjusted EBITDA(2) was $151.9 million, up 8% and 7% respectively, year-over-year.
Global sales volume was up 1% year-over-year.
"Team Stepan delivered a solid quarter despite significant challenges. Third quarter adjusted EBITDA grew double digits driven by the Surfactant and Specialty Product businesses. Surfactants continued its volume recovery and experienced double-digit volume growth within the Agricultural, Oilfield and the Construction and Industrial Solutions end markets and also with our Distribution partners. Latin America Surfactant volume grew mid-single digits driven by strong demand within the Agricultural end markets in Brazil and new contracted business in Mexico," said Luis E. Rojo, President and Chief Executive Officer. "Rigid Polyol volume was down 13% during the quarter due to soft demand and competitive pressures. We believe the sluggish demand is related to global macro-economic uncertainties including the high interest rate environment. Specialty Polyols volume and margins were up during the quarter. Global margins continue to improve and remain in line with expectations. Free Cash Flow for the quarter was in line with our expectations as we built inventory levels for the hurricane season and in anticipation of two Polymer plant turnarounds in October. The third quarter results are a testament to the resilience of Team Stepan and give us a strong base to grow from."
Financial Summary
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
($ in thousands, except per share data)
2024
2023
%Change
2024
2023
%Change
Net Sales
$
546,842
$
562,226
(3)
%
$
1,654,665
$
1,793,637
(8)
%
Operating Income
$
23,949
$
19,517
23
%
$
62,785
$
58,383
8
%
Net Income
$
23,606
$
12,571
88
%
$
47,020
$
41,397
14
%
Earnings per Diluted Share
$
1.03
$
0.55
87
%
$
2.05
$
1.80
14
%
Adjusted Net Income *
$
23,661
$
14,730
61
%
$
47,713
$
43,206
10
%
Adjusted Earnings per Diluted Share *
$
1.03
$
0.64
61
%
$
2.08
$
1.88
11
%
* See Table II for reconciliations of non-GAAP adjusted net income and adjusted earnings per diluted share.
Percentage Change in Net Sales
Net sales in the third quarter of 2024 decreased 3% year-over-year. The decline in net sales was impacted equally by a 1% drop in volume, lower selling prices and foreign currency translation.
Three Months EndedSeptember 30, 2024
Nine Months EndedSeptember 30, 2024
Volume
(1)
%
1
%
Selling Price & Mix
(1)
%
(9)
%
Foreign Translation
(1)
%
(—)
%
Total
(3)
%
(8)
%
Segment Results
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
($ in thousands)
2024
2023
%Change
2024
2023
%Change
Net Sales
Surfactants
$
382,724
$
373,836
2
%
$
1,153,339
$
1,233,351
(6)
%
Polymers
$
149,796
$
169,559
(12)
%
$
455,061
$
495,200
(8)
%
Specialty Products
$
14,322
$
18,831
(24)
%
$
46,265
$
65,086
(29)
%
Total Net Sales
$
546,842
$
562,226
(3)
%
$
1,654,665
$
1,793,637
(8)
%
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
($ in thousands, all amounts pre-tax)
2024
2023
%Change
2024
2023
%Change
Operating Income
Surfactants
$
26,303
$
15,373
71
%
$
69,445
$
57,570
21
%
Polymers
$
15,248
$
21,813
(30)
%
$
37,227
$
48,137
(23)
%
Specialty Products
$
3,727
$
2,402
55
%
$
15,314
$
8,704
76
%
Total Segment Operating Income
$
45,278
$
39,588
14
%
$
121,986
$
114,411
7
%
Corporate Expenses
$
(21,329)
$
(20,071)
6
%
$
(59,201)
$
(56,028)
6
%
Consolidated Operating Income
$
23,949
$
19,517
23
%
$
62,785
$
58,383
8
%
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
($ in millions)
2024
2023
%Change
2024
2023
%Change
EBITDA
$
53.0
$
45.1
18
%
$
151.0
$
140.1
8
%
Adjusted EBITDA
Surfactants
$
44.2
$
31.6
40
%
$
122.9
$
105.1
17
%
Polymers
$
23.4
$
29.7
(21)
%
$
61.6
$
72.6
(15)
%
Specialty Products
$
5.2
$
3.9
33
%
$
19.8
$
13.0
52
%
Unallocated Corporate
$
(19.7)
$
(17.2)
15
%
$
(52.4)
$
(48.2)
9
%
Consolidated Adjusted EBITDA
$
53.1
$
48.0
11
%
$
151.9
$
142.5
7
%
Consolidated operating income increased $4.4 million, or 23%, year-over-year. Consolidated adjusted EBITDA increased $5.1 million, or 11%, year-over-year driven by higher Surfactant volume and margins, partially offset by demand weakness in Polymers.
Surfactant net sales were $382.7 million for the quarter, a 2% increase versus the prior year. Selling prices were up 1% primarily due to improved product and customer mix. Sales volume was up 3% year-over-year primarily due to double digit growth within the Agricultural, Oilfield and the Construction and Industrial Solutions end markets along with our distribution partners. This growth was partially offset by lower demand within the Consumer Products end markets. Foreign currency translation negatively impacted net sales by 2%. Surfactant operating income for the quarter increased $10.9 million, or 71%, versus the prior year. Surfactant adjusted EBITDA(2) increased $12.6 million, or 40%, versus the prior year. This increase was primarily driven by the 3% growth in sales volume and margin improvement that was partially offset by pre-operating expenses at the Company's new alkoxylation facility being built in Pasadena, Texas.
Polymer net sales were $149.8 million for the quarter, a 12% decrease versus the prior year. Selling prices decreased 3%, primarily due to the pass-through of lower raw material costs and competitive pressures. Sales volume declined 11% in the quarter primarily due to a 13% decrease in global Rigid Polyols demand and a 27% decrease in commodity Phthalic Anhydride volume. Specialty Polyols volume was up year-over-year. Foreign currency translation positively impacted net sales by 2%. Polymer operating income decreased $6.6 million, or 30%, versus the prior year. Polymer adjusted EBITDA(2) decreased $6.3 million, or 21%, versus the prior year primarily due to the 11% decline in sales volume.
Specialty Product net sales were $14.3 million for the quarter, a 24% decrease versus the prior year, primarily due to lower selling prices. Sales volume was down 5% versus the prior year. Specialty Product operating income increased $1.3 million, or 55%, versus the prior year. Specialty Product adjusted EBITDA(2) increased $1.3 million, or 33%. The increase in adjusted EBITDA(2) was primarily due to higher unit margins within the medium chain triglycerides product line.
Income Taxes
The Company's effective tax rate was a negative 10.7% during the third quarter of 2024 versus 20.6% in the third quarter of 2023. The decrease was primarily attributable to the Company's intention to make an election under the U.S. GILTI tax regime to exclude certain high taxed entities from the GILTI computation. The Company's effective tax rate was 18.9% for the first nine months of 2024 versus 20.5% for the first nine months of 2023.
Outlook
"Team Stepan continues to be focused on executing our strategic growth projects. We are pleased that several of our Surfactant businesses continue to deliver strong volume growth. Agricultural volumes grew double-digits in the third quarter which aligns with our expectations for a second half 2024 recovery. We remain optimistic Rigid Polyol demand will increase as the market gets more macro-economic clarity and the interest rate environment improves," said Luis E. Rojo, President and Chief Executive Officer. "Free cash flow should continue to improve versus prior year driven by the completion of our Pasadena investment, growth in market volumes, and our continued focus on cost reduction. We believe we are positioned to deliver full year Adjusted EBITDA growth and positive free cash flow."
Notes
(1) Adjusted net income and adjusted earnings per share are non-GAAP measures which exclude deferred compensation income/expense, cash-settled stock appreciation rights (SARs) income/expense, certain environmental remediation-related costs as well as other significant and infrequent/non-recurring items. See Table II for reconciliations of non-GAAP adjusted net income and adjusted earnings per diluted share.
(2) EBITDA and adjusted EBITDA are non-GAAP measures. See Table VI for calculations and GAAP reconciliations of EBITDA and adjusted EBITDA.
(3) Free cash flow is a non-GAAP measure and reflects cash generated from operations minus capital expenditures. Cash generated from operations was $22.7 million during the third quarter of 2024 and capital expenditures were $26.7 million.
Conference Call
Stepan Company will host a conference call to discuss its second quarter results at 9:00 a.m. ET (8:00 a.m. CT) on October 30, 2024. The call can be accessed by phone and webcast. To access the call by phone, please click on this Registration Link, complete the form and you will be provided with dial in details and a PIN. To avoid delays, we encourage participants to dial into the conference call ten minutes ahead of the scheduled start time. The webcast can be accessed through the Investors/Conference Calls page at www.stepan.com. A webcast replay of the conference call will be available at the same location shortly after the call.
Supporting Slides
Slides supporting this press release will be made available at www.stepan.com through the Investors/Presentations page at approximately the same time as this press release is issued.
Corporate Profile
Stepan Company is a major manufacturer of specialty and intermediate chemicals used in a broad range of industries. Stepan is a leading merchant producer of surfactants, which are the key ingredients in consumer and industrial cleaning and disinfection compounds and in agricultural and oilfield solutions. The Company is also a leading supplier of polyurethane polyols used in the expanding thermal insulation market, and CASE (Coatings, Adhesives, Sealants, and Elastomers) industries.
Headquartered in Northbrook, Illinois, Stepan utilizes a network of modern production facilities located in North and South America, Europe and Asia.
The Company's common stock is traded on the New York Stock Exchange (NYSE) under the symbol SCL. For more information about Stepan Company please visit the Company online at www.stepan.com
More information about Stepan's sustainability program can be found on the Sustainability page at www.stepan.com
Certain information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements about Stepan Company's plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, Stepan Company's actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "guidance," "predict," "potential," "continue," "likely," "will," "would," "should," "illustrative" and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by Stepan Company and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements.
There are a number of risks, uncertainties and other important factors, many of which are beyond Stepan Company's control, that could cause actual results to differ materially from the forward-looking statements contained in this news release. Such risks, uncertainties and other important factors include, among other factors, the risks, uncertainties and factors described in Stepan Company's Form 10-K, Form 10-Q and Form 8-K reports and exhibits to those reports, and include (but are not limited to) risks and uncertainties related to accidents, unplanned production shutdowns or disruptions in manufacturing facilities; reduced demand due to customer product reformulations or new technologies; our inability to successfully develop or introduce new products; compliance with laws; our ability to identify suitable acquisition candidates and successfully complete and integrate acquisitions; global competition; volatility of raw material and energy costs and supply; disruptions in transportation or significant changes in transportation costs; downturns in certain industries and general economic downturns; international business risks, including currency exchange rate fluctuations, legal restrictions and taxes; unfavorable resolution of litigation against us; maintaining and protecting intellectual property rights; our ability to access capital markets; global political, military, security or other instability; costs related to expansion or other capital projects; interruption or breaches of information technology systems; our ability to retain executive management and key personnel; and our debt covenants.
These forward-looking statements are made only as of the date hereof, and Stepan Company undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
Tables follow
Table I
STEPAN COMPANYFor the Three and Nine Months Ended September 30, 2024 and 2023(Unaudited, in 000's, except per share data)
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2024
2023
2024
2023
Net Sales
$
546,842
$
562,226
$
1,654,665
$
1,793,637
Cost of Sales
471,157
490,990
1,439,147
1,582,444
Gross Profit
75,685
71,236
