Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Stepan Co (SCL, Financial) reported a 4% year-over-year increase in adjusted EBITDA for the second quarter of 2024.
- Global sales volume increased by 4% year-over-year, with strong recovery in most core markets.
- Surfactants experienced double-digit volume growth in several end markets, including laundry and cleaning, construction, and industrial solutions.
- Latin America surfactant volumes grew double digits, with strong performance in Mexico and Brazil.
- The company is on track to achieve its $50 million cost reduction goal for 2024, which is expected to offset higher operating costs.
Negative Points
- Net sales decreased by 4% year-over-year due to lower selling prices and an unfavorable product mix.
- The agricultural market remained weak in North America and Europe due to continued inventory destocking.
- Operational issues at the Millsdale site led to lower phthalic anhydride volumes and higher expenses.
- A criminal social engineering scheme in Asia resulted in a $3.5 million pre-tax charge for the quarter, with similar charges expected in the third quarter.
- Free cash flow was close to zero in the second quarter due to a seasonal increase in inventory.
Q & A Highlights
Q: Can you provide more detail on the agricultural market performance, particularly in Latin America, North America, and Europe?
A: Scott Behrens, President and CEO, explained that while North America and Europe experienced continued softness due to destocking, Latin America, particularly Brazil, showed strong double-digit volume growth. The company expects North America and Europe to follow Latin America's recovery trend in the second half of the year.
Q: Could you elaborate on the Asia fraud incident and its potential financial impact?
A: Scott Behrens stated that the investigation is ongoing, but the incident is believed to be isolated and contained. The company expects a similar $3.5 million pre-tax charge in Q3, with no further charges anticipated. Measures are being reviewed to prevent future occurrences.
Q: What is the outlook for EBITDA growth in the second half and full year, considering the previous year's performance?
A: Luis Rojo, CFO, indicated that while formal guidance is not provided, the company expects to achieve $60 million plus in quarterly EBITDA without special items. The first half saw $100 million EBITDA despite one-time events, suggesting potential for significant growth.
Q: Can you discuss the geographical differences in surfactant volume growth, particularly in laundry and cleaning sectors?
A: Luis Rojo highlighted strong growth in Mexico, Colombia, and Brazil, with high single-digit growth in Colombia and strong growth in North America. Despite competitive pricing in Europe, volumes are increasing, indicating a robust market recovery.
Q: What are the expectations for the effective tax rate for 2024, and how does it impact cash flow?
A: Luis Rojo stated that the effective tax rate is projected at 36% to 38% for the year, with fluctuations expected quarterly. However, due to bonus depreciation from the Pasadena asset, the company anticipates no cash taxes for the year, with a return to normal rates next year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
