• Fourth Quarter Adjusted EBITDA: $35 million, down 7% year-over-year.
• Full Year Adjusted EBITDA: $187 million, up 4% from the previous year.
• Fourth Quarter Adjusted Net Income: $2.8 million, $0.12 per diluted share, a 63% decrease from the previous year.
• Full Year Adjusted Net Income: $50.5 million, flat compared to the prior year.
• Free Cash Flow for the Year: $39 million, in line with expectations.
• Fourth Quarter Cash from Operations: $68 million.
• Fourth Quarter Surfactant Net Sales: $379 million, a 3% increase year-over-year.
• Fourth Quarter Polymer Net Sales: $130 million, a 12% decrease year-over-year.
• Fourth Quarter Specialty Product Net Sales: $17 million, a 10% increase year-over-year.
• Dividends Paid in Fourth Quarter: $8.7 million.
• Pre-Tax Cost Savings for 2024: $48 million.

• Warning! GuruFocus has detected 8 Warning Signs with SCL.

Release Date: February 19, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Stepan Co (NYSE:SCL) reported a 4% growth in full-year adjusted EBITDA despite several one-time events negatively impacting earnings.
• The surfactant and specialty products segments delivered strong double-digit adjusted EBITDA growth.
• Global volumes grew by 1%, driven by a 2.5% increase in the surfactant business.
• The company achieved $48 million in pre-tax cost savings during 2024 through supply chain and workforce productivity efforts.
• Stepan Co (NYSE:SCL) has paid an increased dividend for 57 consecutive years, highlighting its commitment to returning value to shareholders.

Negative Points

• Fourth quarter adjusted EBITDA decreased by 7% year-over-year, reflecting challenges in financial performance.
• The polymers segment experienced a 12% decrease in net sales due to lower raw material costs and competitive pressures.
• Global sales volume was down 1% year-over-year, with softer demand in rigid polymers offsetting growth in surfactants.
• The company faced $4.4 million in higher pre-operating expenses related to the new Pasadena facility and a $2.9 million tax proceeding reserve in Latin America.
• Corporate expenses increased due to costs associated with the CEO transition and other one-time events.

Q & A Highlights

Q: How much more growth do you expect in the agricultural segment through 2025? A: Luis Rojo, Chief Financial Officer, Vice President: We had a strong second half in our Ag business, growing 30% in the second half of 2024. We expect this double-digit growth to continue into the first half of 2025, based on the low base from the first half of 2024.

Q: Can you discuss the challenges faced by the polymers segment and any areas of strength? A: Luis Rojo, Chief Financial Officer, Vice President: The polymers segment faced sluggish demand due to high interest rates and slow construction activity, particularly in Europe. However, we saw growth in specialty polymers and a strong performance in China. We are optimistic about the introduction of new products in the spray foam market and expect market growth in 2025.

Q: What is the outlook for surfactants' price mix in 2025? A: Luis Rojo, Chief Financial Officer, Vice President: The positive price mix in surfactants was driven by growth in tier two and three customers and strong performance in the agricultural and oil field segments. We expect continued growth in these areas, which should maintain a positive price mix in 2025.

Q: How should we view the starting point for 2025 given the unusual items in 2024? A: Luis Rojo, Chief Financial Officer, Vice President: We faced over $30 million in one-time events in 2024, including the Milster flood and CEO transition costs. We aim to avoid these in 2025 and expect the Pasadena facility to offset its costs with revenue and supply chain savings as it ramps up.

Q: What impact will the Pasadena facility have in the first quarter of 2025? A: Luis Rojo, Chief Financial Officer, Vice President: The Pasadena facility is expected to start up in Q1 2025, with initial costs continuing. However, we anticipate a good start to the year, with strong performance in the agricultural, oil field, and distribution segments.

Q: Can you provide guidance on interest expense and depreciation for the Pasadena facility in 2025? A: Luis Rojo, Chief Financial Officer, Vice President: We forecast depreciation between $128 to $132 million for 2025, mainly due to the Pasadena site. We will provide more details on savings and modeling implications once the site is fully operational.

Q: How does currency fluctuation impact Stepan Co, particularly with the Euro, Mexican Peso, and Brazilian Real? A: Luis Rojo, Chief Financial Officer, Vice President: The Euro poses the most significant risk, but we manage it within our total numbers. The impact of currency fluctuations in Mexico and Brazil is minimal due to our local cost structures.

Q: What are your expectations for the construction market in China and the growth of spray foam products there? A: Luis Rojo, Chief Financial Officer, Vice President: Our polymer business in China is diversified across various end markets, not solely reliant on construction. This diversification allows us to grow steadily despite challenges in the Chinese construction sector.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.