Q3 2020 Stepan Co Earnings Call
Greetings and welcome to the Stepan Company Q3, 2020 earnings release Conference call.
During the presentation, all participants will be in a listen only mode.
Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the four on your telephone.
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As a reminder, this conference is being recorded Wednesday October 21st 2020.
I would now like to turn the conference over to Mr., Luis <unk>, Vice President and Chief Financial Officer Stepan Company. Please go ahead Sir.
Thank you Wayne good morning, and thank you for joining a step on company third quarter 2002, any financial review before we.
Before we begin please note that information in this conference call contains forward looking statements.
Which are not historical facts you sustain.
These statements involve risks and uncertainties that cause actual results may differ materially, including but not limited to prospects for our forging operations you know what I'm, sorry, you're not economic conditions and factors detailed in our security data change come each on filing.
Well, they're joining us online or over the phone. We encourage you to review the investor Slide presentation, which.
Which we have made available at www dot step on Dot com under the Investor Relations section of our website.
We made decent slides available at approximately the same time out when the earning release is issued.
I hope that you find information on perspective helpful.
Now with that I would like to turn the call over to Mr.. We next step on our chairman President and Chief Executive Officer.
Thank you Louise good morning, and thank you all for joining US we hope you and your families are safe and healthy.
People people.
People like you around the world are cleaning and disinfecting their homes as well as her work and entertainment space is more often.
They have increased the frequency of how often they wash their hands.
These changing habits have driven increased demand for many of the products we sell.
Stepping employees around the world have responded to this increased demand with passion and commitment.
We appreciate the extra effort they have made to keep these essential products on the market and available to our customers and ultimately to all of us.
Overall cobot opportunities in the consumer segment of our surfactant business have benefited the company more than the negative impact cobot has had on our polymer business and on functional surfactants.
The company delivered record third quarter and year to date income.
Third quarter, adjusted net income was $36.4 million or one dollar and 56 cents per diluted share up 30%.
From $27.9 billion or one dollar and 20 cents per diluted share last year.
Adjusted net income for the first three quarters was $98.9 billion up 5.5% from last year.
For the quarter surfactant operating income was up significantly on volume growth, which was mostly attributable to continued strong demand for cleaning disinfection and personal wash products in the consumer product end markets.
Mexico Mexican operations delivered strong earnings growth versus the prior year quarter.
Our polymer business was down slightly versus the prior year quarter as North America continues to experience construction project delays and cancellations as a result, the COVID-19.
Our specialty products business results were down due to reduced margins and the timing of customer orders.
Our board of directors declared a quarterly cash dividend on Stepans common stock of 30, and a half cents per share payable on December 15th 2020.
This represents an 11% increase marks the 50 threerd consecutive year of paying and increasing the dividend.
Our history of increasing and paying dividends led to Stepan company, becoming part of the S&P high yield dividend aristocrat index in January of this year.
At this point I'd like Luis to walk through a few more details about our third quarter results.
Thank you Mike.
My comments will generally follow the slide presentation.
So starting with a slight fourth that we got the quarter.
Adjusted net income for the third quarter of 2021 $36.4 million.
$1.50 cents or 56 cents per diluted share.
30% increase versus $27.9 million.
$1.20 cents per diluted share in the third quarter 2019.
[noise] because adjusted net income is a non-GAAP measures, we put a lie forward reconciliations to their compatible GAAP measures.
And these can be found in appendix two of the presentation on table two of the press release.
Specific any adjustments to reported net income this quarter consist of adjustment for the fair compensation cost settled Sars.
Mine are we still cutting expenses.
Adjusted net income for the quarter to exclude the FERC compensation expense of $2.6 million or 11 cents per diluted share count for deferred compensation expense of $1.4 million or six cents per diluted share in the same period last year.
The deferred compensation numbers, 3% the net expenses related to the company's deferred compensation plan I swear last got settled stock appreciation rights, what I what I'm. Please.
Because these liabilities change with the movement in the south but I, we exclude these I think from our operational discussion.
Slide five shows adult type company earnings, but each for the third quarter compared to last years quarter breaks down the increase in adjusted net income.
Because this is net income the fee what us not to hear I don't an after tax basis.
We will cover each segment in more detail, but to summarize sort of fact that was up significantly wide body mass on a space I'd put all were slightly down versus the prior year.
Corporate expenses on all those were higher during the quarter, you talked with seasonal related expenses, I'm 40 guess change losses.
The company's effective tax rate was 23.7% in the first nine month of 2020 versus 17.3% in the first nine month of 2019.
The increase was primarily attributable to one time tax benefit in 2019, and a different mix of Contra income these costs.
This company makes you think back deemed effective tax rate, but I'll see motherly haunted a basis point, we assume.
We expect the full year 2000 on Duena effective tax rate to be in the range of 23% to 26%.
Slide six focus on sort of fact on segment results for the quarter. So in fact, our net sales were $334 million for the quarter and 11% increase versus about your year.
Sales volume increased 8%, mostly due to higher demand for products sold into that consumer broken markets, but even by could easily mine for cleaning disinfection I'm personally I'd watch, but all those two COVID-19.
Higher sales volume to tier two tier three customers, adding to their global equity corporate on market also contributed to this increase.
This growth was partially offset by lower what are the mine in the oilfield market.
Selling prices were up 7% on the translation impact of a stronger us dollar negatively impacted net sales by 4%.
The higher selling prices, primarily reflects improved product and customer mix.
In fact, I know, but 18 income increased $21.5 million or 109% versus the prior year.
For my leave you to sales volume growth at $3.9 million at all but eight any improvement in Mexico, partially insurance, we covered it related to the first quarter Neil sales power outage.
North America results increased primarily due to strong demand in consumer segment on a better product and customer mix.
You know maybe got record quarterly Mexican in Brazil, but even by a strong volume growth in both markets.
Specifically, Mexico was up 22% on Brazil was up 12%.
Addition, Europe results increased slightly due to higher consumer product demand.
Now turning to polymers on slide seven.
Net sales were $116.7 million in the quarter a 14.
14% decrease versus the prior year sales.
Sales volume decreased 5% from my leave you to lower North America demand for Reed polio use ingredient formulation and lower P.S.P.A.B. mat.
The lower volume demand reflects construction project delays and cancellations due to COVID-19.
Selling prices declined 9% versus the prior year third quarter.
Volume at operating income decreased Cedar point, $9 million or 4% versus the prior year quarter, primarily due to lower sales volume.
At all where North America margins did even by being can it maintain supply costs associated with it any noise revert log closures.
Operating income benefited from a partial insurance recoveries related to the meal sales power outage.
Beyond results increased due to modest growth in refi volume honest at on specialty polyol volume growth.
Asia and Latin America, we sold what is slightly up versus prior year.
Especially if you put all the net sales what $14 million for the quarter, a 17% decrease versus about your year sales volume was flat between quarters, all but eight.
Operating income decreased $2.7 million versus the prior year quarter, primarily due to lower margins within our MCT product line I know there are timing differences in our food humbly flavor business.
Turning to slide eight our balance sheet remains strong we had negative net debt at quarter end, our cash balance of $310 million exceeded total debt of $209 million.
Capital spending was $30.2 million during the quarter versus $25.7 million in the prior year.
For the full year capital expenditures are expected to be in the range of 100 to hone that I'm $20 million.
Moving to slide nine we believe we have we have sufficient liquidity, we have $310 million cash on hand, we have access to local meat at $350 million revolving credit agreement.
Our remaining debt maturity schedule in 2020 is only $9 million.
Beginning on slide 10, we will now update you on our 2020 strategic priorities.
Thank you Luis has 2020 heads into its final months, we continue to believe that Stephens business remains better positioned to perform than most as we demonstrated in the third quarter.
We continue to prioritize the safety and health of our employees as we deliver products that contribute to the fight against the COVID-19.
We now have six biocide formulations approved by the EPA for on label claims to kill the specific novel virus that causes COVID-19.
These formulations allow our customers to provide the public with additional tools to protect their families and fight the pandemic.
We believe surfactant volume and the consumers so.
Segment.
Should remain strong as result, as a result of changing consumer habits and increased use of disinfection cleaning and personal wash products.
Our core product lines drove surfactant volume growth of 8% in the third quarter.
We are increasing north American capability to make low one for Doc Sane Sulfates recent regulations fast in New York will require reduced levels of one for Doc Sane and consumer products by January Onest 2023.
One for Doc, saying is a minor byproduct generated in the manufacture of either sulfate surfactants, which are key ingredients and consumer products.
Through a combination of process optimization and upgraded manufacturing equipment Steffen will be prepared to supply customers either sulfates that meet the new regulatory requirements.
Tier two and tier three customers continue to be the center of our strategy we.
We had double digit growth in this space as we added 201, new customers around the world during the quarter.
Our diversification strategy into functional products continues to be a key priority for steffan.
During Q3, our agricultural business grew 5%.
We have introduced many new products to the agricultural market, we will continue to invest in new capacity and capabilities to support growth in the agricultural market.
Oilfield volume was down due to lower oil prices during the quarter.
However, we remain optimistic about the future opportunities in this business as we expand our portfolio into oil and gas production.
Polymers has had a challenging year given the availability of labor on construction projects and the need for social distancing.
However, the long term prospects for our polyol business remain attractive as energy conservation efforts and more stringent building codes should increase demand.
Illinois right.
River lock closure work is on track and should finish by the end of October which will end premium logistics associated with the business over the last five months.
We remain committed to delivering productivity gains across Stephan.
We delayed our project mills sale to allow the team to focus on COVID-19 related market opportunities.
Work on the project will continue next year, and we expect to see benefits in 2022 and beyond.
M&A represents an important tool as a means to deliver meaningful EPS and EBITDA growth over the next few years give.
Given the strength of our balance sheet and the significant cash on hand, we will continue to identify and pursue acquisition opportunities to fill gaps in our portfolio and add new platform Chemistries.
We closed on the purchase of clearance Mexican sulphate business and equipment during the quarter.
We delivered record income quarters in Mexico in Brazil, both benefiting from previous acquisitions.
To date 2020 has been a difficult, but rewarding year as our.
As our team has responded to challenges and delivered on opportunities.
We have work left to do this year, but overall, we remain optimistic that we will continue to deliver value to you our shareholders. This.
This concludes our prepared remarks.
At this time, we would like to turn the call over for questions Wayne.
Wayne please.
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One moment please for our first question.
Our first question comes from the line of Vincent Anderson with Stifel. Please.
Your line is open.
Yes. Thanks.
Nice job this quarter.
So thank you. Thank you Vincent good morning.
Good morning.
I wanted to take a minute to focus on the surfactant price mix.
Such as you're willing to share what was the breakdown between price and mix this quarter and can we read into it maybe any change to the strategy you alluded to in the second quarter, where you were maybe prioritizing market share gains in tier two tier three rather than chasing every price increase.
Hi, Vincent this is three.
Look up as we as we prepare to in our remarks, we continue seeing a good mix.
Good mix.
I combination from product and customer I think we mentioned that we had a very strong double digit growth in tier two tier three so that's for sure. He is helping our knowledge. So they could all in in some of our key product lines in surfactants for cleaning and disinfection is also providing are positive.
Mix I'm not when I get into the split of how much is how much but you saw various stood on seven points of price mix up.
Over at all into surfactant business I need a combination of those two factors.
Okay. Thanks, that's fair.
So specifically then with regards to the growth in tier two and tier three I lost track of how many youve added this year I think it's over pushing 700 by now.
No saving on that if by now yeah, Yeah, Yeah, Yeah, and I would just echo what Luis said is that generally those smaller customers provide a higher margin on the products that we're selling.
To them.
It cost us more money to service them.
But the the price and.
Tends to be more favorable than our large tier one customers.
Right. So that's that is exactly where I was headed how.
Do you feel right now with that with that number of new accounts.
About your selling infrastructure and general staffing.
Do you feel like you have the capacity that you need and maybe we could see some positive SGN, a leverage or maybe a little bit more cost going into as you continue to grow that number.
Hi, quite frankly, I think it's a little bit of both.
We are we have established a momentum in that in that space on a global basis, we will add some additional resources to support growth, but overall we are.
We are leveraging our existing infrastructure, whether that be people manufacturing equipment warehouse logistics support.
To supply those additional customers in a cost effective way.
Thanks, if I could sneak one more in.
Just in North America, or the kind of the word was crop protection sales broadly had underperformed this year with how fast the crops are maturing. So maybe you could talk more specifically about where the growth came from whether it was I don't know Brazil market share.
Yeah, I would say the the growth in our business in Q3 came from North America I think we believe that business overall in the AG segment and in 2020 will be somewhat flat, maybe up marginally, but we came into the year.
For our customers came into the year with relatively high inventories that have been depleted throughout the year. So what we're hearing from the market and from our customers that that inventory is now gone and that we should see some growth in Q4 and into 2021.
Yeah, Vincent too early to tell but we're seeing encouraging signs on the on the Acs business in North America, and as we mentioned it was it that I don't say, 5% good growth, but globally, but also the driver was North America and on things like corn prices above $4 on all of that is is providing some oh somehow.
We'll see we'll see how Q4 I'm 2021, the vinyls bodies encouraging signs.
All right. Thank you very much.
Our next question comes from the line of Mike Harrison with Seaport Global Securities. Please go ahead.
Hi, good morning, Mike.
Good morning, Mike.
Quinn was wondering if we could start out.
With the Clarion acquisition.
The I'm sure with the filings coming out later today, we'll give some more detail, but can you give us some sense of what that acquisition cost.
But it should bring in terms of annual revenues and earnings contribution and then also talk a little bit about the the rationale for the deal and what seems to be the latest in kind of a roll up of.
UBS sulfonation assets in the Americas.
Yes, I would say the specific numbers of the acquisition will be in the filing, but having said that so yeah.
So yes. This is the third so.
Sulfonation business that we're combining so.
Stepans business be a EPS apps business in Mexico, and now Clarence.
So we believe the combination of those three businesses will provide economies of scale allow us to cost effectively supply our customers in that marketplace.
From two sites, which.
Which we will.
Continue to operate our site and Metamorphosis, Mexico, and then we have the VA Sop site in the kind of pack.
So you've seen that we've been able to grow the business.
From a down year in 2019, where we had some transition production issues I would refer them to.
And the market itself down there is growing as a result of co bid. So we feel we're pretty well.
Well situated to grow in that space and Weve got confidence that we'll be able to add to our profitability from an acquisition.
We would anticipate that that acquisition will contribute about $3 million of EBITDA, so relatively small acquisition.
Very complimentary to what we had been previously doing at the site.
3 million a year EBITDA, yes, right understood.
Understood understood, Okay, and then in the spring.
Conns business you showed very strong operating income improvement in North America, and Latin America, but.
But looking at the Europe operating income given that it's pretty modest can you give us a little bit of color as to what's going on with that European surfactants business.
Earlier in the year, we lost a fairly large piece of business.
In the fabric softener space, so so that that loss of that business.
His kind of held back the European results. If you exclude that Europe was up nicely based on an improved product mix with.
Greater specialty sales more biocidal plot sales.
And more agricultural sales in that region. So we're actually pleased with the progress that.
Europe has made this year.
Alright, and then any updated thoughts on kind of the longer term outlook for cleaning disinfection products.
I know that a in your view, we're going to see a.
Now, let me to elevated demand not just during the pandemic books for for years to come.
Maybe include some comments on where you think customers are.
Their inventories levels or the restocking process I know when I go to the store is still struggling to find.
The cleaning products in the specific brands that I would typically buy.
Yep so.
What I would tell you is that we do believe that consumer habits have changed and there will be some sustained change in those habits that will drive increased growth for our product lines. If we.
If we take a look at recent large consumer product company announced.
Announcements in this space and based on our conversations with them. They are all they all believe that there will be sustained increase demand in this segment.
Yes, I think so so thats the most important point.
I think the second point that I would like is that to make is that we as consumers. If you think about youre going to a restaurant you're going to have on an airplane or a movie theater your expectation for clean has increased and as a result of that.
Even though we're not going out to too much going forward you are going to see enhanced industrial and institutional cleaning. So even if we were to see some modification.
And decrease in consumer habits, I think youre going to see an increase in industrial and institutional cleaning as well. So I do think there's going to be increases demand.
Demand for these products and were seeing our customers.
Come to us with increased requirements and increased demands not only just for today, but.
For 2021, and 2022 as well so they do believe that theres going to be that this increase is sustained relative to.
Due to customer inventory levels, yes.
And let me just talk a little bit about disinfectants, primarily because because I.
There is still a shortage of some of the key disinfectants on the marketplace today.
Some of that.
From a.
The products that we sell our bias idle plant turnarounds.
And it hasn't been so much that the biocidal quaternary should have been short, but the raw materials that make those products have been short in the marketplace. So there are some increased capacity being.
Added to the marketplace late 2020 early 2021, where we will see those products more readily available.
I would ask you in direct you to people that are supplying wipes and have them answer questions in terms of how their supply chain looks relative to substrates and their ability to impregnate.
Those substrates with bias set a quaternary, but that has been a.
Bottleneck that the market is aggressively working on so I'd encourage you to get an update from them.
But I do believe that.
There is going to be the necessary raw materials, starting in 2021 to fuel additional layers of growth and the buy side of profit area.
From the other.
Other raw materials and for Terex to meet oxides fee change I would say capacity is tight and the us market is tight in Europe and Latam.
[music].
And we at step in our adding some incremental capacity to our plant sites.
To two in order to respond to some of the market demands.
Alright, and then last question for me for now is on the polymers business, maybe just give a little more detail on kind of the trends and the outlook. There are we expecting a V shaped recovery once we see some of these projects resume in the.
Rigid polyol business.
And I guess are you seeing these project delays or project cancellations.
Differing until spring of next year, maybe just a little detail on what you're hearing from customers there.
Yes, so what what our customers are telling us is that they're anticipating 2020, it was kind of going to be the bottom and that we're going to see some gradual improvement and 2022.
21.
I think.
People are becoming a little more comfortable going back in.
In the construction market in the roofing market specifically.
And so our customers are optimistic.
We're going to see some growth in the market and minimal growth but growth in 2021.
All right thanks very much.
Okay.
As a reminder, ladies and gentlemen to register a question. Please press the one followed by the four on your telephone our.
Our next question comes from the line of David Silver with CL King. Please go ahead.
Yeah, Hi, good morning.
Morning, David.
Yes. Thanks.
Had a couple of questions here, but.
First off I was hoping you could just.
To clarify one point about your expected insurance recoveries. So you did indicate 5 million was received this quarter as a partial.
Claim I guess.
Could you remind me, maybe a or could you have bracketed like how much might your ultimate recovery be and over what time frame now do you do you anticipate to receiving the balance of those proceed. Thank you.
Yes, David outlook. So we collect 5 million pretax on to make sure that you guys understand that he's had a pre tax number and as we mentioned in Q1, when we had the band we communicated that that is at least $10 million. So that that number is continues to be the same on these.
Complex claim so we are doing all the work.
We don't have a specific timings and now we will continue working with our insurance provider to all that does it work to make sure that we can so stance everything on all the invoices that said that so it's a complex claim and we will inform you guys. When when we make up at all but as to the next phase.
Okay.
Okay.
And then I guess this is a question on your operational capabilities, but.
One quarter earlier, you indicated that in most cases.
We're able to supply all of your customers with their full requirement.
Product requirement or contractual.
Volumes you'd be.
You did mention maybe an AMD deteriorates or one or two other areas you were on it.
On allocation. So I'm just wondering given you know another call.
Quarter of strong growth.
Whether you could just.
Indicate whether there are any.
Any incremental I guess.
Limitations or bottlenecks that correct into your.
Production delivery system. Thanks.
So so David I think.
You're referencing the Millsdale outage that we had in January of this year and during that timeframe. We said we were able to use our broad based surfactant market in North America to keep the market supplied.
While our mill sales facility was down as a result of the power outage.
During that period, we were tight on and for Terex. So now that capacity is back running and has been back running since February of of.
This year, so so but having said that let me answer your question with regard to capacity utilization.
Capacity utilization within our sulfonation.
That work in North America has increased and we still.
We still have sufficient capacity to support.
Many most of the products we sell.
We're a little bit tight today.
In terms of some of our higher active materials and we're looking at that and we will look to de bottleneck our facilities.
As appropriate.
And with regard to Amp for Terex in North America, we are relatively tight today in North America, and we're looking at expanding our capabilities for that product line, we do.
We do have sufficient bias sales plot.
Capacity today.
To supply our needs, but we are proactively adding capacity in our Mexican facility that will be able to supply North America as well so.
The good news is volumes are up in our plants are beginning to fill.
So our overhead per pound is starting to drop a little bit and that's you see that in our financials us.
On a quarterly basis and in Q3.
Oh.
Okay. Thank you for that.
No.
This is the time of year I think when a lot of companies with calendar year end kind of start there.
Planning and budgeting process for the upcoming year and I wanted to ask you about I guess.
Capex in particular so.
For the last few years I mean, your your Capex budget has kind of ticked up I think you might you know 87 million back in 2018, and you might might be as much as $120 million.
Indicated for this year.
As you sit here right now what.
What do you think.
The incremental capex spend might might be for 2021 in other words are the opportunities in your core areas sufficient that you feel like you will you will be needing some incremental resourcing to.
To keep up with demand and accomplish your you know your ROE.
Production and distribution goals as you see them now thank you.
I would anticipate that the capital.
We'll move up a little bit and 2021, as we add some additional capacity and capabilities.
Across the globe.
To capture some of the organic growth opportunities that are being presented to us. We're very fortunate today that we have some significant organic growth opportunities across our product lines across our regions that we will be making incremental investments in our network.
In 2020 and carry over into 2021 that should provide growth for us over the next two to four years.
Okay. Thank you I'll get back in queue.
Okay.
Our next question comes from the line of Mike Harrison with Seaport Global Securities. Please go ahead.
[music].
Hi, just a couple more from me Quinn.
Quinn you mentioned that you are going to be increasing capacity to make low one for dioxin products to meet new regulatory requirements. I know you mentioned that this is this is a byproduct.
And it sounds like it's requiring changes in your production process more.
More so than changes in formulation or materials, but maybe.
Provide a little bit more detail on what these changes mean for you.
And one of the core.
One of the core questions I have is as your customers are looking to reduce dioxins or as the law requires that doesn't mean that there is less surfactant volume going into some of these cleaning and disinfecting products.
So let me answer your last question.
Your last question first at.
At this point in time.
We do not anticipate significant re formulation or de formulation away from one from.
From either Sulfates for.
For for the consumer products segment were working very closely with customers and with their support we are making modifications of our product. So they can maintain the use of either sole face in the consumer products that they have.
Show.
So today I would tell you we don't again don't anticipate any significant changes in consumer product formulations. The regulations that were talking about our two parts per billion just to put it in perspective so.
There are two parts per million.
I mean, it for two parts per million excuse me two parts per million, but but we also need to understand that theres whole foods at the Annie's various small portion of the of that product costs on on even lower if you think about shelf prices for all of these consumer products like shampoo on detergents on all of that is a very.
Everybody is more to be done as quick it was mentioned that we are working with our customers to do that.
We'll make those changes.
And then maybe kind of a related question is it seems like there is a push for greener surfactants.
Coming from both regulatory.
Guess regulators as well as consumers are you guys.
You guys bought this business that has a a gram no lepage product line earlier this year I know that that business was pre commercial at the time.
Can you discuss the timeline to having some of those Ram the lifted.
Biodegradable surfactants commercially available and maybe talk more broadly about how you're seeing the opportunity for for Green surfactants.
Yes.
What I would tell you.
It is a pre deal.
Predevelopment.
Activity today, it is a long term.
Project first step and.
We are.
Yes.
In terms of selling any meaningful quantities.
Of of this into the surfactant market. It will it's going to be a number of years.
So we're looking at options today too.
In terms of where how we would provide market introduction quantities. We have pilot capabilities. Today, we are sampling customers. We do not have commercial access to commercial production today. So so so.
Getting samples out to the to the marketplace getting customer feedback and three core.
Segments that we've been targeting.
And then getting customer confirmation in terms of the products work as they as they would like them to and then.
Coming up with a plan to build large scale capabilities.
So.
That'll enable growth of the molecule in the marketplace. Today today. They are there the the cost to produce Ram no lip bids in the marketplace is extremely high and its not cost effective so.
So we need to have a production strategy that will bring those costs down and we're we're actively working on that.
All right sounds good thanks very much.
As a final reminder to register a question. Please press the one followed by the four on your telephone.
Our next question comes from Vincent Anderson with Stifel. Please go ahead.
Yes. Thanks, I just wanted to follow up on a question Mike asked earlier.
Going back to European surfactants that loss of the fabric softener business was that due to a regulatory change in Europe or was it just a re formulation by one of your customers.
It was a new capacity that was available in the market place that had better logistics then we could provide.
So they were able to more cost effectively supply the customer.
Okay.
Thank you and then separately over in Europe can you remind us what has been the carrying cost of the German facility you've been repurchasing for Polyols, just maybe if there's any update on the timeline for that.
Well I mean, so we're currently making polyol at that plant because the incremental cost that the polyol business observe absorb was approximately $1.5 million or so yes.
When the surfactant business were shut down at the site, but that site is fully commercial and operational and has been for a number of years and it's a the supply location for our polymer business in Europe today.
I see thank you appreciate the clarification.
Our next question comes from the line of David Silver with CL King. Please go ahead.
Yes, hi, thanks so.
I was hoping to follow up maybe just a little bit on your polymers.
Business and.
And I'll confess I'm still trying to get my arms around some of the aspects there but [noise].
That business.
The performance this quarter was down year over year, a little bit on the operating income line and I know, there's an insurance recovery in there, but the year over year decline has has narrowed quite a bit on the operating income line as the year has.
Gone on and with some of my industrial companies that have.
Construction exposure.
I would say that this quarter in particular was quite robust in parts of the.
Construction market and in particular, I guess of the residential side, whereas other areas.
Not so much so.
You know I'm, just wondering if the relative improvement in operating.
Operating profit.
From the polymer side, you know is indicative of a pickup in at least some portions of your business.
And you know more to the point I guess I was a tiny bit surprise.
When I look at your slide deck to see that the North American portion of your polymers business was was down a little bit year over year. So just wondering about how your product portfolio and your exposures kind of relate to.
Exposure to the residential markets or other markets that are doing a little better now versus.
Some of the other areas, which you've highlighted or are not not healthy just yet.
So so if we take a look at our polymer business in the 2020 performance.
Significantly impacted by the power outage at our Millsdale facility in Q1.
And then then in Q2, we started getting into the more pandemic impact.
You are correct in Q3 and specifically in September we saw we we actually were.
Sensually flat, maybe slightly slightly positive slightly positive in September for the first time since the pandemic started in North America.
Items in Europe were up just a touch as well. So so so so we have seen a gradual improvement in the polymer business.
As a year as as progress from a volume perspective.
We have talked about higher costs associated with our business in North America as a result of the closure of the Illinois River, which is the first time they closed it since they installed installed the locks over 100 years ago. So.
So that was a big project.
And they did some necessary maintenance, but the river. It was shut down for over three months and is not coming back.
Coming back on so there has been some incremental costs, which negatively impacted the profitability of our business.
In Q2 and also in Q3.
It will carry over a little bit into Q4 as well so.
But we are seeing some increased demand and if you.
And as I've read some of our customer reports as well, they're talking about September being a the first month, where they've seen an improvement year over year as well. So I think the market as I mentioned earlier is cautiously optimistic about growing from a relatively low 2020 base.
Into 2021, but.
David I will.
I will add to what Jos Quinn said I mean, when you think about the first nine months of course their volume is down, especially because of I mean, you have it to that I guess that meals L. A swing was mentioning on bendeka.
The pandemic.
Our marketing side holding okay, because as you know.
Oil prices collapsed on we still saw some help on raw material prices as well so that's why.
Overall, our profit WD these down on an absolute.
On an absolute basis, but where we are trying to hold our our margins, which you saw which you saw annex rowdy knotty work done by the team given all the three.
Three box meals they'll keep on day me on that lever closure.
Okay. Thank you for all the color I appreciate it and then maybe one last question and I would associate so categorize. This is a high class problem, but your stock price is you know.
Kind of towards an all time high.
And to your prospects look good and you chose to raise.
Raise your dividend by a double digit amount.
For as Youve.
As you've done for a very long time.
But I I was kind of scratching my head on your Star Welcome [laughter].
Yes.
If you want I can repeat that if you Didnt hear me the first time, but.
Yeah, So a small point, but I was I was scratching my head is I was prepping for this call and I was looking at Vegas and if the odds were good I was going to say you know now would be an excellent time to split your stock. Okay. So you know again, it's all relative but your stock prices and triple digit.
Youre trait daily trading volumes in double digits as you know under a 100000 shares and at some point some some investors.
Get a little squeamish, they kind of.
We're not sure about there.
Quantity and things like that so again not the biggest problem in the world.
Oh, certainly, but I know a lot of companies like to time, maybe a stock split with when they raised their dividend and.
And you chose to kind of pass on that so I'm just wondering you know.
Again, not not the most pressing matter, but has something like that you know been kicked around there and do you do you see some value in a boosting the liquidity the trading volume and the ability to.
Shareholders to get in and out more easily do you think that that that would be an incremental benefit to you. Thanks, Yeah. I think it's something that our board of directors considers on a regular basis.
You know at this point in time, given that the world's in a global pandemic, we didn't think it was.
Something we wanted to do address at this point in time, but we have periodically split our stock to increase the liquidity.
The ability of people to get in and get out today is much improved versus versus.
Versus four years ago versus five years ago versus two years ago. So.
So so.
We do believe people have a chance to get in and out and people have demonstrated that with fairly large quantities of shares but but.
But we will take your question under advisement and and make sure that the board contemplates that.
Okay. Thanks, very much I appreciate it.
And Mr. Stepan Mr. Hoe, there are no further questions at this time I'll turn the call back over to you.
Thank you very much Wayne and thank you all very much for joining us on todays call. We appreciate your interest and ownership in Stepan company.
Please stay safe and healthy habit.
Have a great day. Thank you.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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