Q1 2025 Stepan Co Earnings Call
Okay.
Good morning, and welcome to the Stepan Company first quarter 2025 earnings Conference call.
During the presentation, all participants will be in a listen only mode.
Afterwards, we will conduct a question and answer session.
To ask a question during the session you will need to press star one on your telephone you will then hear an automated message advising your hand is raised.
As a reminder, this call is being recorded on Tuesday April 29 2025.
Speaker Change: It is now my pleasure to turn the call over to Mr. Sam Hendrickson, Vice President and interim Chief Financial Officer of Stepan Company. Mr. Hinrich. Please go ahead.
Good morning, and thank you for joining Stepan company's first quarter 2025 financial review.
Speaker Change: We begin please note that information in this conference call contains forward looking statements, which are not historical facts. The statements involve risks and uncertainties that could cause actual results to differ materially, including but not limited to prospects of our foreign operations global and regional economic conditions and factors detailed in our secure.
Speaker Change: <unk> and exchange Commission filings.
Speaker Change: In addition, this conference call will include discussions of adjusted net income adjusted EBITDA and free cash flow, which are non-GAAP measures.
Speaker Change: We provide reconciliations to the comparable GAAP measures in the earnings presentation and press release, which we have made available at www Stepan Dot com under the investors section of our website.
Speaker Change: Whether you're joining us online over the phone we encourage you to review the Investor Slide presentation. We make these slides available at approximately the same time as when the earnings release is issued and we hope that you find the information that perspective is helpful.
Speaker Change: I would like to turn the call over to Mr. Luis Rojo, our president and Chief Executive Officer.
Speaker Change: Thank you Sam good morning, and thank you all for joining us today to discuss our first quarter 2025 consultants.
Speaker Change: I plan to share highlights of our quarterly performance and we will.
Speaker Change: Also share an update on our key strategic priority, while at Sam will provide additional detail on our financial results.
Speaker Change: We are pleased with the start of 2025 and I'm proud of our team that is committed to further improving earnings going forward.
Sam Hendrickson: The company reported first quarter, adjusted EBITDA of $57 $5 million.
Sam Hendrickson: Up 12% versus the prior year.
Sam Hendrickson: The fact that our specialty products that EBIT double digit adjusted EBITDA growth.
Sam Hendrickson: Paul You mentioned adjusted EBITDA decreased slightly year over year.
Sam Hendrickson: Volume grew 4% and the growth was broad based with sort of fact, that's up 3% volume is up 7% and our MCT product line up 4%.
Sam Hendrickson: We continue to experience double digit volume growth within the agricultural and oilfield end markets.
Sam Hendrickson: With our distribution partners in surfactants.
Sam Hendrickson: North America and European redeploy your volume grew single digits, while the specialty volumes and commodity DPA businesses delivered a 12% growth year over year.
Sam Hendrickson: We believe that <unk> growth in North America, and Europe continues to be restrained by macroeconomic uncertainty and the high interest rate environment.
Sam Hendrickson: Encouraged by the broad based volume growth across several of our key strategic end markets.
Sam Hendrickson: We finished the first quarter of 2025 with $19 $3 million of adjusted net income up 32% versus the prior year.
Even by earnings growth into the fact that in our specialty products and a lower tax rate.
We executed the safest startup of our new Pasadena, Texas site, which is now operational.
Sam Hendrickson: During the first quarter of 2025, the company paid $8 7 million in dividends to shareholders. Our board of directors declared a quarterly cash dividend on our step on our stock common stock of $38 five per share.
Sam Hendrickson: Payable on June 13, 2025.
Sam Hendrickson: Stefan has paid an increased dividend for 57 consecutive years.
Sam Hendrickson: Sam will now share some details on our first quarter results.
Sam Hendrickson: Thank you Luis My comments will generally follow the slide presentation that is.
Sam Hendrickson: On slide four to recap the quarter.
Sam Hendrickson: First quarter 2025, adjusted net income was $19 3 million or <unk> 84 per diluted share versus $14 7 million or <unk> 64 per diluted share for the first quarter of last year, a 32% increase.
Sam Hendrickson: The increase was driven by broad based volume growth higher margins and surfactants and a lower tax rate.
Sam Hendrickson: Adjusted EBITDA for the quarter was 57 5 million up 12% year over year, driven by volume growth and improved surfactant product and customer mix, which was partially offset by higher pre operating expenses at our Pasadena, Texas site.
Sam Hendrickson: Cash from operations was $6 9 million for the quarter and free cash flow was negative at $25 8 million.
Sam Hendrickson: Slide five shows the total company net income bridge for the first quarter of 2025 compared to last year's first quarter and breaks down the increase in adjusted net income.
Sam Hendrickson: Because this is net income the figures noted on an after tax basis.
Sam Hendrickson: I'll cover each segment in more detail, but to summarize we delivered operating income growth and surfactant and specialty products, partially offset by lower operating results in polymers.
Sam Hendrickson: The first quarter results benefited from a lower effective tax rate.
Sam Hendrickson: Effective tax rate was 20% versus Illinois range of 24% to 26%.
Sam Hendrickson: This decrease was primarily attributable to favorable discreet items associated with the tax audit settlement in the U S.
Sam Hendrickson: Slide six shows the total company adjusted EBITDA Bridge for the first quarter compared to last year's first quarter.
Sam Hendrickson: Adjusted EBITDA was $57 $5 million versus $51 2 million in the prior year, a 12% increase.
Sam Hendrickson: We will cover each segment in more detail, but to summarize we delivered adjusted EBITDA growth and surfactant and specialty products, partially offset by global polymers.
Sam Hendrickson: Adjusted EBITDA results also benefited from lower corporate expenses compared to prior year.
Sam Hendrickson: Slide seven focuses on surfactant segment results.
Sam Hendrickson: <unk> net sales were $433 million for the quarter, a 10% increase versus the prior year.
Sam Hendrickson: Selling prices were up 12%, primarily due to the improved product and customer mix and the pass through of higher raw material costs.
Sam Hendrickson: Sales volume grew 3% year over year, mainly due to double digit growth within the agricultural and oilfield end markets, along with our with our distribution partners.
Sam Hendrickson: This growth was partially offset by lower demand within the commodity consumer product end markets.
Sam Hendrickson: Foreign currency translation negatively impacted net sales by 5%.
Sam Hendrickson: Perfect and adjusted EBITDA increased $4 5 million or 10% versus the prior year. This increase was primarily driven by the 3% growth in sales volume and improved product and customer mix.
Sam Hendrickson: Was partially offset by pre operating expenses at our Pasadena, Texas site.
Sam Hendrickson: Now on slide eight polymer net sales were $146 1 million for the quarter.
Sam Hendrickson: Debt versus the prior year.
Sam Hendrickson: Selling prices decreased 7%, primarily due to the pass through of lower raw material costs and competitive pressures.
Sam Hendrickson: Volume increased 7% in the quarter, North American and European rigid polyol volume grew.
Sam Hendrickson: Low single digits. Despite the continued challenging overall environment.
Sam Hendrickson: Polyol and commodity metallic anhydride volume delivered strong growth year over year.
Sam Hendrickson: China polymers volume was up low single digits.
Sam Hendrickson: Foreign currency translation had a nominal impact on net sales during the quarter.
Sam Hendrickson: Polymer adjusted EBITDA decreased <unk> 3 million or 2% versus the prior year.
Sam Hendrickson: Primarily due to less favorable product mix and the high cost inventory carryover, which was partially offset by the 7% volume growth.
Sam Hendrickson: Finally specialty products net sales were $16 8 million for the quarter and 11% increase versus the prior year, primarily due to higher selling prices.
Sam Hendrickson: Specialty products, adjusted EBITDA increased $1 2 million or 21%.
Sam Hendrickson: The increase in adjusted EBITDA was primarily due to margin recovery and volume growth within the medium chain triglyceride product line.
Sam Hendrickson: Next on slide nine free cash flow was negative $25 8 million for the first quarter down $37 $2 million year over year, reflecting typically higher working capital requirements. During the first quarter as well as increased purchases of raw materials in anticipation of tariffs and to support business growth.
Sam Hendrickson: We are cautiously optimistic in our ability to deliver positive free cash flow for the full year 2025.
Sam Hendrickson: In the first quarter, we deployed $32 $7 million against capital investments and $8 7 million for dividends.
Sam Hendrickson: Now on slide 10, and 11 Luis will update you on our strategic priorities.
Luis Rojo: Thanks, Tom I will focus my comments on our strategic priorities.
Luis Rojo: Our customers will always remain at the center of our strategy and innovation efforts, our tier one customer base remains a solid foundation of our baselines.
Luis Rojo: Continuing our new customer acquisition with tier two and tier three customers remains a key priority.
Luis Rojo: This is an important and profitable growth channel within our surfactant business for.
Luis Rojo: For the first quarter of 2005, our volume grew mid single digits year over year.
Luis Rojo: Got it over 400 new customers.
Luis Rojo: Our end market diversification strategy remains a key focus area.
Luis Rojo: For the first quarter, we grew double digits in our agricultural and oilfield businesses.
Luis Rojo: We are pleased to see our North America, and European ingredient polyol business returned to year over year growth after a challenging 2023 and 2004.
Luis Rojo: Installation remains a critical enabler of a more sustainable and ESG.
Luis Rojo: <unk> World and we are confident in the long term growth prospects of this business.
Luis Rojo: Our focus continues to be on developing the next generation of audio technology.
Luis Rojo: Technology that can increase the energy efficiency and cost performance of our customer installation products.
Luis Rojo: Additionally, we're excited about the new products, we're introducing in the growing a spray foam and market.
Luis Rojo: Within <unk>, we were able to achieve a strong growth in our specialty polyol and our commodity DPA business.
Luis Rojo: This will enable us to deliver earnings growth in 2025.
Luis Rojo: Our supply chain operations, and resiliency continues to improve and we delivered a solid quarter in all our key operational metrics, we're continuing to make the necessary investments at our <unk> site to ensure reliable operations, both today and in the future.
Luis Rojo: Moving to slide 11 safely start up our new Pasadena, Texas site, we have made six different products today.
Luis Rojo: We expect to achieve the full contribution of the plan during the second half of 2025.
Luis Rojo: Our commercial team continues to develop and deliver new especially our constellation opportunities.
Luis Rojo: Specialty population volume grew strong double digits in the first quarter.
Luis Rojo: To conclude we remain focused on accelerating our businesses strategies to improve execution to grow volume.
Luis Rojo: Bruce proud oak and customer mix.
Luis Rojo: Slide eight free cash flow generation.
Luis Rojo: We believe sort of background will experience continued growth in our key strategic end markets and the polymer demand will continue improving as we get more market certainty and we execute our innovation and growth plans.
Luis Rojo: In addition, our Pasadena facility is now operational.
Luis Rojo: As previously communicated we believe this will enable us to deliver volume growth and supply chain savings during the second half of the year.
Luis Rojo: Despite all the current market uncertainties, including the impact of tariffs, we remain cautious cautiously optimistic that we will deliver full year adjusted EBITDA and adjusted net income growth and positive free cash flow in 2025.
Luis Rojo: This conclude our prepared remarks at this point, we would like to turn the call over for questions.
Luis Rojo: Stephen Please review they start so for the questions portion of today's call.
Luis Rojo: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press Star 101 on your telephone and wait for your name to be announced.
Luis Rojo: To withdraw your question. Please press star one again.
Luis Rojo: Please standby, while we compile the Q&A roster.
Speaker Change: First question comes from the line of Mike Harrison of Seaport Research Partners. Your line is now open.
Mike Harrison: Hi, good morning.
Speaker Change: Good morning, <unk> morning.
Speaker Change: Congratulations on the Pasadena, how constellation start up I was hoping that maybe you could answer a few questions about that facility in kind of the timing of how we should think about the contribution there.
Speaker Change: First of all you said I believe you said it was producing six products is that.
Speaker Change: Kind of the limit or are there still some products that you are bringing online.
Speaker Change: Can you talk at all about how we should think about the utilization and customer qualification.
Speaker Change: Ramp up process is that something that gets wrapped up.
Speaker Change: In the next few months or is that something thats, continuing kind of through through the end of the year.
Speaker Change: Great question.
Speaker Change: Mike We are very excited with the news on the way.
Speaker Change: <unk>.
Speaker Change: Starting up.
Speaker Change: Only six products, we have shared in the past that we're planning to produce more than 60 products in Pasadena. So we are we adding the processes qualifying one by one.
Paul.
This is going to take a few months. Okay. So that's why we're saying the full contribution.
Speaker Change: It's starting more in the second half of the yet and of course, a full fully contribution from the plant in 2026.
Speaker Change: And as we have talked in the past.
Speaker Change: We expect to fill up the plant off pretty quick in a few quarters right because.
Speaker Change: Because we have a lot of the volumes.
Speaker Change: But of course, we want to continue growing.
Speaker Change: If we can keep Bob some of that.
Speaker Change: Volume in the side for growth.
Speaker Change: That is called <unk>.
Speaker Change: And keeping the order.
Speaker Change: Supply chain options that we have available that will be even better for us, but we will see how the next few quarters.
Speaker Change: As I said in my prepared remarks.
Speaker Change: <unk> got solid are growing strong double digits and to give you. The exact number is 19% growth in Q1, so very very strong growth.
Speaker Change: <unk>.
Speaker Change: It's early it's early early days.
Speaker Change: And we still have spend $4 million in Q1 in pre operating expenses in Pasadena. That's why if you exclude that we had about a $60 million.
Speaker Change: EBITDA.
Speaker Change: But that's something of course, we will mitigate with the supply chain savings.
Speaker Change: Going forward in future quarters.
Speaker Change: I appreciate that color that's helpful. So.
Speaker Change: In terms of the how we should think about the earnings contribution at least directionally. It sounds like maybe in Q1.
Speaker Change: Maybe three or $4 million to the negative.
Speaker Change: In operating income or EBITDA and then.
Speaker Change: Should we assume that Q2 is.
Speaker Change: Phil negative, but better than that and then Q3 and Q4, when we start to see the positive earnings contribution ramp up.
Speaker Change: Yeah, I think you ought to.
Speaker Change: Thinking that that generally the right way I think Q2, we have steel is again, we are just starting out so we are still.
Speaker Change: Investing and you are not going to seabee.
Speaker Change: The held bar in Q2, but for sure you are not going to see.
Speaker Change: So Chuck negative like in Q1.
Speaker Change: Perfect.
Speaker Change: So moving on to a couple of other questions that I had one of them in surfactants.
Speaker Change: You mentioned the weakness in the commodity.
Speaker Change: Consumer products portions of the business and I'm just curious.
Speaker Change: How much of that decline is intentional shifting of business.
Into higher margin.
Speaker Change: And non commodity product lines and kind of higher value applications.
Speaker Change: Or can you just help us understand what else is contributing to the decline in volumes in that commodity consumer piece.
Speaker Change: Yes.
Speaker Change: Look I mean, we are not intentionally moving.
Speaker Change: Volume from consumer.
Speaker Change: Products to all their applications.
Speaker Change: Of course I mean.
Speaker Change: We will we will always.
Speaker Change: Optimize our assets in the future if we have to.
Speaker Change: We have we have really a sluggish demand from several of our.
Speaker Change: Consumer product customers and.
Speaker Change: And if you see it read the reports from all of their volume solder.
Speaker Change: Im not growing so so that the challenging situation with inflation.
Speaker Change: Yes.
Speaker Change: It would seem that the consumer experience, we are not seeing material.
Speaker Change: Volume growth in this segment as we as we expect.
Speaker Change: Alright, and then the last one for me is on the polymers business, you mentioned that that high cost inventory.
Speaker Change: That's still flowing through the P&L with a drag on margin are most of those higher cost goods out of inventory right now.
Speaker Change: Or is there still more that needs to flow through and I guess my other question on polymers.
Speaker Change: When might we expect to see pricing stabilize I believe it was still.
Speaker Change: A negative 7% year over year in the first quarter.
Speaker Change: Great question, Mike and that the main issue.
Speaker Change: In polymers in Q1 was a higher inventory cost that we will carry on and we're getting out of that we're getting out of body in.
Speaker Change: Already in Q2.
Speaker Change: So margin should improve.
Speaker Change: And pricing stabilizing.
Speaker Change: Yeah I think.
Speaker Change: Think again, when you think about pricing and raw materials, we should we should see we should see improvement.
Speaker Change: Alright, thanks very much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Dave storms of Stonegate. Your line is now open.
Speaker Change: Morning.
Speaker Change:
David: Good morning, David maybe good morning, hoping we could start with maybe where youre seeing.
Speaker Change: And then down channel inventory levels to.
David: The volume increases for this quarter was there any.
Speaker Change: Sensitives for maybe a.
David: Pull forward inventory levels as customers are trying to get ahead of some of.
Speaker Change: The macro uncertainties.
Speaker Change: Great question Dave.
Speaker Change: We had a good quarter in Q wanting volumes right I mean, when you think about 3% in fact on 7% volume and 4% in MCP, we're very pleased.
Speaker Change: We don't believe there is any.
Speaker Change: Overstocking.
Speaker Change: In Q1.
Speaker Change: With the volumes that.
Speaker Change: We shipped.
Speaker Change: And actually we have talked a lot about our customers, especially especially especially on the polymer side to see if there is any.
Speaker Change: Potential inventory buildup on we're not getting that perspective as of now.
I will complement your your question.
Speaker Change: We also are seeing the same dynamics in April right, I mean, very similar similar dynamics into surfactant BSS various thrown at various good oilfield. Good distribution, so same dynamics into factor and actually we're seeing an acceleration of growth in the polymers business.
Speaker Change: And we need to see how that plays out.
Speaker Change: In May June and Q3, and <unk> 83.
Speaker Change: Building inventory because of Paris, or price increase concerns or something like that but yeah. April April is coming are stronger on the polymer side and that's the piece that we need to evaluate in the next in the next few months.
Speaker Change: Understood very helpful. Thank you.
Speaker Change: You mentioned a couple of times just the.
Speaker Change: Moved customer excellence assume is referring to.
Speaker Change: Sir from more tier two and three customers.
Speaker Change: Are you able to give us a sense of.
Speaker Change: Maybe of those tier two and three customers, which are more spot buyers and maybe which maybe are a little stickier using some of the additional services that you can provide for the tier two and three customers.
Speaker Change: Sure.
Speaker Change: The mix is coming from bolt is coming from tier two tier three and it's also coming from the end market diversification. So <unk> is growing very very strong oil field is growing very nicely. So all of those side a positive mix in our surfactant business that actually.
Speaker Change: When you think about it is you all can see their public data audio chemicals went up significantly in Q1, so actually.
Speaker Change: That was a drag in our margins in in surfactants, because all your chemicals went up.
Speaker Change: In July we have.
Speaker Change: <unk>.
Speaker Change: GAAP.
Speaker Change: Between between raw material.
Speaker Change: Price increases on.
Speaker Change: How much you can pass through on how fast you can pass through.
Speaker Change: Some of that in cases, so there is always a lag. So so we are very pleased with the results in some factors driven by the customer and product mix.
Speaker Change: Understood. Thanks for taking my questions I'll get back in queue.
Speaker Change: Thank you good day.
Speaker Change: Our next question.
Speaker Change: One moment please.
Our next question comes from the line of David Silver CL, King and Associates. Your line is now open.
David Silver: Yes, hi, good morning, Thank you.
Speaker Change: Good morning, David coupling.
Speaker Change: Good morning.
Speaker Change: A couple of questions I may be a follow up on kind of your double digit sales growth in agricultural and oilfield surfactant.
Speaker Change: And this is wood.
Speaker Change: Just go back to maybe the question about potential I don't know pipeline filling or overstocking, but.
Speaker Change: You didn't have double digit growth.
Speaker Change: Firstly I just was trying to confirm that the <unk>.
Speaker Change: Bulk of the demand growth was on the agricultural side as opposed to oilfield.
Speaker Change: And then secondly.
Speaker Change: I guess in the past couple of years, there was a big run up in volumes on the agricultural surfactants side and then there was a period of time too.
Speaker Change: For inventories to normalize so.
Speaker Change: I'm just thinking in the current environment. It is the run up to the spring planting season, there are some tariff issues.
Speaker Change: Just just on the agricultural side.
Speaker Change: What is your thoughts your best thoughts about the level of any.
Speaker Change: Pre buying or pipeline filling that may or may not be sustainable I guess is the balance of the year goes on.
Speaker Change: Q.
David you had 100% right. The majority of that could also is driven by our AG business instead of oilfield I mean oil is a strong growth but at significantly.
Speaker Change: Significantly higher and of course, we have a bigger business enact.
Speaker Change: That in oilfield.
Speaker Change: We keep talking with our customers.
Speaker Change: And we don't believe that is playing deal.
Speaker Change: Act.
Speaker Change: Inventory increases and if you think about if you think about where people are with interest rates nobody's willing to put a lot of inventory and tied a lot of cash.
Speaker Change: Like what happened in 2022, where it was totally a different environment, where with supply chain issues across the board. So everybody wanted to have that material.
Speaker Change: On interest rates were not where they are today. So so.
Speaker Change: And all the data that we have from our customer is there is not.
Speaker Change: No significant inventory buildup anywhere that we know.
Speaker Change: And.
Speaker Change: And we will continue seeing good orders for.
Speaker Change: For April and actually already a good quarter for May.
Speaker Change: On the acquisition.
Speaker Change: Okay very good thank you for that.
Speaker Change: I did have a question a follow up maybe on your comments on the polymer side this quarter.
Speaker Change: I think you did speak to some of the inventory issues that may have.
Speaker Change: Impacted your margins, but.
Speaker Change: I was hoping not sure. If you commented on this but in the slide deck, you did cite a less favorable product mix.
Speaker Change: And I'm just wondering if you could comment on that is that.
Speaker Change: Particular end markets is that a particular region.
Speaker Change: The less favorable product mix that maybe impacted your.
Speaker Change: Margin performance this quarter and what is the outlook.
Speaker Change: For that for the balance of the year. Thank you.
Speaker Change: Yes.
David Silver: Good point David.
Speaker Change: The issues that finally, we were very clear we grew.
Speaker Change: Single digits, our rigid polyol business right in North America, and Europe combined low single digits. We grew very strong double digits in our pilot anhydride, our PVA business.
Speaker Change: And of course.
Speaker Change: <unk> hydride Isa commodity it has lower margins and we are capturing a lot of new business, our new shared in that in that end market because other competitive dynamics. So that is what is driving the mix impact in the in the polymers business.
Speaker Change: I will continue because because we continue growing in our <unk>.
Speaker Change: Yes.
Speaker Change: Plot, but of course, I mean, we need the issue in Q1 was the high inventory cost that we had to cut off the polymers business that really drag the margins and that's why we had.
Speaker Change: Basically flattish EBITDA with volume.
Speaker Change: Audience of 7% that was the main driver.
Speaker Change: Okay, great. Thanks for that.
Speaker Change: Next question would.
Speaker Change: Probably be a two parter, but the topic would be you know tariff impacts as you.
Speaker Change: See them currently.
Speaker Change: And.
Speaker Change: I do think.
Speaker Change: Youre largely our local for local kind of structure right now.
Speaker Change: Certainly in the U S and Europe, maybe but I am wondering.
Speaker Change: But if you could comment on how the tariff.
Speaker Change: Situation as it currently stands which I recognize is uncertain, but.
Speaker Change: Are there any kind of pressure points maybe.
Speaker Change: From you in your Mexican.
Speaker Change: Production base in particular is.
Speaker Change: Is all of that product covered by the U S MCA agreement or might some of it.
Speaker Change: Be sold into the U S and be subject to some of the.
Speaker Change: Tariffs that have recently been announced.
Speaker Change: And then admittedly unsettled.
Speaker Change: But.
Speaker Change: Where would you kind of characterize your greatest sensitivity.
Speaker Change: The impact from <unk>.
Speaker Change: Sure.
Speaker Change: Potential tariff policies.
Speaker Change: Sure of course, the question of the day weekend demand right.
As you said things are changing every day.
Speaker Change: This is a very volatile and uncertain.
Speaker Change: Dynamic that we all have to navigate through right now as you clearly say the majority of our business is sourced produce.
Speaker Change: On sold within the regions right. So the majority of our volumes are in each of the regions that we do.
Speaker Change: We compete.
Speaker Change: So, but but of course that out of steel, whereas steel impacts on the tire is because we import our raw materials and oil.
Speaker Change: Always some impact that we are working right now to mitigate through.
Speaker Change: Changes on our sourcing strategy, where possible where it makes sense and also pricing we all know tyrese are.
Speaker Change: Inflationary.
Speaker Change: Manny I believe many customers many competitors will oil price sorry on we're working on that right now because.
Speaker Change: Our objective would be to recover to recover any impact.
Speaker Change: When you think about Mexico and Canada.
Speaker Change: Our products are not included in the in the U S. MCA sold so we're good we're good with Mexico, and Canada, but we are still have other things that we need to recover via pricing.
Speaker Change: Supply chain changes.
Speaker Change: Okay, and then last one for me maybe.
Speaker Change: Maybe.
Speaker Change: Question about the indirect effects that you've seen thus far from the tariff announcements are.
Speaker Change: Potential import tariff.
Speaker Change: Implementation.
Speaker Change: This would have to do maybe with your R&D or your.
Speaker Change: Product development efforts, where you're collaborating with customers.
Speaker Change: And their tariff exposures may be a little bit different than than Stephens then your companies.
Speaker Change: But have you noted or can you speak to any pausing or any.
Speaker Change: Changes in the collaborative relationships, let's say on new product developments that might be.
Speaker Change: Be commercialized over the next year or two.
Speaker Change: <unk>.
Speaker Change: As a result of the tariffs in other words has anything changed with your R&D your technical collaborations with customers.
Speaker Change: I'd say since the beginning of the year or or since.
Speaker Change: April 2nd with the tariff announcements so kind of indirect.
Speaker Change: Indirect effects on your customers from tariff issues that might be impacting.
Speaker Change: Youre collaborative work with them that would be my question. Thank you.
Speaker Change: We will continue we will continue our collaboratively work with our customer.
Speaker Change: We have a customer intimacy strategy.
Speaker Change: And now what innovation I'd call it a customer centric innovation because again.
Speaker Change: We are co developing things with them, we want to make sure that we are working on projects that they need day, one and they aspire to launch is not up.
Speaker Change: <unk> is working with their with their objectives under plan. So.
Speaker Change: I wouldn't say, we have seen a significant change in the last in the last few days with the tariff announcements, but we will we will stay diligent and we will update and we will continue working with our customers to make sure that we're providing the service and we're helping them in.
Speaker Change: In order formulation challenges and things.
Speaker Change: <unk> needs to be changed based on the on the currency question.
Speaker Change: Okay. So no no reduction in their willingness to work with with Stephan I guess is what you're saying.
Speaker Change: And I'm, saying, we will continue working with our customers in all their innovation challenges and changes that they need to execute that I'm sure more requests are going to come.
Speaker Change: In the future when when these tariffs.
Speaker Change: Situational also settled I think people are also hesitant to.
Speaker Change: Make a lot of changes when the news are are changing every day.
Speaker Change: Right Okay great.
Speaker Change: Thanks, very much I appreciate all the color.
Speaker Change: Okay.
Speaker Change: Thank you Larry.
Speaker Change: Our next question comes from the line of Dmitry Silverstein quarter Tomo Research. Your line is now open.
Speaker Change: Okay.
Dmitry Silverstein: Thank you very much. Thank you gentlemen for taking my call and congratulations on a strong start to the year.
Speaker Change: Couple of questions they are related.
Speaker Change: So let's start with.
Speaker Change: Your raw material situations here.
Speaker Change: <unk> seen an increase in pricing on raw material pass through.
Speaker Change: In your surfactants business in a declining pricing on raw material pass through in the polymer business. So.
Speaker Change: What specific or at least families of raw materials that are still inflating in the surfactants.
Speaker Change: And are deflating in Europe, and your polymer business and excluding the pass throughs, what does the pricing environment look like.
Speaker Change: In these businesses.
Speaker Change: Okay.
Speaker Change: Luke.
Speaker Change: As mentioned before in surfactants, we saw.
Speaker Change: Important increases all your chemicals and that was the driver of pricing actions at the end of the quarter and actually.
Speaker Change: Early early into into April to recover to recover some of that and.
Speaker Change: And in polymers again, we made we made some decisions in Q1.
Speaker Change: And we still have the raw material that we had in our inventory. So we know we have to flow through that for a few for a few months.
Speaker Change: Months.
Speaker Change: But I don't I think we're in a crude environment in terms of pricing and margins I think.
Speaker Change: Oh.
Speaker Change: This is a healthy situation.
Speaker Change: And we will need to continue working with.
Speaker Change: We.
Speaker Change: How how tariff or any other development on the raw material piece.
Ah can impact all in in the following months because again salaries are going to have direct and aimed.
Speaker Change: Indirect impacts right. So that that's what we need to stage bill agenda, and we need to monitor the situation and take pricing where it's needed.
Speaker Change: Okay.
Speaker Change: Understand there I guess my question, we have more to do with.
Speaker Change: The raw materials cycle, coming where are we or where you are in the.
Speaker Change: In the raw material cycle have raw materials stopped increasing for example in surfactants and you're just catching up with the pass throughs.
Speaker Change: Have they stopped declining or continuing to decline modestly.
Speaker Change: We can expect to see some more pricing pressure there.
Speaker Change: Yes, they have stabilized, but again Charles alchemy. So so so things will keep changing in the next in the next few months so.
Speaker Change: Things have stabilized versus what we saw at the beginning of Q1, but now we will have a new development in the next two months that we need to monitor.
Speaker Change: Understood and just on that.
Speaker Change: To come back to the tariffs really briefly.
Speaker Change: You talked about direct and indirect impact right. So the direct impact is would be if you have some raw material.
Speaker Change: Cost increases.
Speaker Change: And the indirect impact would be if your end products or your customers' end products are being impacted in terms of demand.
Speaker Change: <unk> tariffs going back and forth.
Speaker Change: Is there one area that you're more concerned or have a better visibility than another or are you monitoring both and do you expect both of them to be.
Speaker Change: Somewhat impactful depending on how situation actually comes out.
Speaker Change: Yeah, No look we need to monitor the indirect piece.
Speaker Change: Half of that again, because things have not.
Speaker Change: Been executed to the full extent, but yeah I mean, if if there is a huge.
Speaker Change: Wave of inflation, you could argue that could have sung.
Speaker Change: Demand impact in.
Speaker Change: Construction in the city.
Speaker Change: The consumer right. After the fact and so so that's what we need to monitor in the next few months.
Speaker Change: We haven't seen anything and as I said before we have filed we have fall.
Speaker Change: We have a strong April.
Speaker Change: So but.
Speaker Change: But this will take a few more months.
Speaker Change: To go through the hole.
Speaker Change: Whole chain, all the way to the consumer all the way through the construction industry, but our polymers business.
Speaker Change: Now on.
Speaker Change: Provide model base in July.
Speaker Change: Understood and then final question just on sort of base level demand.
Speaker Change: We've seen <unk> seen strong demand in oilfield chemicals and in consumer you also mentioned that Youre installation products are growing while in North America, and Europe, and you're rolling out your spray foam product.
Speaker Change: Construction seems to be.
Speaker Change: I don't want to say, it's starting to grow but at least a little bit more uniform indications that the market is stabilizing certainly here in North America, and maybe beginning to turn the corner how do you feel about the construction side of your business and.
Speaker Change: And what do you expect to see in 2025.
Speaker Change: No.
Speaker Change: The comments that we made was we had single digit growth.
Speaker Change: Our radiant polio.
Speaker Change: Business in North America, Europe, and we believe there is a Scott <unk> steel constrained demand because of it.
Speaker Change: Uncertainties in the market because of the high interest rate environment. So we believe there is there is a lot of pent up demand in this thing in this industry in this end market.
Speaker Change: And we haven't seen the full potential of Ed.
Speaker Change: And hopefully with more certainty.
Speaker Change: Lower interest rates in the future, that's where we will see this business.
Speaker Change: Growing faster like indeed in the last year. If you think of the last 10 to 20 years. This business grew high single digits. The markets grew high single digits and we.
Speaker Change: Have not seen the market's growing high single digits now so.
Speaker Change: That will take some time to go back to those levels.
Speaker Change: Okay, but it is improving personal excuse me.
Speaker Change: The demand levels Youre seeing in the first quarter.
Speaker Change: Is it better than what you saw in 2024 and 2023.
Speaker Change: Yes, yes, we grew 7%.
Speaker Change: Volumes in bolivars.
Speaker Change: Alright.
Speaker Change: Single digits volume.
Speaker Change: Okay. Okay. Okay. So the business is growing but theres still more growth to come.
Speaker Change: Assuming the interest rate environment, and the economic environment improves.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
Speaker Change: We will welcome back Mike Harrison for our next question from Seaport Research Partners. Your line is now open.
Speaker Change: Hi, just a couple more for me.
Speaker Change: You've addressed a lot of questions on tariffs Mike.
Speaker Change: My question relates to imports of competitor products I believe in the past.
Speaker Change: You guys, maybe particularly in the rigid polyol side.
Speaker Change: You've talked about some competition from imports in.
Speaker Change: In the U S and I believe this is also come up in the context of the medium chain triglycerides business within your specialty business.
Speaker Change: Are you based on what Youre seeing with the tariffs right now.
Speaker Change: Are you expecting that maybe some import competition could decline because of the impact of tariffs in any of your three segments.
Speaker Change: Yes.
Mike Harrison: Great question, Mike and not in polymers.
Speaker Change: The polymers business is heavily source or some competition within the region. So.
Speaker Change: But but you are 100% right that our MCP business.
Speaker Change: Have imported competition and we're evaluating options.
Speaker Change: And to some degree.
Speaker Change: The surfactant business as well I mean, we always see some levels of surfactants input from China, especially in the West coast.
Speaker Change: These are not significant volumes, but there is always.
Speaker Change: Some imported products.
Speaker Change: In the surfactant business that out there for sure we will we will evaluate and try to grow our business and grow our shares.
Speaker Change: Alright very helpful. And then last question for me is on the distribution.
Speaker Change: <unk> of the surfactants business and the growth that you're seeing there is that just underlying market growth are you seeing some.
Speaker Change: Broader shifts.
Speaker Change: A wave from a direct to customer and more volume just naturally moving.
Speaker Change: Through distributors.
Speaker Change: Is this part of.
Speaker Change: More concerted effort on your part to expand.
Speaker Change: Distribution relationships or partnerships.
Speaker Change: And if that is the case is that a north America thing is it a global thing.
Speaker Change: Color can you provide on that thank you.
Speaker Change: We are we are.
Speaker Change: Continue working on our tier two tier three year strategy globally I wouldn't say this is a north America only focused I mean, it is a focus area for all our regions in our surfactant business.
Speaker Change: But of course, North America continues to be the biggest region.
Speaker Change: What I would say is that you have both.
Speaker Change: Half market growth and you have our ongoing efforts to capture share to capture more customers I mentioned that we acquire more than 400, new customers in this space. So.
Speaker Change: Is part of our part of our core strategy we continue.
Speaker Change: We continue developing this business.
Speaker Change: <unk> continues to pay out.
Speaker Change: Alright, Thank you very much.
Mike Harrison: Thank you Mike.
Speaker Change: Thank you.
Speaker Change: I am showing no further questions at this time I would now like to turn it back to Sam Hendrix for closing remarks.
Sam Hendrix: Thank you very much for joining us today's call. We appreciate your interest and ownership in Stepan company have a great day.
Sam Hendrix: Okay. Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.
Sam Hendrix: Yes.
Sam Hendrix: [music].
Sam Hendrix: Okay.
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Sam Hendrix: Okay.
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Sam Hendrix: Yeah.
Sam Hendrix: Yes.
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Sam Hendrix: Okay.
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Sam Hendrix: Yes.
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