Stepan Company (SCL) Q2 2024 earnings summary

Executive summary

• Q2 2024 adjusted EBITDA rose 4% year-over-year to $47.7 million, driven by a 4% increase in global sales volume, with strong recovery in most core markets except agriculture and phthalic anhydride.

• Net income for Q2 2024 was $9.5 million, down 25% year-over-year, mainly due to a higher effective tax rate and significant one-time expenses including $11.8 million from a Millsdale flood, $3.6 million in Pasadena pre-commissioning, and $3.5 million from a criminal fraud event in Asia.

• Free cash flow for Q2 was near zero or slightly negative, impacted by higher operating costs, special items, and a $13 million seasonal inventory build.

• Surfactant and Polymer sales volumes increased 5% and 2% year-over-year, respectively.

• Special items and operational disruptions at Millsdale, along with the Asia fraud event, significantly impacted Q2 results.

Financial highlights

• Q2 2024 net sales were $556.4 million, down 4% year-over-year, mainly due to lower selling prices from raw material cost pass-through and less favorable product mix, partially offset by higher volumes.

• Adjusted net income for Q2 2024 was $9.4 million ($0.41 per diluted share), down from $12.1 million ($0.53 per share) in Q2 2023, mainly due to a higher effective tax rate.

• EBITDA rose 3% to $47.9 million; adjusted EBITDA up 4% to $47.7 million.

• Cash from operations was $29.5 million in Q2; free cash flow for the first half was $11 million.

• Net debt at June 30, 2024 was $532.4 million; net debt/TTM adjusted EBITDA ratio was 2.9.

Outlook and guidance

• Second half adjusted EBITDA is expected to improve year-over-year, driven by continued volume growth and lower operational expenses at Millsdale.

• Full-year adjusted EBITDA growth and positive free cash flow are anticipated, with Pasadena facility start-up expected in Q4 to further support earnings.

• Effective tax rate guidance for 2024 is 36%-38% (P&L rate), with no cash taxes expected due to bonus depreciation; normal rates to resume next year.

• On track to achieve $50 million cost reduction goal for 2024.

• Free cash flow projected to improve as Pasadena investment completes and cost reduction efforts continue.