Stepan Company (NYSE:SCL) Q1 2024 Earnings Call Transcript

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Mike Harrison: And I guess, just to follow-up on that, can you give a little bit of color on what your customers in the Ag business are saying right now? I am just trying to get a better sense of what gives you confidence or how confident you are that those volumes are going to start to pick up at the Ag business in the second half?

Scott Behrens: Yes. Mike, I would say from a customer perspective, it’s a little bit of a mixed bag, whether it will start in Q3 or Q4. But what we have to remember is the world’s demand for food and protein will always remain. So, this inventory, once it gets through the destocking phase, the demand at the farmer level is still there. So, I think it’s a matter of when, not if. And I would say right now, there is probably a 50-50 mix of Q3 versus Q4.

Mike Harrison: And then last question for me is, just in terms of the outlook, you are pointing to adjusted EBITDA growth versus last year. Obviously, last year was unusually weak, but looking at where you were in the first quarter, this $51 million EBITDA number and presumably would have been $6 million higher without the Millsdale outage. Should we be modeling improvement from that level in Q2 and then further improvement in Q3 as we get past the Millsdale issues? I guess just any additional color you are willing to provide on the earnings cadence from here, I think would be helpful, given there are a lot of moving pieces in place.

Luis Rojo: Yes. Mike and you know that we don’t provide formal guidance for the quarter or for the year, but – and that’s why we are trying to provide some perspective on the expenses that we foresee in Q2. So, you can model that in your second quarter. And then of course, we all expect some improvement in the second half because of the Ag recovery. I mean we cannot hide that. I mean we are saying, we are expecting the recovery of Ag and Ag is a good business for us and of course, should have a positive impact in our EBITDA in the second half versus the first half.

Mike Harrison: Alright. That’s helpful. Thank you.

Operator: Thank you. [Operator Instructions] And our next question comes from Dave Storms of Stonegate. Your line is open.

Dave Storms: Good morning.

Scott Behrens: Good morning Dave.

Dave Storms: Just hoping we could touch on Latin America for a second, great to see volumes coming up there. Can we expect pricing to follow, or is there still more focus on defending and capturing market share there?

Scott Behrens: Yes. Great question. Dave, the – our priority was to recover the volumes. If you remember, we talked about competitive imports in the prior quarters. Our goal was to recover the share. So, that remains our priority. There is hope over time that pricing will improve, but right now it’s reestablishing the end [ph].

Dave Storms: Understood. Very helpful. And then just one more for me on the customer acquisition environment, great to see that you picked up some more Tier 2 and Tier 3 customers. What is the contact-to-contract cycle looking like there? Is that improving, and how does that compare to trying to pick up, obviously, more Tier 1 customers as well?

Scott Behrens: The Tier 2, Tier 3 customers, those tend to be the smaller customers around the world from a contracted basis. That’s really not contracted business, it’s more transactional type of relationships. But I think where we differentiate ourselves is the technical service. So, when we help these customers put new formulations on the shelf, there is a sense of loyalty, but there is nothing that you can put under a contract umbrella saying that that’s a fully stabilized business. But we had record volumes in Q1 within that customer segment, which we are pretty pleased with those results.

Dave Storms: Understood. Thank you for taking my questions and good luck in Q2.

Operator: Thank you. At this time, I would like to turn it back to Scott Behrens for closing remarks.

Scott Behrens: Thank you very much for joining us on today’s call. We appreciate your interest in ownership in Stepan Company and please have a great day.

Operator: This concludes today’s conference call. Thank you for participating and you may now disconnect.

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