Stepan Co (SCL) Faces Headwinds in 2023, Yet Delivers Positive Free Cash Flow in Q4
Net Income: Reported a net loss of $1.2 million in Q4, with adjusted net income at $7.5 million.
Revenue: Q4 sales volume increased by 3%, but full-year sales volume declined by 11%.
Dividend: Increased quarterly cash dividend by 3%, marking the 56th consecutive year of dividend growth.
Free Cash Flow: Generated a positive $22.3 million in Q4, despite a challenging year.
EBITDA: Q4 EBITDA at $25.8 million, with adjusted EBITDA at $37.5 million.
Cost Savings: Company expects to realize $50.0 million of pre-tax cost savings in 2024.
Capital Expenditures: Full-year capital expenditures were $260.3 million, down from the previous year.
On February 20, 2024, Stepan Co (NYSE:SCL) released its 8-K filing, detailing the financial outcomes for both the fourth quarter and the full year of 2023. The chemical manufacturing company, which specializes in surfactants, polymers, and specialty products, faced significant headwinds throughout the year, resulting in a reported net loss of $1.2 million, or negative $0.05 per diluted share, in the fourth quarter. However, when adjusted for non-operational items, the net income stood at $7.5 million, or $0.33 per diluted share.
Despite the challenges, Stepan Co managed to increase its quarterly cash dividend by $0.01 per share, demonstrating its commitment to shareholder returns. This increment marks the 56th consecutive year of dividend growth for the company. The firm also reported a positive free cash flow of $22.3 million for the quarter, a testament to its operational resilience.
Performance Across Business Segments
Stepan Co's surfactants segment, which is the largest contributor to the company's revenue, saw a decrease in operating income from $21.8 million to $14.8 million year-over-year in Q4, primarily due to lower unit margins and less favorable product mix. However, the polymers segment experienced a significant increase in operating income, jumping from $3.0 million to $12.6 million, driven by a 10% increase in global sales volume. The specialty products segment faced a decrease in operating income from $6.6 million to $2.8 million, largely due to lower unit margins and sales volume within the medium chain triglycerides (MCT) product line.
For the full year, Stepan Co reported a net income of $40.2 million, or $1.75 per diluted share, compared to the previous year's $147.2 million, or $6.38 per diluted share. Adjusted net income for the year was $50.7 million, or $2.21 per diluted share, a significant decline from the record $153.5 million, or $6.65 per diluted share, in the prior year. The total company sales volume saw an 11% decline, largely due to inventory destocking across the company's markets.
Financial Highlights and Outlook
Stepan Co's EBITDA for Q4 was $25.8 million, a decrease from $36.6 million in the prior year, while adjusted EBITDA was $37.5 million, down from $40.0 million. The company's full-year cash generated from operations was $174.9 million, up 9% from 2022. However, free cash flow was negative due to $260.3 million of capital expenditures.
Looking ahead to 2024, President and CEO Scott Behrens remains optimistic, stating,
We believe volumes and margins will improve due to continued recovery in Rigid Polyols demand, growth in Surfactant volumes driven by contracted business along with the expected recovery of the agricultural business in the second half of the year, and lower raw material costs across the business versus 2023."
The company's cost reduction activities are expected to deliver $50 million in pre-tax savings in 2024, which will help offset inflationary pressures and other increased expenses.
For more detailed information on Stepan Co's financial performance and future outlook, investors and interested parties are encouraged to review the full 8-K filing.
Explore the complete 8-K earnings release (here) from Stepan Co for further details.
This article first appeared on GuruFocus.
