Stepan Company (NYSE:SCL) Q2 2023 Earnings Call Transcript

David Silver: I’d like to also just touch on the — I guess, the current time line for the Pasadena expansion. So I may be a little off, but it seems like now mid-2024 means maybe another quarter or so, slip in the overall planned startup, not overly dramatic in the whole scheme of things. But I was just wondering if you could characterize your decision to kind of maybe move the time line to mid-2024. So is that a reflection of I don’t know, customer demand or customer orders? Is that maybe tied to the construction time line and not anything else? Or might there be some other factors. But why would you say mid-2024 is now the right timing for that — for your most — for your largest capacity expansion project ever.

Scott Behrens: Yes. Thanks for the question, David. No, this is strictly related to delays within the construction process. As we mentioned in our prepared remarks, the underlying business, the product line that’s going through these new assets is continuing to grow at strong double-digit volumes sequentially quarter-over-quarter. So the business is healthy. We’re in the construction, the actual construction phase of the project right now. So you’re getting design field change issues. You’re into that labor constraints. So these are just little progressive weak month delays that have caused us to — I think we’re about 6 months behind what our initial plan targeted start-up was, we expect to be mechanically complete by the end of Q1 and commissioning the asset in Q2. So from an external view, when you think about when commercial volumes are available, the right time frame for us to articulate is mid-2024. We are trying to get that at…

David Silver: Go right ahead, sorry.

Scott Behrens: I was just going to say, David, it’s in our highest best interest to get that asset up and running as soon as we can because the demand is there.

David Silver: Okay. I definitely heard your demand comment. I missed the detail on the construction time line. So thank you for clarifying that. And then this last question, I would just say, I’m just wondering, this may be a subtlety and I may be just way off. But in thinking about your development and rollout of the low 1,4-dioxane product, could you kind of talk about it a little bit maybe from a marketing perspective? In other words, is there kind of a bit of give and take or — I’m trying to think of the right word, but is there an issue where your customers who receive the newer low 1,4-dioxane version of an intermediate chemical or a formulation that you’ve been supplying them. Is this kind of the case where they swap out kind of their legacy product and use yours as a drop in replacement?

Or how does that kind of work out just in practical terms? How do you kind of transition your customers from the traditional version of your product to the new one? And does that cause any — has that caused any of the customer liquidation or the backups or some of the issues that maybe have flowed through your results the last quarter or 2?

Scott Behrens: David, great question. The simplest comparison I can think of quickly here is, this is like the U.S. gasoline market switching from leaded to unleaded, okay? So everyone was putting gasoline or in this case, ether sulfates in their shampoos and now the regulation changes on a certain date that says it now has to have low 1,4-dioxane. So we’ve been working with our customers over the last 3 years to manage that transition from leaded to unleaded gas, right? So from a marketing play, there’s not a lot of differentiation, et cetera. It’s a regulation change and it’s the removal of that byproduct from our existing franchise that has been the heavy lift. So I hope that answers your question.