And you can see it in our P&L right now. But the outlook and the prospects we have long term in our business and the investments we’re making are absolutely the right investments to continue to grow value for our shareholders. It’s just, I think, a unique point in time right now where we got caught in our historical heavy spend cycle and we’ve seen an unprecedented downturn driven by inflation and the impact on the consumer. You can tell the consumer is impacted with the six-plus quarters of record inflation that we’ve seen at least here in the U.S. so. So, that would be my thoughts right now, David.
David Silver: Very good. Thanks a lot. I appreciate it.
Operator: Thank you. One moment for our next question. [Operator Instructions] Our next question comes from [Robert Cort] (ph) with AWAM. Your line is open.
Unidentified Analyst: Thank you. Good morning, I was hoping you might be able to help me. I was interested in sort of what you guys are thinking about on your gross margin cadence and price cost. I noticed you had businesses that were up high-single mid-double-digit pricing in the first quarter, and now that’s reversed, presumably because you’re passing through those lower costs. And I guess, if I think about your cost structure, that might imply your raw materials are down 20% or 25% in the quarter you reported. So am I thinking about that right? And you’ve mentioned destocking and some slower volumes. Does that mean your purchases today are actually meaningfully better than that even? And then maybe if you could just help me out.
I know you have passed through arrangements on a good amount of the portfolio, but how is that going to change the cadence of that gross margin going forward? Because I think you’re in the 12%, 13% range and at times your company’s had margins that are 50% and above that. So, any help you could provide there would be great. Thank you.
Luis Rojo: Look great question, but as we have been talking in the last few quarters, there is always a lag with all these pricing and raw materials activities, right? So what we saw last year, of course, we were taking a lot of pricing, because raw materials were going up. But at the end, you had also lower raw material prices in your P&L, because you had inventory, right? So you get that benefit. In the way down, that’s the lag that you see as well. I mean, we — as you mentioned, we have pass-through contracts in our business, not in 100% of the business of course, just a portion of the surfactant business. And the rest moves with the market. But of course, with lower raw material prices, things get more competitive and we need to adjust our prices.
And we have been very clear that, for example, Latin America, MCTs, the specialty product business, and a little bit in Europe, is where we have seen a lot of pricing pressure from imports, from Asia. So, there is a lag. What I will say is most of the high raw material prices are washed out. We are expecting a Q4 for Polymers and surfactants where our standards are in line with the market prices, right? And the only remaining piece that we have is in the MCT business. You are going to see it still an impact in Q4, because of fatty acid prices went down 70%. So, we are still consuming the old ones. So, and then we’ll see what happens in 2024. But Q4 should be — should be pretty clean, except the MCT business.
Unidentified Analyst: And if I could just follow-up. That’s very helpful. Can you tell me beyond the fatty acids? I mean, I know you have a big, broad basket, but are there a handful of more significant raw materials for you? Or — and I guess should we be concerned now that oil is rallying, you might have to deal with inflation again next year?
Scott Behrens: Yes. No, I think generally, other than what Luis mentioned, we feel we’re in good shape now with where our raw material costs are versus related to market pricing. So I think we’re going to see more stabilization going forward. Too early to tell what’s going to happen with raw materials. [Multiple Speakers] volatility in the markets right now that don’t give us a real clear picture.
Luis Rojo: We have proof historically that we can make money in the way up and in the way down with a respective lag. There is always a lag, but we have a business model that allow us to price also up when things are going up.
Unidentified Analyst: Got it. Thanks very much.
Operator: Thank you. That concludes the question-and-answer session. At this time, I would like to turn the call 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: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.
