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Luis E. Rojo

Thank you, Quinn and good morning and thank you all for joining us today to discuss our third quarter, 2024 results. I plan to share highlights from our third quarter performance, and we'll also share updates on our key strategic priority. While San will provide additional details on our financial results.
The company reported third quarter adjusted EBIDA of $53 million up 11% versus the prior year. This double digit adjusted EBIDTA growth was driven by improved volumes and margins in our fact and business global sales volume was down 1% double the growth in several two factor end markets was fully offset by demand weakness and competitive pressures in our polymer business. We believe the sluggish demand in polymers is related to global macroeconomic uncertainties, low overall construction activity and the high-interest rate environment.
Third quarter adjusted net income was up significantly driven by improved in fact and specialty products results and a lower tax rate year-to-date adjusted EBIDTA was $152 million up 7% versus the prior year driven by improved volumes and margins free cash flow for the first nine months of the year was $7 million and we remain confident that we will close 2024 with positive free cash flow.
The company is on track to deliver our $50 million cost reduction goal for 2024 through ongoing discipline efforts in supply chain and the workforce productivity actions taken in the last quarter of 2023. During the third quarter of 2024 the company paid $8.4 million in dividends to our shareholders.
Our board of directors declared a quarterly cash dividend on Stepan common stock of 38.5¢ per share eligible on December 13th, 2024. This represents a 2.7 increase in our dividends. Stepan has paid and increased its dividend for 57 consecutive years. Samuel S. Hinrichsen will now share some details about our third quarter results.

Samuel S. Hinrichsen

Thank you, Louise. My comments will generally follow the slide presentation. Slide Five shows the total company net income bridge for the third quarter compared to last year's third quarter and breaks down the increase in adjusted net income because this is net income. The figures noted on an after tax basis.
Third quarter, 2024 adjusted net income was $23.7 million or $1.03 per diluted share versus $14.7 million or 64¢ per diluted share. For the third quarter of last year, a 61% increase year over year, the adjusted net income increase was driven by higher effect and volume and margins. And the lower effective tax rate partially offset by a polymer operating income.
In the third quarter, we executed tax projects that allowed us to reduce guilty income to zero while still expecting to like bonus depreciation for the Pasadena capital investment. With those actions and additional projects, we are now projecting an effective tax rate for 2024 in the range of 19% to 20%.
Slide 6 shows the total company adjusted EBIDTA bridge for the third quarter compared to last year's third quarter adjusted EBITA was $53.1 million versus $48 million in the prior year. An 11% increase year over year, we will cover each segment in more detail. But to summarize, we delivered adjusted EBIDTA growth, interactings and specialty products partially offset by global pos higher corporate expenses reflect $3.3 million related to the Asia fraud event. The investigation is now closed and confirmed that this was an isolated and contained event slide 7 focuses on the effect and segment results.
So in fact, the net sales were $383 million for the quarter, a 2% increase versus the prior year selling prices were up 1% primarily due to improved product and customer mix volume was up 3% year over year, primarily due to double digit growth within the agricultural oil field and the construction and industrial solution and markets as well as sales with our distribution partners.
Latin America's affecting volume or mid single digits as we we add a new and recovered business in the consumer. In Mexico global agriculture grew 22% in line with our expectation for a recovery in the second half of 2024 foreign currency translation negatively impacted net sales by 2%.
So effect and adjusted EBIDTA for the quarter increased $12.6 million or 40% versus the prior year. This increase was primarily driven by the 3% growth in sales volume and improved customer and product mix. This was partly offset by reoperating expenses at the company's new facility in Pasadena, Texas.
Now on slide 8 polymer net sales were $150 million for the quarter. A 12% decrease versus the prior year selling prices decreased 3% primarily due to the passthrough of lower raw material costs and competitive pressures volume declined 11% in the quarter.
Global rigid polyol volume was down 13% due to sluggish demand and competitive pressures. We believe the sluggish demand is related to global macroeconomic uncertainties. Overall low construction activity and the high-interest rate environment especially polyol volume was up low single digits foreign currency translation positively impacted net sales by 2% . Polymer adjusted EBIDTA and decreased $6.3 million or 21% versus the prior year. Primarily due to the 11% decline in sales volume.
Finally, specialty products net sales were $14.3 million for the quarter, a 24% decrease versus the prior year. Primarily due to lower selling prices, sales volume was down 5% versus the prior year. While adjusted EBIDTA increased 1.3 million or 33%.
The increase in adjusted EBIDTA was primarily due to higher unit margins within the median chain, triglyceride product line turning to slide 9 for the first nine months of 2024 cash from operations was $94 million or 11% lower than the same period last year.
Due to the previously mentioned increase in inventory levels to prepare for the hurricane season and the two polymer plant turnarounds planned for the fourth quarter, we expect to return to lower inventory levels during the fourth quarter of 2024. Free cash flow was positive at $7 million for the first nine months as capital investments returned to historical levels. During the first nine months, we deployed $87 million against capital investments and $25 million for dividends.
Now on slide, 10 and 11, Louis will update you on our strategic priorities and capital investments.

Luis E. Rojo

Thanks and I will focus my comments on our cost initiative, business strategy and the progress of our major capital investments.
Year-to-date the company recognized $34 million in pretax savings. Despite the impact of incremental expenses related to the Millville Floor event and the Asia Floor Event. These savings were partially offset by pre operating expenses of our new Pasadena site and overall inflation.
The Midale side continue to advance our water management initiatives. We will continue working on short term improvements as well as our long term infrastructure projects.
We remain pleased that several of our SOAC and business continue to deliver double digit volume growth during the quarter.
Our customer will always remain at the center of our strategy and innovation. Our longstanding tier one customers value our technical capabilities and our ability to manufacture and deliver and deliver quality products at the scale they need. Our tier one customer base remains a solid foundation of our business.
Continue our new customer acquisition with tier two and tier three customers remains a key priority. This is an important and profitable growth channel within our surfactant business.
In the first nine months, our volume grew high single digits, and we added over 1,200 new customers. Our diversification strategy into more functional products remains a key focus area. In the first nine months, we grew double digits in oilfield and construction and industrial solutions.
Our agricultural business resume growth and deliver 22% year over year volume growth in the third quarter. After a difficult first half, we remain optimistic we polio demand will increase as the market gets more macroeconomic clarity and the interest rate environments improve insulation remains a critical enabler of a more sustainable and energy efficient world. Our polymer business continues to focus on developing the next generation rigid poly technologies that can increase the energy efficiency and cost performance of our customer insulation products.
Additionally, we are excited about the new products we are introducing in the growing spray foam and market.
Moving to slide. 11 construction of our new a consolation production facility in Pasadena, Texas is 99% complete and we are excited to start the plant in December.
We expect the full contribution run rate of the plan to be achieved in the second half of 2025. After completing a three-year capital investment program last year, Stepan now has the largest installed low one for the production capacity serving the North America merchant market. For the first nine months of 2024 Margin contribution from low 14 dioxane product grew versus the prior year.
To conclude. We remain pleased that several of our surfactant business continue to deliver double digit volume growth during the quarter third quarter, agricultural volumes grow in double digits aligned with our expectation for the second half, 2024 recovery.
We remain optimistic. R polio demand will increase as the market gets more macroeconomic clarity and the interest rate environment improves next year. Free cash flow should continue to improve. Versus the prior year driven by the completion of our Pasadena investment growth in market volumes and I will continue to focus on cost reduction.
We believe we are positioned to deliver full year adjusted growth and positive free cash flow. This concludes our prepared remarks. At this time, we would like to turn the call over for questions, Marvin. Please review the instructions for the questions portions of today's call.

Question and Answer Session

Operator

Thank you. (Operator Instruction). And our first question comes from the line of Mike Harrison of Seaport Research Partners. Your line is now open.

Hi, good morning. Congrats Louis on your new role. Was hoping that you could answer a couple questions for me on the, on the Surfactants business first. I'm very curious on the AG business. You set up double digits. Obviously, you've, it's been a long road for that business to recover. Is your sense that you're seeing sustained improvement in demand as you're starting to look at Q4 and, and maybe orders even for Q1 of next year? Or are there maybe some signs that there was a one time inventory replenishment that happened in Q3 and, and maybe order patterns could be a little bit choppy as we look at the next couple of quarters.

Luis E. Rojo

A good question, Mike. No, we are very pleased with the performance in our agricultural business. As we said in our prepared remarks, the business grew 22% in the quarter. We were happy to declare the end of this talking and hopefully we won't talk any more about this talking in the future. Sure. But this is 100% in line with how we communicated guidance and perspective in the first two quarters, right We said we were expecting we were expecting this talking in the first two quarters and then we were expecting growth in the second half. We are delivering the growth in Q3 Q4 is looking, is looking, okay?
I mean, it's looking good. October is looking in the same in the same proportion. And remember that this is the heavy season for North America on the business. So this is a Q4 is going to remain a critical quarter for us and, and, and, and we see we see good signs and we were monitoring other companies SNC reported yesterday and other companies have been reporting and, and we feel good about the ad business.

All right. That's good to hear. And, and then I also noticed in the in the slide deck there that Europe looked like it was maybe the the biggest driver of of year over year improvement in surfactant earnings. And it, and it seems like a lot of positive dynamics are going on in Europe. Can you talk about what you're seeing there?

Luis E. Rojo

Yeah, this, this is in line with our act business as well. So we are very pleased with the performance of the, of the, SOAC and Business, in Europe's, kudos to the, to the team there. And we are seeing the same positive trends in that.

All right. And then, just in, in terms of the consumer side of the, surfactants business, it sounds like maybe that's where, there was some weakening. I don't know if that's market driven or de stocking driven. Any thoughts on, on what's going on on the consumer side? And could that start to stabilize?

Luis E. Rojo

Yeah, the global consumer business has a few ups and downs and, and we were down on the personal care side, driven by some of our customer, losing some business and some share and, and impacting us, sequentially because of that. But the good news is that when you think about the laundry and cleaning business, right, which is at the end is our biggest volume, business It grew 4% in the quarter.
So, we are pleased that, that the, you know, the laundry and cleaning business, continues to do to do well. And, and that's a key indication of how the consumer continues continue spending in, in laundry and cleaning. So, so ups and downs. But, but, but we're pleased with the, with the cleaning business.

All the last question for me and then I'll turn it over is, you've talked a little bit about $60 million in quarterly EBIDTA, being kind of the near-term earnings potential. You came in at $53 million this quarter. Can you talk about the, you know, some of the areas that are maybe still dragging on your performance? I know there was a $3 million impact from the the cyber fraud situation. But just kind of curious is, is $60 million a quarter still the the type of level that you would expect to be able to reach as we start to look into early 25. Thank you.

Luis E. Rojo

Thank you, Mike. As you know, we don't provide guidance, Mike and let me remind that my comment last quarter was about, we delivered last quarter with a lot of one time impacts and when you exclude those one time impacts, you were rightly, as you mentioned in the, in the $60 million that what I would say is that we, we are posting $53 million with a $3.3million time event due to the fraud issue Asia and, and with a depressed a volume of business in the polymer side. As you saw, polymers, EBIDTA went down $6.3 million and we don't believe that's going to be always the case, right? So you have those particular two items driving the quarter to $53 million.

All right, thanks very much.

Operator

Our next question comes from the line of Dave Storms of Stonegate. Your line is now open.

Dave Storms

Good morning.

Luis E. Rojo

Good morning, Dave.

Dave Storms

Congrats on the new role there, Luis and just kind of wanted to start with Velli, you mentioned a couple of times that there's obviously macro headwinds. Are there any specific catalysts that you're keeping an eye on that might bring some clarity to the macro market? And maybe how fast could we see a rebound there if any of those catalysts come to fruition?

Luis E. Rojo

Great question. Dave looks as we said, and you can see a lot of statistics out there, the construction activity, both residential and nonresidential is pretty weak. Now, if you look at has been very weak in the short term and the expectation is that with moderation in interest rates, we should see a pick up in a DBD in 2025. Let me remind you guys that this is a market that has been growing high single digits over the last 10 to 20 years.
The need for better insulation, is there the new codes in different states and different countries in Europe continues changing and we believe the market growth, even though it was, you know, 78 9% in the past, we believe it's not going to be that we believe we're going to see this type of market growth 3%,4%, 5% into the future. So, so, so we, we are, we are we are confident with our polio business in the next five years.
When you think when you look at trends in pent up demand for re roofing and all the construction that happens early 2000 that needs re roofing in the next, in the next five years. All those trends are very, very positive.
So we feel good about the lamination and market growth opportunities going forward. And we are heavily working on our diversification strategy to get into the high margin and growing of spray from business, which is critical for us as well to get into residential insulation and, and all of that, but great question and we feel good about the the polymer business for the future.

Dave Storms

Understood. Thank you for that. And then just turn over to the fact and it's great to see some of the initiatives kind of take hold as you work on just always better in your customer mix. Are there any how much more room is there? Do you think to continue to improve in the customer mix and are there any initiatives to kind of highlight on that front?

Luis E. Rojo

A great point. Dave, we have been talking a lot about tier two, tier three. This is an area where, where there are at least, I mean, there are 40,000 customers out there that we are not reaching all of them today. So that's why we have a big program and a big focus on tier two tier three, that business has been growing double digits that also shows the strength of the consumer.
And it is a very good indication of how the economy is doing. When you have such a broad set of customers, right, that we either go direct or we either go with our distributors. These are thousands of thousands of customers.
And when you see them growing strong double digits, that's a very good sign that the demand is strong and now we need to keep reaching more of those consumers. So our customer acquisition strategy in tier two, tier three is key is new customer. Then when you add in the customer is more products, because we are, we still have a lot of customers where we only sell one or two products and then sweetening the mix within that customer to higher margin and to higher value type of product. So it's a three step strategy on our tier two tier three. And it's still a good opportunity for us to continue to work on.

Dave Storms

That's perfect. Thank you. And then maybe just one more, a little more of a logistical question as we're looking into Q4. Should we expect any, plant shutdowns and plans for maintenance or anything like that outside of what would be a normal cadence?

Luis E. Rojo

Perfect question because we put it in the, in the prepared remarks. We have two turnarounds in the polymers business. Now, that's why we built inventories in Q3. That's why free cash flow was only minus $4 million because we have built a lot of inventory in Q3. Actually, the impact of inventory you can consider it in the cash flow is $29 million. So significant increase because of the hurricane season and also because of the polymers turnaround. So that's going to impact absorption as you can, as you can imagine in Q4.
But of course, this is just an absorption, a onetime impact and it's nothing related to the long-term health of the business. We are executing those turn around now and, and they are going, they are going pretty well.

Dave Storms

That's perfect. Thank you for taking my questions and good luck in the fourth quarter.

Operator

Our next question comes from the line of David Silver of CL King and Associates. Your line is now open.

David Silver

Thank you. I'll also send my congratulations to Luis and Samuel for the new roles. You know, I'd like to maybe just start with a question on your CapEx outlook for next year. So, you know, it was, it was good to see that the free cash flow has turned positive this beginning this quarter, I guess. And you are, the company is coming off of a period of elevated, I would say spending on CapEx and some other things.
When we are thinking about next year, Louise, can you maybe discuss what the new kind of sustaining level of CapEx, you know, maintenance, environmental, safety, etcetera, what that level is. And then could you identify areas where Stepan will still be spending discretionary CapEx? In other words, you know, taking advantage of opportunities or higher return projects. Thank you.

Luis E. Rojo

Thank you, David, for the question. And look, we have been clear that after this heavy CapEx period behind low 14 and Pasadena that we will return to our normal CapEx level of around $100million and $200million right?
That's the range that we provided this year, even though we spend some money still in, in Pasadena, and that's what we are expecting going forward now. That, that's the base and we will continue looking for opportunities to grow and, and to invest CapEx that deliver a good return for our shareholders and there are, there are still ideas that we are exploring and we will communicate them when we are, you know, when they are confirmed but we still have opportunities to invest and to grow.
I mean, when you think about the oil field business, this is a business where we're growing 30% to 40% this year, we still have very low shares. And the CapEx that we will need is not significant CapEx and new plans or things like that, right? Is, is blending capabilities is one small reactor, is packaging, is things like that. So I you are not going to see a major, you are not going to see a major CapEx cycle for a step in the short term with the opportunities that we have and, and that should allow us to continue delivering positive free cash flow for our shareholders.

David Silver

Okay, great. Thank you for that. And then maybe a question about let me get the page, but I wanted to ask about, you know, your marketing efforts and I'm looking at slide 10 in the upper right hand corner customer intimacy and extended reach.
So, you know, your company's been very, you've been very clear over a multi-year period about, trying to take advantage of your formula formulation capabilities and expand your share of tier two and tier three customers. You also mentioned here, focus growth with strategic tier ones.
Could you share maybe one or two examples of where you know, Stepan growth, you know, the tier one customers who I assume, have a lot of formulation or a lot of development capabilities where does the Stepan the opportunities on you with their strategic their biggest strategic customers?

Luis E. Rojo

Yeah, great question David. And, tier one remains a critical foundation of our business, right? And when you think about tier one, you need to think about two buckets, you need to think about consumer, which is true. And we are, we are still investing, investing with tier one customers in Latin America. For example, we talk a lot about in the last a few quarters, all the investments that we did in Mexico with new contracted business there. And you also need to think about the tier one customers on the functional side.
So when, when you think about, and when you think those businesses tho those those are going to be extremely important and then that's Latin America, that's functional. The the third leg will be all our capacity and capabilities that we have in low one for the and in the North America market, we are the biggest and we have the best capabilities and state of the art assets, and we will continue leveraging those with our tier one customers.

David Silver

Okay, great. And then the final question maybe for you, Luis, you know, you've been in place here at step in for a number of years and you were with Proctor and Gamble before that. And, you know, you're now taking the reins here.
I should have prefaced my remarks by saying I, I dialed in a few minutes late, so I apologize if you touched off on this already, but I was interested in your early thoughts about how a step in company run by, yourself is going to differ from how it was operated or, the strategies that were employed under, you know, your, your recent predecessors and whatnot. So what should we look for in terms of change in strategic direction or, or just overall philosophy, you know, with, with you in charge? Now, louise, thank you.

Luis E. Rojo

Thank you, David. Great question and of course it day one and we will continue adjusting our plans and strategy. What I will say is that I'm extremely honored and humbled for the opportunity. We have a very strong team in Stepan. It's not about Luis, it's about the team in Stepan.
This team. I know this team, I have been here for almost seven years, and I know what this team can deliver, and I think work team together and making sure that we are clear, and we are focused on the biggest priorities and the biggest opportunities that we have in the short and mid-term is going to continue delivering profitable growth and shareholder value.
So, I'm extremely pleased with the team that I have and with the team that is going to help me to deliver what we need to deliver and, and we are not going to change the overall big, big strategic areas where we are focusing but, but we are going to make a surgical change.
We're going to make surgical investments in in a few areas to accelerate the growth and to make sure that we are more focused on those activities instead of the, you know, 100 opportunities that we may have today. So extremely happy with the team and I'm sure the team is going to deliver the results.

David Silver

Very good. I appreciate all the color. Thanks Louise.

Luis E. Rojo

Okay.

Operator

Thank you. This concludes the question answer session and I'd like to turn it back to Luis Rojo for closing remarks.

Luis E. Rojo

Thank you very much for joining us on today's call. We appreciate your interest and ownership in Stepan company. Have a great day.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.