Welcome to the Stepan Company's First Quarter 2015 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, April 29, 2015. It is now my pleasure to turn the conference over to Mr. Scott Beamer, Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, Alan. Good morning and thank you for joining Stepan Company’s first quarter 2015 financial review. Before we begin, please note that information in this conference call contains forward-looking statements which are not historical facts. These statements involve risks and uncertainties that could cause actual results to differ materially including, but not limited to, prospects of our foreign operations, global and economic conditions and factors detailed in our Securities & Exchange Commission filings. Whether you are joining us online or over the phone, we encourage you to review the investor slide presentation, which we have made available at www.stepan.com, under the Investor Relations section of our website. We make these slides available at approximately the same time as our earnings release is issued. We hope that you find the information and prospectus helpful. With all that being said, I would like to turn the call over to F. Quinn Stepan, Jr., our President and Chief Executive Officer.

Thank you, Scott, and thank you all for joining us this morning. Coming into this year, we stated our belief that the company was well position to reestablish earnings momentum in 2015. Yesterday, we announced first quarter earnings that were on track with that expectation. Net income was $21.3 million or $0.93per diluted share versus $0.57 per diluted share last year. Adjusted net income was $20.4 million compared to $12.8 million in the year ago quarter. Net sales decreased 4% to $460.5 million on 2% higher volumes. Surfactant operating income was a record $33.8 million, up $15.4 million or 84% versus 2014. All regions increased earnings from the prior year quarter. Improved operations, particularly in North America, drove the rebound in earnings. Higher sulfination and softener volumes in European laundry and higher sulfination productions in Latin America contributed to positive results. The quarter also benefited from greater sales through our distributor partners and enhanced oil recovery pilot and lower petroleum-based raw material cost. Polymer operating income was $14.8 million, including a $2.9 million gain on the System Business sale. Excluding the gain, polymer operating income was up 10% versus 2014. Rigid polyol volumes continued to benefit from energy conservation efforts and margins increased from falling petroleum-based raw materials. Income on phthalic anhydride sold to the merchant market in the quarter was down due to seasonally high petroleum-based raw material inventories as petroleum-based products and specifically orthoxylene declined rapidly in price. Specialty product operating income was $2.2 million, down $1.8 million from 2014, due to lower volumes and margins are Lipid Nutrition. Our Board of Directors declared a quarterly cash dividend on Stepan's common stock of $0.18 per share, payable on June 12, 2015. In the fourth quarter of 2014, we increased our quarterly dividend by $0.01 per share, which mark the 47th consecutive year of paying increased evidence to Stepan shareholders. At this point, I would like Scott to walk through Stepan's first-quarter results.

Thank you, Quinn. My comments would generally follow the slide presentation. On Slide #3, we have provided a few headlines about the quarter and we start by listing the items which are removed from reported net income in order to speak about adjusted net income. Each item is worth mentioning, but we believe that by adjusting for these items it allows us to focus our discussion on the items which truly impacted operations. Since adjusted net income is a non-GAAP measure naturally we provide a full reconciliation to reported net income which can be found in Appendix #2 of this presentation as well as in Table 2 of the press release. On a reported basis, net income was $21.3 million or $0.93 per diluted share, while adjusted net income was $20.4 million or $0.90 per diluted share. Following items account for that difference. We recorded a one-time after-tax gain of $1.8 million or $0.08 per share from the divestiture of our specialty Polyurethane Systems business. This business was non-core to our Polymer segment and we announced this transaction in January. Deferred compensation expense was $600,000 or $0.03 per share, naturally all employee compensation expense is reflected in our normal operating income, but we also allow our employees the opportunity to defer some of their current payouts into a future date and the future payment changes based on the company's share price, when the stock price rises and expenses incurred. Since this liability only changes consistent with changes in the share price, we exclude this item from our operational discussion. The first quarter also contained $300,000 of expense or $0.02 per share for an increase in the reserve for our previously recognized environmental expense. This was associated with our Maywood New Jersey site. Excluding these non-recurring items and deferred compensation expense,…

Thank you, Scott. On our last call, we reviewed the short-term actions taken to improve profitability and our expectations for 2015. Overall income from short-term deliverables is on track with our internal plans. Today, we are updating our additional expectations on Slide 8. In 2015 polymers should growth from continued energy conservation efforts throughout the world and the introduction of new specialty case resins residents and polyols. North American polymer income should benefit from growing volumes in rigid and case polyols. It appears polyol volume gains in Europe may be offset by lower margins and the impact of the strong U.S. dollar. Profitability on polyols in China will be down as we begin to staff mid-year for the plant startup in the first quarter of 2016. Additional specialty polyol capacity is planned for Poland and the United States. Our emerging market phthalic anhydride business should improve. Overall, surfactant earnings should benefit from reduced operating costs, due to the investments made in our efficiency program and in our plans to improve reliability and performance in 2014. Globally, agricultural chemicals will provide income growth on an improved mix with higher environmentally advantaged solvent volumes and lower operating costs. Income from oil fields, including enhanced oil recovery, will decrease as the current oil price is below that which is necessary to implement new commercial projects [ph] pilot and one commercial flood are projected to continue. We expect income gains in North America and Latin America from consumer products, which includes laundry, personal care and HI&I. Underutilization of North American and anionic capacity remains an opportunity and a vulnerability, which will be addressed to 2015. Investments made to improve reliability should continue throughout the year and benefits from the drive initiative should increase as the year progresses. The Company's negative for exchange exposure from the strengthening U.S. dollar is projected just to increase slightly. The benefits of lower petroleum-based raw materials should continue albeit less than the first quarter due to competitive activity. We have a healthy balance sheet and we will continue to pursue investments that improve our efficiency, increase utilization of our assets, accelerate growth and deliver value to you, our shareholders. This concludes our prepared remarks. At this time, we would like to turn the call over for questions. Alan, please review the instructions for the question portion of today's call.

Thank you. [Operator Instructions] Our first question will come from line of Eugene Fedotoff with KeyBanc Capital Markets. Please proceed with your question.

Good morning, guys. Thanks for taking my question. Congratulations on the strong start to the year.

Thank you, Eugene. Good morning.

Good morning.

I was wondering if you can provide a little bit more color on your comments about the plans to address underutilized capacity in North America in the surfactants.

Well, there's two ways to address underutilization of capacity. One is to get some new business and the other is to rationalize capacity. I will tell you today we have chosen not to rationalize capacity, but we are simultaneously working on both options.

I see. Do you expect this new business to be at approximately average margins or you think there is going to be a negative impact on margin?

I do not have any additional comments to make at this time.

Got it. Then surfactants volumes sort of stronger than I expected and especially given the loss of the customer in North America. Could you talk a little bit about demand improvements, trends you are seeing in international markets and domestically, particularly in Ag business?

We did experience strong global growth as I mentioned in the script. Specifically in terms of our consumer products business in Europe did well both in the anionic and the fabric softener areas, so I see those are a combination of kind of I would say minimal market growth with a little bit of share gain in European market and significant growth in the in the LatAm market again in the laundry space. From an agricultural perspective, I think we will see an improved year from 2014, but we are not going to see the demand fully come back to where it was in 2013, so it will be somewhere in between, so a nice improvement versus '14 but not as high as it has been historically and that fit that comment in ag is a global comment. Our business continues to benefit from an improved product mix, where we are selling higher quantities of the environmentally preferred agricultural solvent and companies are looking at replacing petroleum-based solvents in that segment and our business is benefiting from that.

Got it, and then a question on raw material benefiting in the quarter. If I look at Slide 5, the impact on operating income for surfactants seems like improved operations have benefit operating income by $5.9 million. What was mix improvement and what was impact of lower material costs. Thank you.

It is a complicated question, and let me kind of walk through some of the factors that impact that. The numbers that you are seeing here on U.S. dollars, so relative to unit margins, it is impacted by the foreign-exchange obviously. From a company perspective, that number is approximately $5 million, negative impact on gross profit relative to foreign-exchange. We also have a FIFO expense that is kind of working its way through those numbers as well, so there is approximately $1 million impact from our FIFO financial expense, due to the falling raw material costs. Then the remainder of that is a mixed impact versus improving raw materials. I would say the majority of the benefit is coming from a mix improvement rather than falling raw material costs, particularly within our surfactant business. Raw material benefit is not as big as you might think in the first quarter.

Our next question will come from line of Jason Rogers with Great Lakes Review. Please proceed with your question.

Good morning.

Good morning, Jason.

Good morning, Jason.

Following up on the last question about the mix benefit in surfactants, if you believe that is sustainable going forward.

First of all, let me say that generally speaking historically our first quarter is generally our strongest quarter and the first quarter typically benefits from strong ag volume is well, so benefits in terms of mix, in terms of greater percent of agricultural sales and then we did have a shipment for an oil enhanced oil recovery pilot, which benefited the first quarter, so I think there are elements to that mix are sustainable going forward, but generally the first quarter is better than subsequent quarters.

Okay. Then looking at the slides, the expected benefit of $0.75 for 2015, how much of that was realized in the first quarter and how do you see the remainder of the savings spread out over 2015?

Yes. Jason, at the last call, we said broad strokes; you could take that $0.75 and spread it fairly evenly, because there were a number of things we had been working on throughout the prior year. I would say that is still the case although we expect some improvement as the year progresses and we enhance our improvement on the objectives as well.

Well, and I will jump in a little bit and comment on that. Obviously, we are not going to have a repeat of the Polyurethane System and the weather impact was more pronounced in the first quarter versus the second, third and fourth quarters last year, so I think what Scott it is saying as well is that we are anticipating that some of the other benefits will start to kick in to cover the, gains if you will, that were not going to have relative to the system sale and the weather in the subsequent quarters.

That's right. I was speaking more specifically to the items that are full year, the efficiency program, the restructuring items so on. There are a couple here as noted that are specific to a quarter, we gave the details on the volume and mix for example in the urethane system divestiture and so on, so good point. I was speaking other than those items, where we specify the quarter.

Okay. Then when you talked about the environmentally advantaged solvent, I wondered if you could talk more about that product, what advantages does that has and if you have competition for that in the market?

We do have competition in the market for that market, so it is our Alko amide product line, which is a DMA Aimde which is being used today to replace petroleum-based solvents, particularly in the agricultural market as volumes are meaningful today and the product line is positioned to grow based on new customer adoptions that we anticipate over the next one to four years, I would say.

Okay. Then finally looking at the specialty business were volumes off year-over-year in the quarter?

Volumes, it is a low single digits, Jason. There is a couple of pieces. It is a smaller part of our company, there is a couple of pieces in there, the Lipid business volumes are down sort of low-single digits and there is a few pieces that we have some more I would characterize as more specialty tolling sort of arrangement that we are stable.

The volume is relatively insignificant in terms of the overall company performance, in terms of when it is down. These are relatively high margin items. Specifically, one customer, we are projecting for the year that volumes are going to be down 20% to 30%. There is higher sales' dollars associated with - to sales those products and the loss of that specific volume began down 20% to 30% for the year, will have an impact to the business. Significantly though in terms of lost profitability of that business, we have seen the margins on our Medium Chain Triglyceride business fall 20% to 30% as well, but the combination of lower volumes of a high-margin, very high-margin specialty combined with falling MCT markets.

That is it for me. Thank you.

Thank you, Jason.

[Operator Instructions] Our next question will come from the line of Mike Harrison with Global Hunter Securities. Please proceed with your question.

Hi. Good morning.

Hi, Mike.

Quinn, I was hoping you could address the raw material situation in a little more detail. It sounds like we probably have seen the greatest benefit during Q1, and we should expect it to tail off as we see competitors respond, but then you also mentioned that in PA, you had some issues around the inventory that you needed to work down, high-cost inventory that you needed to work down, so the raw material situation there should be improving. Can you just help kind of reconcile those two issues?

Yes. Let me just address PA, because I think that is a little bit more straightforward. Yes, we did have high priced inventory that we worked off, so we would anticipate more or less, say, $1 million to $1.5 million swing in the PA results per quarter or at least for the second and the third quarter of this year versus our first quarter results as a result of having worked off the negative high-priced inventory of phthalic anhydride. Generally speaking, volumes were down in the fourth quarter, so I would anticipate minimal improvement relative to the fourth quarter versus the first quarter, but the second and third quarter I would anticipate at least $1 million gain per quarter for that based on the swing in raw material costs. For the other products within our portfolio, we believe that the gain will shrink as the year progresses somewhat offset by the - we would anticipate we will get some LIFO income, net LIFO FIFO income versus expense, so these partly offset by LIFO income as the year progresses, but we would anticipate that advantage of the lower petroleum prices will shrink as the year goes up.

All right, then the China polyols plant that you are bringing on stream, it sounds like the cost started to come in during the second half of the year. When do the revenues come in, and is there a fairly lengthy qualification process or do commercial sales commence as soon as you are satisfied with the quality of the material?

We are going through customer approvals based on products that are being shipped from other sites today, U.S. sites and other tollers within China, so we have basic product approvals today and hope to gain more as the year progresses. We will have to get the plant approved, because it is only a plant approval, we believe that approval will be relatively quick in China. We are anticipating starting to manufacture projects kind of late Q1 of 2016 and we would hope that by mid-year we would have supporting all of our business in China from China.

All right. Sorry. Go ahead.

Mid-year 2016.

Right. Then I was also hoping that we can get an update on the Brazil sulfination facility that you are acquiring. I know that has been pushed out. Any update on the timing around that and exactly what we are waiting for?

We believe that should occur at the end of May at this point in time. The latest was a local government approval that needed to occur for enabled for Procter & Gamble to transfer a land which the plant fits to us was the final government approval. We have received that at this point in time, so we do not believe there is any other barriers in terms of us closing that transaction, so at this point we believe it will occur at the end of May.

All right, thank you very much.

Thank you

Our next question is a follow-up question from the line of Eugene Fedotoff with KeyBanc Capital Markets. Please proceed with your question.

Thanks. Got a couple of follow-ups, first I guess on the last conference call you talked about currency being negative where your expectations were that currency will negatively impact operating income by $5 million in 2015. Obviously, it looks like first quarter impact was around $3 million. Do you have an updated number?

Yes. The updated number that we would have today is between $8 million to $10 million. The dollar has continue to strengthen since the initial projection, and quite frankly our foreign income is also up, so it is a combination of those two issues that we would say that the FX impact will be in that higher $8 million to $10 million range today.

Got it. Then question on a corporate expenses. Should we expect that the first quarter expenses went up a little bit year-over-year should we expect corporate expense to come back to sort of 2013 level in 2015?

I think, Eugene, a couple of primary drivers, we are paying for some consulting fees we mentioned in the release about some patent and trademark activity that was up, so let us take each point. The consulting fees for now I would model in the same sort of run rate potentially.

The consulting fees, we said we have been using an external resource to help us with our efficiency program, there is a gain share element to that, and so you may see that number go up as the year goes on. If so, that could be a good thing for the company as we talk about winning in other lines within our business.

Because the benefits are going to be in other places of the income statement, so we would net it out there, so the expense piece may look - that is not going to be the place that we would direct someone to try to get the impact. We mentioned the incentive-based compensation, okay, so we talked about the consulting the incentive-based compensation, that is going to continue to essentially run unfavorable as we ended up not paying bonuses for the 2014 performance, so that is going to be a headwind going forward. Then we had a small environmental adjustment that we called out in the press release for the quarter that we would not expect to continue and the baseline spending we expect to be flat to prior year essentially.

Okay. Overall, do you expect that to go up to much higher?

Higher, yes. The short answer is higher because of those the first two items that I mentioned.

Probably back to that $50 million level, you would say?

I would say, at a minimum level, yes. Then because the gain share component of our consulting agreement, we would hope that number would go up quite frankly.

Got it. All right, thank you.

Thank you.

Mr. Stepan, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

How about closing remarks? Thank you. I would like to thank everyone for joining Scott and me on the call today. We look forward to reporting continued progress to you on our second quarter 2015 call. Thank you very much and have a great day.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day everyone.