Ladies and gentlemen, thank you for standing by. Welcome to the Stepan Company Third Quarter 2015 Earnings 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, October 21, 2015. I would now like to turn the conference over to Scott Beamer, Chief Financial Officer. Please go ahead.

Hello and thank you for joining Stepan Company's third 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 regional economic conditions, and factors detailed in our Securities and Exchange Commission filings. Whether you're 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 Web site. We make these slides available at approximately the same time as the earnings release is issued. We hope that you find the information and prospectus helpful. With all that said, I'd 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. Our third quarter results demonstrate that the actions we've taken to improve product mix and asset utilization, reduced costs and improve efficiency continue to position Stepan for future growth. Despite currency headwinds, we reported higher third quarter earnings and volume increases in both surfactants and polymers. Net income was $24.9 million or $1.09 per diluted share versus $13.5 million or $0.59 per diluted share in the same quarter last year. Adjusted net income was $21.1 million compared to $15.6 million. Net sales decreased 10% due to pricing that followed falling commodity prices and the impact of foreign exchange. Volume was up 7% and unit gross profit improved versus the 2014 third quarter. Surfactant operating income was $21.8 million up $10.6 million or 96% versus 2014. Operating income was up in all regions except Asia. Improved operations, favorable product mix and improved asset utilization drove growth in North America. Sun products anionic surfactant volumes that were previously produced in Pasadena, Texas have now been absorbed by Stepan's existing sites. The Pasadena sulfonation capacity has been idled. Stepan did exercise its option to acquire the site. We are evaluating repurposing the site as a lower cost option for [indiscernible] investment. Growth in Brazil and Colombia contributed to gains in Latin America, higher volumes in both consumer and functional surfactant markets drove growth in Europe. Polymer operating income was a record $24.6 million up 35% versus the prior year. Polymer adjusted operating income which excludes certain significant non-recurring items from the prior year grew 13%. Growth in operating income for this segment was primarily driven by higher volume in Europe and improving mix sold within the coatings adhesive sealants and elastomer or case markets and improved local currency margins. Rigid polyol volumes in Europe continue to benefit from enhanced insulation standards and conversion to metal panels. Specialty products operating loss was $300,000 down $3.3 million from 2014 due to lower volumes and margins. Actions taken to restore profitability in this segment are in progress. We also announced a 5.6% increase in our quarterly cash dividend which represents the 48th consecutive year of dividend increase. Our Board of Directors has declared a quarterly cash dividend on Stepan's common stock of $0.19 per share payable on December 15, 2015. At this point, I would like Scott to walk through Stepan's third quarter results.

Thank you, Quinn. My comments would generally follow the slide presentation. On Slide number 3, we note that adjusted net income was $21.1 million or $0.92 per diluted share an increase of 35% versus the prior year. Both our largest segments surfactants and polymers delivered significant operating income growth. Surfactant operating income was $21.8 million, an increase of $10.7 million or 96% versus prior year, while polymer operating income was $24.6 million, an increase of $6.3 million or 35%. Compared to the adjusted third quarter result of last year operating income increased $2.9 million or 13%. Since adjusted net income and adjusted operating income or non-GAAP measurers, we provide full reconciliations to the reported figures which can be found in Appendix number 2 and 3 of the presentation as well as Table 2 of the press release. Specifically regarding adjustments to reported net income, this quarter included deferred compensation income of $3.8 million or $0.17 per diluted share compared to $2.7 million or $0.12 of income in the prior year. Naturally, all employee compensation is reflected in our normal operating net income. However, we also allow employees the opportunity to defer their payouts until some future date and the future payment changes based on the company's share price. When the stock price falls and income is generated. Since, the future liability only changes consistently with changes in the share price; we exclude this item from our operational discussion. We show our figures with this income effect pulled out of the numbers, so you've a clear review of our operating performance. The third quarter of 2014 results also included $2.7 million of environmental reserve expense associated with our Maywood, New Jersey site. That quarter also included $2.1 million of expense for Phthalic Anhydride customer that filed for bankruptcy. Both surfactants and…

Thank you, Scott. After nine months, we are positioned to deliver earnings growth for the full year. Surfactant earnings should continue to benefit from new laundry detergent volumes in North and Latin America. Continued diversification of our business in Europe as well as contributions from our efficiency program and improve operations overall. Given the current and forecasted price of petroleum Stepan Company and Nalco Company have decided to dissolve their TIORCO enhanced oil recovery joint venture. Both Stepan and Nalco will continue to participate in enhanced oil recovery, but will do so with groups integrated into their respective organizations. Stepan Company expects to take a charge during the fourth quarter between $3 million and $4 million to restructure its enhanced oil recovery efforts. We expect Polymer income growth to continue -- driven by higher polyol volumes used in rigid insulation and metal panels. In the fourth quarter, plant maintenance activity in our North American phthalic anhydride plant will negatively impact earnings. Construction projects to add polyol capacity in China, Poland and the United States are progressing well. In China, plant commissioning expenses will begin in the fourth quarter. 2016 volumes will be less than anticipated due to reduced demand associated with the current construction environment in China. External resources used to improve our effectives and efficiency will end in the fourth quarter, rate of returns, net of fees will be realized in 2016. Overall, we believe we have restored earnings momentum in 2015, as we continue to position the company for further earnings growth in 2016. This concludes our prepared remarks. At this time, we would like to turn the call over for questions. Scott, please review the instructions for the question portions of today's call.

Absolutely, thank you. [Operator Instructions] And our first question is from the line of Eugene Fedotoff with KeyBanc Capital Markets. Please proceed.

Good morning, guys. Thanks for taking my questions.

Good morning.

I was wondering if you can talk about just underline volume growth in surfactants in North America excluding Sun deal, if volumes were up or down in the quarter year-over-year basis?

The volumes were up excluding Sun. They were up a little bit not a lot and I don't have that exact percent for you right now. But we can look at that and hopefully have that number at the end of the call or question portion of today's call.

Okay, that's fine. And would you be able to provide utilization rates, approximately utilization rates for North American laundry business and now with the Sun deal in place?

So the Sun deal impacted only our anionic sulfonation capacity utilization. I would tell you that we still have some excess capacity in our network.

Okay. And I guess switching gears and talking about polyol it seems like pricing pressure is increasing there. Can you comment on competitive landscape and capacity increases by the competitors and how that impacts your business including some of the expansions that you're doing in Europe and North America and China?

I guess I would disagree with your initial statement. We do see increased competitive activity in that space, but the margins are actually up in 2015 versus 2014. So with regard to the capacity expansions, we are increasing capacity to service the CASE market in both our Columbus, Georgia facility and in our Brzeg Dolny, Polish facility. So those projects are a little earlier on in terms of the anticipated startup. We would look at the Polish site starting up in kind of mid-2016 and the Columbus site kind of toward the end of 2016 potentially the early 2017. So those projects are progressing well and kind of are on track at this point in time. Those products are primarily targeted for our liquid CASE products and target customers have been established and we believe that they will start up further business plan and increase the utilization as time marches on. With regard to China the plant is, will be mechanically complete in 2015 and will be going through commissioning activities beginning this fourth quarter into the first quarter of next year. So we are -- we're a little concerned at this point about the start up volumes in China, given the current state of the Chinese economy. So we are looking at the potential to utilize that plant to support plant maintenance shutdown in Germany in 2016 and also potentially supply some markets outside of China to increase utilization those plants to for non-Chinese activity are being developed as we speak.

All right. And then as far as polyol's margins or polymer's margins, do you think they are sustainable at the current level or just as maybe for a seasonality going into fourth quarter or you think that margins will decline?

I -- there could be I think in -- I think the European current -- the margins are sustainable and we will continue to look at the North American margins, there could be some decrease in North America as in the 2016, minimal decreases but --

Okay. And just the last question before I get back in the queue. Any update on guidance for the $0.65 improvement in 2015 versus 2014 and the EPS, is it still impact, any update on those number?

Yes, Eugene it is intact. We said off the $0.65 about a third of that impacted Q1, we said it was smaller in Q2, so that would leave about half of that benefit for quarters three and four and just seasonally that would imply about a 30% or so of that $0.65 into Q3 and the other 20% into Q4. So if you're taking last year's adjusted net income numbers and adding an impact to that $0.65, I'd use about a third of that for Q3, which I think our results show we delivered that increment in addition to other items that we delivered and then the fourth quarter is about a 20% or about $0.13 a share or so compared to the -- from a -- like you would add potentially…

To prior year number.

Overall, yes, we're on track.

Got it. Thank you.

[Operator Instructions] And we have question from the line of Michael Harrison with Seaport Global Securities. Please proceed.

Hi, good morning.

Good morning, Michael.

Quinn, I was hoping you could talk about the specialty business a little bit, I know you called out the timing issues which that was an issue last quarter as well. But you also mentioned higher raw material costs and I know that we've been dealing with a little bit of competitive dynamics on the pricing side. So, do you think that we could see the raw material versus pricing situation improve over time and are you considering any actions right now to improve the cost structure of that business?

So we are taking steps to improve the cost structure of the business not at -- don't want to comment on that directly at this point in time. From a raw material perspective, we have been working on changing our supplier base and we do anticipate that with the changes that we've made in our supplier base will help margins primarily in our MCT line in -- beginning in the fourth quarter of 2015 and carry over into 2016. So I think the competitive dynamics overall are difficult with some integrated -- backward integrated competition, but we've taken steps to improve the situation in -- again in the fourth quarter of this -- beginning in the fourth quarter of this year. But, we will continue to look at other opportunities to improve the profitability of this business and we do anticipate progress in 2016.

All right. As you look at the functional surfactants business, I know you mentioned that oilfield continues to be weak and probably will be as long as oil is below $65 a barrel. Was a little bit surprised to hear that ag was an area of strength, are we seeing new products being introduced there and kind of secular driven growth there or were you actually seeing improvement in the underlying markets?

Let me make a comment about oilfield. So, Stepan company's oilfield activities are -- fall into two camps. One is a traditional oilfield business that's tied to primarily to production but also as some surfactants that are being used in exploration. So, that business has been negatively impacted by the drop in oil. But, overall we have some new technology going into that market, and so, we believe that there is opportunities were Stepan to grow in a traditional oilfield business despite the current price of oil.

The enhanced oil recovery business is more difficult when we talk about that large opportunity from a volume and profit perspective, we believe $65 a barrel is required for commercial -- new commercial floods in that area. As we go forward into 2016, we do have and I will say eight active opportunities most of them are pilot floods that people are continuing to look at to position themselves toward the -- as the price of oil recover. So that is the opportunity -- the EOR opportunity that we restructured with TIORCO. And then, our oilfield EOR business will be combined with our traditional oilfield business and we will be looking at that and lower our cost -- overall to participate in the EOR business. So we remain optimistic about our traditional oilfield business and our ability to grow in that space. With regard to the agricultural market, most -- that timeframe for implementation of new technology in that case can be three to four years. So we have many opportunities in the pipeline based on new technology or blends of existing technology that have been specifically formulated to provide benefits for agricultural product customers that are working their way through the pipeline. So the growth that we anticipate in the agricultural market is coming from much of those activities that occurred three or four years ago. In addition to that we continued to see create interest in our green agricultural solvents and specifically part of our reason for growth in Europe in 2000 -- in 2015 has been the expansion of sales of those product lines.

All right. And then last question for me is just on the return profile of the polymers plant in China. You mentioned being concerned about where the start-up volumes are and working to get the -- Germany takes some volume out of Germany when there is going to be some downtime there. But, is -- are you confident that that over time, you can still get the returns you are hoping for, or is it really contingent on how tightly we're enforcing some of the energy efficiency building coats in China?

Certainly in order to generate the return over a 10 or 20 year period, we're going to need the Chinese government to enforce their existing building coats. So, at this point in time, we believe that they will do that over a period of time. So when you look at return on investment, you obviously need volume and margin in the first couple of years. So, I would say at this point in time, we're a little concerned about the overall return given the short-term current softness in the Chinese economy. Long-term, we're confident that we will generate the operating income on an annual basis that we've targeted in that site although the return maybe lower given the softness in 2016 and 2017 potentially.

All right. Thank you very much.

Thank you.

Your next question is from the line David Stratton with Great Lakes Review. Please proceed.

Good morning. Most of my questions have been answered, but I was wondering if you can just quantify the expenses you see in the phthalic anhydride plant maintenance and the China commissioning expenses for the next quarter?

They're both just slightly under $1 million for the quarter.

All right. Thank you so much.

And we've a follow-up question from the line of Eugene Fedotoff with KeyBanc Capital Markets. Please proceed.

Thanks. Just got a few follow ups. I guess, can you provide an update on efficiency program, I believe the expectations are $8 million this year but then you had some delays there because of the Sun deal. Can you give us an update where you spent on that program and what the benefits are -- both for this year and maybe expenditures [ph] for next year?

Yes. I would say we're essentially inline with our initial forecast of $8 million is a pretty good estimate at this point in time net of fees. As we look into 2016, we're not planning as I said in my comments; we're not planning on continuing that arrangement. So, we would anticipate that we would see a net improvement in profitability, order of magnitude of $3 million to $4 million. And then, we may have some incremental benefits from the projects that we're currently on but at this point in time, I would model $3 million to $4 million improvement.

Great. Thanks. And just a question on polyprenol oil, it seems like there is some shortages and prices have been significantly higher over the last couple of months. Is that impacting your business, is that a concern at all?

I would say the short answer is, it's not having a significant impact on our business.

Okay, great. Thanks.

[Operator Instructions]

And I will step back in here to fill in a little bit about the volume, I think it was Eugene's question from earlier volume excluding Sun, nearly, flat or down slightly the rest of the business. The personnel care was mostly flat up slightly with oilfield and EOR both being down from a volume perspective so broader strokes I think that that answers Eugene's question regarding -- Sun had a impact on our volume -- a significant impact for the quarter in North America, which is the primary portion of the surfactant's business. But, yes, in North America. We talked about the comments in the other regions.

And there are no questions registered at this time.

Okay. I would like to thank everyone for joining Scott and me on today's call as well as the entire Stepan team for their continued dedication to serving customers worldwide. We look forward to reporting continued positive performance to you on our fourth quarter 2015 call. Have a great day.