Stepan Co (NYSE: SCL) Q1 2020 Earnings Call Transcript

Stepan Co (SCL) Q1 2020 earnings call dated Apr. 21, 2020

Corporate Participants:

Luis E. Rojo — Vice President and Chief Financial Officer

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Analysts:

Vincent Anderson — Stifel Nicolaus — Analyst

Michael Harrison — Seaport Global Securities — Analyst

David Silver — CL King — Analyst

Presentation:

Operator

Greetings and welcome to the Q1 2020 earnings release conference call. [Operator Instructions]. Your speakers for today are Luis Rojo.

I would now like to turn the conference over to Mr. Luis Rojo. Please go ahead, sir.

Luis E. Rojo — Vice President and Chief Financial Officer

Good morning and thank you for joining Stepan Company First Quarter 2020 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 for our falling operations, global and regional economic conditions, and factors detailed in our Securities and 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 made these slides available at approximately the same time of when the earnings release is issued, and we hope that you find information and perspective helpful.

Now with that, I would like to turn the call over to Mr. Quinn Stepan, our Chairman, President and Chief Executive Officer.

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Thank you, Luis. Good morning and thank you all for joining us. Today we are living in a difficult and uncertain world. We are all concerned about our health and the health of those we love. Many people have lost their jobs, and are fearful, as to how they will support themselves. At Stepan, we are very fortunate that many of the products we sell contribute to the fight against the coronavirus. Our plants are running, and most importantly, we have been able to keep our people employed and healthy. We have supported local first responders, including Chicago Police and fire stations, with free hand sanitizer and disinfecting products. We are grateful to all of our employees for their commitment to make our world healthier.

Now, let me provide an overview of our first quarter performance. Given the global pandemic and the impact of the power outage at our Millsdale facility, we actually had a pretty good quarter. First quarter adjusted net income was $24.2 million or $1.04 per diluted share versus $30.6 million or $1.31 per diluted share in the prior year. Excluding the estimated impact of the Millsdale power outage, for which we have insurance, adjusted net income would have been up versus the prior year. Surfactant operating income benefited from strong volumes in the global consumer product end markets, driven by higher demand for cleaning and disinfection products, as a result of COVID-19. Functional product volumes were down. Mexican operations delivered strong year-over-year earnings growth.

Polymer operating income was down due to the power outage at Millsdale and significantly lower phthalic anhydride volumes. Global rigid polyol volumes were flat, as growth in North America and China was offset by lower demand in Europe, due to COVID-19. Our Specialty Product business results were higher, due to improved volume and margins within our medium chain triglyceride product line, driven by strong demand and pantry loading in the infant nutrition market, as a result of the COVID-19 outbreak. Our Board of Directors declared a quarterly cash dividend on Stepan’s common stock of $0.275 per share payable on June 15th, 2020.

At this point, I’d like Luis to walk through a few more details about our first quarter results.

Luis E. Rojo — Vice President and Chief Financial Officer

Thank you, Quinn. My comments will generally follow the slide presentation. Let’s start with slide 4 to recap the quarter. Adjusted net income for the first quarter of 2020 was $24.2 million or $1.04 per diluted share, a 21% decrease versus $30.6 million or $1.31 per diluted share in the first quarter of 2019. We are still in the process of determining all the impacts associated with the Millsdale incident. At this time, we believe the impact is at least $10 million on a pre-tax basis. Because adjusted net income is a non-GAAP measure, we provide full reconciliations to their comparable GAAP measures, and these can be found in Appendix 2 of the presentation and Table 2 of the press release, specifically adjusted to reported net income this quarter consists of adjustment for deferred compensation and cash-settled SARs income and some minor restructuring expenses.

Adjusted net income for the quarter, excludes deferred compensation income of $3.7 million or $0.15 per diluted share, compared to deferred compensation expense of $5.1 million or $0.22 per diluted share in the same period last year. The deferred compensation numbers represent the net expense related to the company’s deferred compensation plans, as well as cash-settled Stock Appreciation Rights for our employees; because these liabilities change with movement in the stock price, we exclude this item from our operational discussions.

Slide 5 shows the total company earnings bridge for the first quarter, compared to last year’s first quarter and breaks down the decrease in adjusted net income; because this is net income, the figures noted are on an after-tax basis. We will cover each segment in more detail, but to summarize Surfactants and Polymers were down, while Specialty Product was up versus as the prior year.

Corporate expenses on all orders were higher during the quarter due to higher acquisition related expenses for the NatSurFact acquisition, a higher effective tax rate and foreign exchange losses. Favorable net interest expenses was related to higher interest income. Company’s effective tax rate was 22.5% in the first quarter of 2020 versus 19.5% in the first quarter of 2019. The increase was primarily attributable to lower tax benefits derived from the stock-based compensation awards. We expect the full year 2020 effective tax rate to be in the range of 22% to 25%.

Slide 6 focuses on Surfactant segment results for the quarter. Surfactant net sales were $327 million for the quarter, a 6% decrease versus the prior year. Selling prices were down 3%, primarily due to the pass through of lower raw material costs. Sales volume was down 1% versus the prior year. Higher demand for products sold in our consumer product end markets, driven by increased demand for cleaning and disinfection product as a result of COVID-19 was offset by lower sales volume, lower functional product end markets, primarily agriculture and oilfield. Surfactant operating income decreased $1 million versus the prior year, primarily due to higher costs and low sales associated with our Millsdale plant power outage and the negative impact of foreign currency translation. These items were partially offset by a $4.2 million operating income improvement in Mexico.

North America results decreased primarily driven by higher supply chain expenses and low sales associated with the power outage incident at the Millsdale plant and lower demand in the agricultural and oilfield end markets. This was partially offset by strong volumes in consumer products, driven by higher demand in cleaning and disinfection products due to COVID-19. Latin America results were up due to a $4.2 million operating income improvement in Mexico, driven by 17% volume growth on margin expansion. Europe results were basically flat, as higher consumer product demand as a result of COVID-19 was offset by volume reductions by one important customer.

Now turning to Polymers on slide 7. Net sales were $106.5 million in the quarter, an 11% decrease versus the prior year. Sales volume decreased 9% in the quarter, primarily due to significant reduction in PA volume due to the Millsdale power outage. Global rigid polyol volumes volumes were flat. Selling prices declined 1%. Polymer operating income decreased $4.6 million, primarily due to higher costs and volume loss associated with the Millsdale plant power outage. North America polymer results decreased due to higher costs and volume shortfalls associated with the Millsdale incident. Rigid polyol volumes increase by low single-digits. Europe results were basically flat, with lower rigid demand at the end of the quarter, due to COVID-19. PA results decreased due to the Millsdale incident. Finally, China results improved on volume growth of 16%, driven by strong demand in the growing cold storage market. Our specialty polyol basis was up, with all regions growing operating income year-on-year.

Specialty Products net sales were $16.4 million for the quarter, a 15% decrease versus the prior year. Sales volume declined 8% for the quarter. Operating income increased $0.9 million versus the prior year, primarily due to improved volume and margins within our MCT product line, driven by a strong demand and pantry loading in the infant nutrition market, as a result of the COVID-19 outbreak.

Turning to slide 8, our balance sheet remained strong. We had negative net debt at quarter end, as cash balances of $254 million exceeded total debt of $222 million. Capital spending was $33.2 million versus $25.7 million in the prior year quarter. For the full year, capital expenditures are expected to be on the low side of the range of $100 million to $120 million.

Moving to slide 9, we believe we have sufficient liquidity levels to operate in these challenging near-term environment. We have $254 million cash on hand, and we have access to a committed $350 million revolving credit agreement. Our debt maturity schedule in 2020 is only $23 million.

Beginning on slide 10. Quinn will now update you on our 2020 outlook.

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Thank you, Luis. Looking forward, we believe 2020 is going to be a difficult year for our world, our country, our industry and Stepan Company. However, we believe in the current environment our business is positioned better than most, with empty store shelves around the world due to high demand for disinfection and cleaning products, our Surfactant volume in the consumer products market should remain relatively strong short-term. Falling raw material prices may provide an opportunity for margin improvement. With dramatically lower oil prices, demand for Surfactants within the oilfield market will be down. We anticipate our agricultural business should approximate last year’s results. Overall, we believe our Surfactant business should remain relatively recession-resistant.

Our Polymer business most likely will face a reduction in demand, as people defer or cancel re-roofing and new construction projects. We believe in the long-term prospects of this business remains attractive and energy conservation efforts and more stringent building codes should increase demand.

Our Specialty Products business should continue to benefit from medium chain triglyceride demand in the infant nutrition market. Our flavor and pharmaceutical product sales should be stable for the year. After a good start to the year, we are positioned to continue to deliver critical products to our customer base. However, our business is not without risk. The continued health of individuals throughout the supply chain, raw material suppliers, logistics providers, customers, as well as well as our own employees is critical for a sustained performance. We believe M&A represents an important tool, as a means to deliver meaningful EPS and EBITDA growth over the next few years. Given the strength of our balance sheet, we will look to identify and pursue acquisition opportunities, to fill gaps in our product portfolio and to add new platform chemistries.

During the first quarter of 2020, Stepan acquired the NatSurFact business, a rhamnolipid-based line of bio-surfactants from Logos Technologies. Bio-surfactants produced via fermentation from renewable resources, offer opportunities in several strategic end use markets, including agricultural, personal care and household cleaning. With our strong balance sheet and available liquidity, we believe we are well positioned to operate in the challenging near-term environment.

I want to close by thanking all Stepan employees for their effort and hard work to help us fight this pandemic. Additionally, we want to thank our customers, our suppliers, government agencies and the local communities in which we operate, for all their support during this unprecedented time. We continue to be optimistic about our collective future and remain confident in the resiliency of people and the strength of the human spirit. We will get through this together.

This concludes our prepared remarks. At this time, we would like to turn the call over for questions. Tasha, please review the instructions for the question portion of today’s call.

Questions and Answers:

Operator

[Operator Instructions]. Your first question is from the line of Vincent Anderson.

Vincent Anderson — Stifel Nicolaus — Analyst

Thanks. Good morning everyone.

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Good morning, Vincent.

Vincent Anderson — Stifel Nicolaus — Analyst

Good morning. So just briefly on agriculture. I was curious how much of the weakness in the quarter could you attribute to some delays in spring planting that we’ve seen start to abate here more recently? And following on that, has the business improved more recently?

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

What I would say is that, there was a high level of inventory coming into within the agricultural sector of our business coming into the season. So I don’t know that we’ve seen significant delays in planting necessarily, as we’ve seen a drawdown of existing inventories. We do anticipate the balance of this year, North America that we would kind of be on plan or equal to budget, and we’re going to offset the decrease in the first quarter in North America, with global growth.

Vincent Anderson — Stifel Nicolaus — Analyst

That’s helpful. Thank you. And then just quickly on the numbers in Mexico, how much of the improvement would you attribute to normalizing your operating conditions there versus an uptick, and maybe COVID related demand? And at that current run rate of improvement, what would that $4.2 million that you highlighted in 1Q look like in this quarter?

Luis E. Rojo — Vice President and Chief Financial Officer

Yeah. Vincent, this is Luis. I will say half and half is viewed. Remember that last year we had the incident in Ecatepec, the 17% volume growth is also driven by that low base. But I will say, half and half is split.

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

And I guess I would further add that most of the improvement that we’ve seen is not COVID related. We are on plan with the volume that we put in our budget for the year. So we feel good about that. We did use that site to supply small amounts back to the United States, during our Millsdale outage. But our Mexican volume is on plan. And we do anticipate and we are adding additional biocyte capabilities in Mexico. So we do see that as being an opportunity for the second half of the year, primarily supporting the U.S., but those. We also have new registrations that will allow us to sell that product line in Mexico.

Vincent Anderson — Stifel Nicolaus — Analyst

Great, thanks. And If I could just ask one more quick one on NatSurfact is that commercial scale already?

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

No.

Vincent Anderson — Stifel Nicolaus — Analyst

And then could you just talk about — it’s not. Okay.

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

No, it is — primarily what we bought is process technology and patented process — specifically patented process technology, so that will accelerate our R&D program in that space.

Vincent Anderson — Stifel Nicolaus — Analyst

Okay. And just out of curiosity, what specifically about this portfolio interested you, just kind of given historically fermentation based chemistries have kind of struggled to maintain profitability?

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Yeah, there is a significant pull that’s beginning in the market for bio-based natural surfactants. So this is — we have a number of products historically in our line that are derivatives from coconut oil or palm oil, but we see this as kind of a new — the new frontier for surfactants. Generally speaking, they tend to cost a little bit more than petroleum based surfactants, particularly with oil today at minus $37 a barrel. But we do think it’s a long-term play, and our customers, particularly the large consumer product companies are looking for biobased products to formulate with.

Vincent Anderson — Stifel Nicolaus — Analyst

That’s great. Thank you.

Operator

[Operator Instructions]. Your next question is from the line of Mike Harrison.

Michael Harrison — Seaport Global Securities — Analyst

Hi, good morning.

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Good morning, Mike.

Michael Harrison — Seaport Global Securities — Analyst

I was wondering if you could help us understand the Millsdale outage, kind of what the impact was from an operating income perspective in both the surfactants business and the polymers business, if you could?

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

What I would say is, we believe the cost in the first quarter were at least $10 million. That cost to date would be equally split more or less between the surfactants and the polymer business. We may have some additional expenses in Q2, and those will be more directly applicable to the polymer business. We have been shipping some material from Europe back to the United States, and some of that volume is still in transit.

Michael Harrison — Seaport Global Securities — Analyst

All right. Thank you. And then was also just wondering, in terms of that outage and the surfactants business, were you able to meet this increasing demand that’s been associated with COVID and with the increase in demand for consumer, cleaning and disinfecting applications? Are you kind of — were you a 100% able to deliver on surfactant demand, and are you fully back to being able to be 100% fulfilling those orders now?

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Yeah. And I would first say that, our team at the Millsdale plant did a fabulous job restoring production at the site. And in addition to that, we had a lot of support from the other plants in our network in North America. So we actually lost a small amount of business in our Surfactant line during this period. So our inventories are generally low, as we were coming out of that period. So we weren’t able to ship everything that customers ordered, but pretty close, pretty close and — in our Surfactant line. Not true for phthalic anhydride certainly and we did have some back orders in the polyol marketplace, that we’re shipping in March and April.

But I would say, for the most part we’ve been able to ship all of the COVID-19 related demand. And maybe if I could just expand on that a little bit, as you see some of the large consumer product companies and when they start and have started making their earnings announcements, they are talking about potentially an increase in demand for cleaning products on a sustained basis. We have sufficient anionic capacity, so was our sulfonation product line in North America to support that. In our amphoteric product line, which are batch reactors, they tend to use a little bit more and hand-washing. We are snug, I would say, in that area, but have some incremental capacity that we could bring to the market to bear.

And from a biocidal quaternary perspective, we have sufficient capacity to support growth in the market or significant more growth to the market., But in that case, raw materials are a significant concern. And so raw materials are limiting our ability to capture some increased demand in that space today, and we’re trying to work with our suppliers across three or four different key product lines in that space, to bring additional volume to the marketplace.

Michael Harrison — Seaport Global Securities — Analyst

All right. That actually is kind of a question that I wanted to get to, is maybe understanding. In terms of some of these applications that you’re serving, can you walk through areas where you’re seeing demand well ahead of normal? I assume things like hand soap or other hand-washing types of products and disinfecting wipes, that’s off the charts right now. Can you just maybe help us understand where we are, relative to normal? And also maybe talk a little bit about the margin profile of some of those products compared to detergents, which I think of as being lower margin and maybe some of the functional surfactants, which I think of as being some of your highest margin products?

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Yeah. So and starting to break it down a little bit. So let’s start with the biocidal quarternaries first. So again, I mentioned, those are, for example, are used in Clorox wipes or used in Lysol and other hard surface cleaning products in the marketplace today. Those products tend to be more profitable than some of the other materials in our range. There are three companies in the United States that have those products registered with the U.S. EPA. And again, so I would say when we sell additional volume, it tends to be accretive to our business.

Sales in the first quarter for those products were up 18%, 19% for the first quarter, with most of that increased demand occurring in the month of March. And then — so that’s one example. And then we talked about amphoterics, generally amine oxides and betaines specifically, those tend to be more commodity products. Though that volume globally was up a little bit, but still low single digits. And then alcohol sulfates, which are kind of companion products used in many of the hand soaps, that was up order of magnitude about 10%. And I would say, our ability to respond to the amine oxides and the betaine product lines, again, that’s where I said we had — we are tight, but we have opportunities to squeeze a little bit more capacity or throughput from our assets.

Michael Harrison — Seaport Global Securities — Analyst

All right. And then maybe a last question on the polymers business. Just in terms of construction activity, you mentioned the slowing that you saw during Q1 in Europe. Seems like Europe is kind of two weeks ahead of where North America is. So just maybe comment on how you saw construction activity trending in Europe? And maybe what you’re seeing in North America. I guess in March, and thus far in April.

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Saw a significant decrease in activity in Q1, particularly, kind of March in Europe — and significant decrease and we see that as a possibility coming in the U.S., potentially in kind of May-June type timeframe. Probably June. What we are also seeing in that space, some of the schools are pulling forward some of their reroofing projects, that had been previously approved and why the kids are not in the classrooms. They are looking at forward to pulling some of the projects forward. So we think probably late May or June. June, we may see a decrease in activity in that space in North America.

Michael Harrison — Seaport Global Securities — Analyst

All right, thanks very much.

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Thank you, Mike.

Operator

[Operator Instructions]. Your next question is from the line of David Silver.

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Good morning, David.

David Silver — CL King — Analyst

Yeah. Can you hear me here?

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Yes we can.

David Silver — CL King — Analyst

Okay, sorry. So I’m going to apologize in advance I had to join the call a little bit late. So I may be asking you to repeat yourself. But first question, I just wanted to review the cash flow in the first quarter, so not so much year-over-year, but sequentially. And I just wanted to clarify that, but by my calculation, the net use of cash in the first quarter was $90 million, 9-0 and I was just wondering if you could break that down. How much is kind of normal working capital build up, let’s say, versus incremental expenses or other items, that that are not purely working capital related? And just in general, maybe compared to the last couple of first quarters, how does the draw this year for working capital and other uses compare? Thank you.

Luis E. Rojo — Vice President and Chief Financial Officer

Yeah, David, this is Luis. What I will say is that cash consumption in Q1 is typical for us, right. I mean, we have a lot of working capital usage in Q1, bolus payments in Q1, etc. So at the end, what we saw in Q1 was very similar to the other gears that are probably a couple of factors that were a little bit higher. capex was higher, as we mentioned, $33 million versus last year, $25 million, and we did a share buyback for $7 million in the quarter. So those are the two particular numbers that are a little bit different versus other Q1s, but in general, we have our cash consumption in — or cash consumption in Q1 in all years.

David Silver — CL King — Analyst

Okay, that’s great. Second question would be about your Mexican facilities, and my sense is that the improvement in financial results this quarter was a little bit greater than maybe I anticipated or that was indicated or expected from year-end. I was just wondering, you mentioned the 17% volume increase. On a scale of zero to 100%, where do you think the Ecatepec facility was operating during the quarter? And when do you think it would be back to 100%? There was incremental improvement above what we saw in the second quarter.

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Let me answer that question a couple of different ways. One, I would say, in terms of existing capacity, we’re probably in the 80% range. We do have a project to debottleneck that site, that we are working on and we will have additional capacity available, probably towards the end of this year, the Q1 of next year. So we have an expansion project on. But the other thing, there is a short-term issue right now in terms of COVID-19. The Mexican government has limited the and is restricting people over 60 years old to their quarters, if you will, they are sheltering in place. So we are short some employees in our current Mexican facilities. We are having management work with our union employees to run the units today, and we’re hiring some temporary employees on-site. But so there is a limit to how much we can push those sites, until the pandemic eases and we can return a significant amount of our workforce back to the site.

David Silver — CL King — Analyst

Okay. I had a couple of questions, I guess, about just the broader market. So I apologize this might be a little garbled. But first question would be related to offshore competition. So in other words, I guess, economic growth and demand for a lot of your products has declined globally, and I wonder if you know, that translates into more opportunistic exporting out of Asia or wherever. And I’m just wondering, if you could comment on that maybe, the dollar is a little stronger as well. I mean how do you view that potential threat to either your demand or the pricing for your major products? And then separately, I was wondering if you could comment on your — if you could follow up or add some color to your comments about potential raw material cost savings? And the reason I mention that is, I’m certainly aware of where oil traded yesterday, but my impression is the U.S. petrochemical market is not so much tied to oil these days, but really to natural gas based ethylene and ethylene oxide, ethylene glycol and things like that. And I’m just wondering for your main facilities that might be supplying out of the US Gulf or wherever, I mean do you see a meaningful raw material cost benefit, or is the potential a little bit more, I don’t know, incremental? So offshore competition and the potential for raw material cost savings, if you could add some color there, I’d appreciate it. Thank you.

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Okay. So from an offshore competitor perspective, let me first deal with our polymer business, because that’s pretty straightforward. We see limited competition in the in the polyol area, coming from overseas. There is sufficient capacity in the United States today, and so we don’t see a lot of imports into the United States. From a phthalic anhydride perspective, molten phthalic anhydride is used by the majority of our customers. Molten phthalic anhydride is not imported into United States. There are some bags or super sacs that come into the United States. So there is some offshore competition in phthalic anhydride.

From a Surfactants perspective, Surfactants generally have a fair amount of water associated with it, and the commodity range of our products generally don’t travel fairly well. The profitability of them would be offset by the incremental freight. And so generally it’s not significant, a lot of competition in the commodity surfactant line and when you get into the specialties lines, various lines, you can see import competition. But in the biocyte area for example that we’ve talked about, there are U.S. EPA registrations that are required to sell the active ingredient and are required for people to have registered formulations to actually use the products as well. So there tends not to be a lot of import competitions in that space.

In terms of — you’re correct, that most of the U.S. chemical industry is based on natural gas versus oil. But the two do move together a little bit and we do — it’s too early to tell whether the — whether there is going to be margin improvement, but the prices for our polymer raw materials decrease — key two raw materials decreased 50%. So there will be impact on sales at a minimum as we go forward. And I think there is more opportunity within within our Surfactants business for margin enhancement.

I think there is a little bit of vulnerability relative to our Polymer business, because we are planning for the Illinois River closure that we talked about and so we had high — inventories of high priced raw materials. So we’re working through those today. But I think short term, that’s more a vulnerability than an opportunity for us.

David Silver — CL King — Analyst

Okay. Is it okay if I ask one more here? Is that all right?

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Sure.

David Silver — CL King — Analyst

I had a question and I apologize, I’m going to ask you to put your product manager hat on a little bit. But in looking at — I was looking at it on a couple of government websites in particular, I was looking at list end from the EPA, which includes more than 30 of your products that are approved for use against coronavirus. And I was just wondering, I mean I was looking at the list, more than 30 of your products are listed, all of them are quaternary compounds. But also on the list, there were some non-quaternary products like the propyl alcohol, hydrogen peroxide, which I’m assuming are lower-priced alternatives. So, could you may be discuss in this current environment how your quaternaries compete against the other approved products that are based on, perhaps, lower cost base anti-viral disinfectants? Is there kind of a way a way to think about that, or is it, I don’t know, all in the formulation and it’s too hard to kind of separate it apart?

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Yeah, it’s in the formulation, but it’s also in the surfaces that you treat. So there — bleach is a very effective disinfectant, it’s very effective against coronavirus, probably more effective than biocidal quaternaries from a technical perspective, depending on the surface that you’re cleaning, depending on the surface that you’re trying to treat. So our products are generally used in hard surface cleaning, that they will not be damaged by bleach. So that’s where the strength of our product line rests, and again we’re in Clorox wipes and we’re in Lysol, so products that tend to be a little more gentle to surfaces and can — but generally when you’re talking about fighting a virus, you want to use a range of active ingredients to fight them as well. So beyond that, you’re going to get in over my head.

David Silver — CL King — Analyst

Over my head too. But no, I apologize, I know there was a ton of detail on those lists that I kind of skipped over. But okay, thanks very much, I appreciate it.

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions]. At this time sir, there are no further questions.

F. Quinn Stepan, Jr. — Chairman, President and Chief Executive Officer

Okay. Thank you all very much for joining us on today’s call. We appreciate your interest and ownership in Stepan Company. We look forward to reporting to you on our second quarter call. Be safe stay healthy. Thank you very much.

Operator

[Operator Closing Remarks].