Stepan Company (SCL) Q3 2020 Earnings Report, Transcript and Summary

Greetings and welcome to the Stepan Company Q3 2020 Earnings Release 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, October 21, 2020. I would now like to turn the conference over to Mr. Luis Rojo, Vice President and Chief Financial Officer, Stepan Company. Please go ahead, sir.

Thank you, Wayne. Good morning and thank you for joining the Stepan Company third 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 foreign 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 make these slides available at approximately the same time when the earnings release is issued, and we hope that you find the 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.

Thank you, Luis. Good morning and thank you all for joining us. We hope you and your families are safe and healthy. People like you around the world are cleaning and disinfecting their homes as well as their work and entertainment spaces more often. They have increased the frequency of how often they wash their hands. These changing habits have driven increased demand for many of the products we sell. Stepan employees around the world have responded to this increased demand with passion and commitment. We appreciate the extra effort they have made to keep these essential products on the market and available to our customers and ultimately to all of us. Overall, COVID opportunities in the consumer segment of our Surfactant business have benefited the company more than the negative impact COVID has had on our Polymer business and on functional surfactants. The company delivered record third quarter and year-to-date income. Third quarter adjusted net income was $36.4 million or $1.56 per diluted share, up 30% from $27.9 million or $1.20 per diluted share last year. Adjusted net income for the first three quarters was $98.9 million, up 5.5% from last year. For the quarter, Surfactant operating income was up significantly and volume growth, which was mostly attributable to continued strong demand for cleaning, disinfection and personal wash products in the consumer product end markets. Mexican operations delivered strong earnings growth versus the prior year quarter. Our Polymer business was down slightly versus the prior year quarter, as North America continues to experience construction project delays and cancellations as a result of COVID-19. Our Specialty Product business results were down due to reduced margins and the timing of customer orders. Our board of directors declared a quarterly cash dividend on Stepan's common stock of $0.305 per share payable on December 15, 2020. This represents an 11% increase and marks the 53rd consecutive year of paying and increasing the dividend. Our history of increasing and paying dividends led the Stepan Company becoming part of the S&P High Yield Dividend Aristocrats Index in January of this year. At this point, I'd like Luis to walk through a few more details about our third quarter results.

Thank you, Quinn. My comments will generally follow the slide presentation. Let's just start with Slide 4 to recap the quarter. Adjusted net income for the third quarter of 2020 was $36.4 million or $1.56 per diluted share, a 30% increase versus $27.9 million or $1.20 per diluted share in the third quarter of 2019. Because adjusted net income is a non-GAAP measure, we provide full reconciliations to the comparable GAAP measures, and this can be found in appendix 2 of the presentation and table 2 of the press release. Specifically, adjustment to reported net income this quarter consists of adjustment for deferred compensation and cash-settled SARs and some minor restructuring expenses. Adjusted net income for the quarter exclude deferred compensation expense of $2.6 million or $0.11 per diluted share, compared to deferred compensation expense of $1.4 million or $0.06 per diluted share in the same period last year. The deferred compensation numbers represent the net expense related to the company's deferred compensation plan as well as cash-settled stock appreciation rights for our employees. Because these liabilities change with the movement in the stock price, we exclude these items from our operational discussion. Slide 5 shows the total company earnings 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 here on an after-tax basis. We will cover each segment in more detail, but to summarize, Surfactant was up significantly, while Polymers and Specialty Products were slightly down versus the prior year. Corporate expense and all others were higher during the quarter due to acquisition-related expense and foreign exchange losses. The company's effective tax rate was 23.7% in the nine months of 2020 versus 17.3% in the first nine months of 2019. The increase was primarily attributable to one-time tax benefit in 2019 and a different mix of country income. This country mix is impacting the effective tax rate by approximately 100 basis points. We expect the full year 2020 effective tax rate to be in the range of 23% to 26%. Slide 6 focuses on Surfactant segment results for the quarter. Surfactant net sales were $334 million for the quarter, an 11% increase versus the prior year. Sales volume increased 8%, mostly due to higher demand for products sold into the consumer product end market, driven by increased demand for cleaning, disinfection and personal wash products due to COVID-19. Higher sales volume to Tier 2, Tier 3 customers and into the global agricultural market also contributed to this increase. This growth was partially offset by lower demand in the oilfield market. Selling prices were up 7% and the translation impact of a stronger U.S. dollar negatively impacted net sales by 4%. The higher selling prices primarily reflect improved product and customer mix. Surfactant operating income increased $21.5 million or 109% versus the prior year, primarily due to sales volume growth at $3.9 million operating improvement in Mexico, and partial insurance recovery related to the first quarter Millsdale power outage. North America results increased primarily due to strong demand in consumer segment and a better product and customer mix. Latin America had a record quarter in Mexico and in Brazil, driven by a strong volume growth in both markets, specifically, Mexico was up 22%, and Brazil was up 12%. In addition Europe results increased slightly due to higher consumer product demand. Now turning to Polymers on the Slide 7. Net sales were $116.7 million in the quarter, a 14% decrease versus a prior year. Sales volume decreased 5% primarily due to lower North America demand for rigid polyol used in rigid foam insulation and lower PA demand. The lower polyol demand reflects construction project delays and cancellations due to COVID-19. Selling prices declined 9% versus the prior year third quarter. Polymer operating income decreased $0.9 million or 4% versus the prior year quarter, primarily due to lower sales volume and lower North America margins driven by the incremental supply cost associated with the Illinois River lock closures. Operating income benefit from a partial insurance recovery related to the Millsdale power outage. European results increased due to modest growth in rigid polyol and a strong specialty polyol volume growth. Asian and Latin America results were slightly up versus prior year. Specialty product net sales were $14 million for the quarter, a 17% decrease versus the prior year. Sales volume was flat between quarters. Operating income decreased $0.7 million versus the prior year quarter, primarily due to lower margins within our MCT product line and order timing differences in our food and flavor business. Turning to Slide 8. Our balance sheet remains strong. We had negative net debt at quarter end as our cash balance of $310 million exceeded total debt of $208 million. Capital spending was $30.2 million during the quarter, versus $25.7 million in the prior year. For the full year capital expenditures are expected to be in the range of $100 million to $120 million. Moving to Slide 9. We believe we have sufficient liquidity. We have $310 million cash on hand, and we have access to a committed $350 million revolving credit agreement. Our remaining debt maturity schedule in 2020 is only $9 million. Beginning on Slide 10, Quinn will now update you on our 2020 strategic priorities.

Thank you, Luis. As 2020 heads into its final months, we continue to believe that Stepan's business remains better positioned to perform than most as we demonstrated in the third quarter. We continue to prioritize the safety and health of our employees, as we deliver products that contribute to the fight against the COVID-19. We now have six biocide formulations approved by the EPA for on-label claims to kill the specific novel virus that causes COVID-19. These formulations allow our customers to provide the public with additional tools to protect their families and fight the pandemic. We believe surfactant volume in the consumers segment should remain strong as a result of changing consumer habits and increase use of disinfection, cleaning and personal wash products. Our core product lines drove surfactant’s volume growth of 8% in the third quarter. We are increasing North American capability to make low 1,4-dioxane sulfates. Recent regulations passed in New York will require reduced levels of 1,4-dioxane and consumer products by January 1, 2023. 1,4-dioxane is a minor by-product generated in the manufacturer of ether sulfate surfactants, which are key ingredients in consumer products. Through a combination of process optimization and upgraded manufacturing equipment, Stepan will be prepared to supply customers ether sulfates that meet the new regulatory requirements. Tier 2 and tier 3 customers continue to be the center of our strategy. We had double-digit growth in this space as we added 201 new customers around the world during the quarter. Our diversification strategy into Functional Products continues to be a key priority for Stepan. During Q3, our agricultural business grew 5%. We have introduced many new products to the agricultural market and we will continue to invest in new capacity and capabilities to support growth in the agricultural market. Oilfield volume was down due to lower oil prices during the quarter. However, we remain optimistic about the future opportunities in this business, as we expand our portfolio into oil and gas production. Polymers has had a challenging year, given the availability of labor on construction projects and the need for social distancing. However, the long-term prospects for our polyol business remain attractive as energy conservation efforts and more stringent building codes should increase demand. The Illinois River lock closure work is on track and should finish by the end of October, which will end premium logistics associated with the business over the last five months. We remain committed to delivering productivity gains across Stepan. We delayed our project at Millsdale to allow the team to focus on COVID-19 related market opportunities. Work on the project will continue next year and we expect to see benefits in 2022 and beyond. 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 and the significant cash on hand, we will continue to identify and pursue acquisition opportunities to fill gaps in our portfolio and add new platform chemistries. We closed on the purchase of Clariant’s Mexican sulfate business and equipment during the quarter. We delivered record income quarters in Mexico and Brazil, both benefiting from previous acquisitions. Today, 2020 has been a difficult but rewarding year, as our team has responded to challenges and delivered on opportunities. We have work left to do this year, but overall, we remain optimistic that we will continue to deliver value to you our shareholders. This concludes our prepared remarks. At this time, we would like to turn the call over for questions. Wayne, please review the instructions for the question portion of today's call.

Thank you. [Operator Instructions] Our first question comes from the line of Vincent Anderson with Stifel. Please, your line is open.

Yes. Thanks. Nice job this quarter.

Thank you, Vincent. Good morning.

Good morning. I wanted to take a minute to focus on the surfactant price mix, as much as you're willing to share kind of what was the breakdown between price and mix this quarter? And can we read into it? Maybe any change to the strategy you alluded to in the second quarter where you were maybe prioritizing market share gains in tier 2, tier 3 rather than chasing every price increase.

Hi Vincent, this is Luis. Look, as we prepared in our remarks, we continue seeing a good mix, a combination from product and customer. As Quinn mentioned it, we had a very strong double-digit growth in tier 2, tier 3. So that's for sure is helping and also the growth in some of our key product lines in surfactants for cleaning and disinfection is also providing a positive mix. I'm not going to get into the split of how much, but you saw a very strong seven points of price mix overall in the surfactant business, and it's a combination of those two factors.

Okay. No thanks, that's fair. So specifically then with regards to the growth in tier 2 and tier 3, I lost track of how many you've added this year, I think it's over pushing 700 by now.

Almost 700 by now.

Okay, yes.

Yes. And I would just echo what Luis said is that generally those smaller customers provide a higher margin on the products that we're selling to them. It costs us more money to service them but the price and – it tends to be more favorable than our large tier 1 customers.

Right. So that's – that is exactly where I was headed. How do you feel right now with that number of new accounts about your selling infrastructure and general staffing? Do you feel like you have the capacity that you need and maybe we could see some positive SG&A leverage or maybe a little bit more costs going into that as you continue to grow that number?

Quite frankly, I think, it's a little bit of both. We are – we have established some momentum in that space on a global basis. We will add some additional resources to support growth. But overall, we are leveraging our existing infrastructure, whether that be people, manufacturing equipment, warehouse logistics support, to supply those additional customers in a cost effective way.

Thanks. If I can sneak one more in, at least in North America, the kind of the word was crop protection sales broadly had underperformed this year with how fast the crops are maturing. So maybe if you could talk more specifically about where the growth came from, whether it was, I don't know, Brazil market share.

I would say the growth in our business in Q3 came from North America. I think we believe that business overall in the Ag segment in 2020 will be somewhat flat, maybe up marginally, but we came into the year or our customers came into the year with relatively high inventories that have been depleted throughout the year. So what we're hearing from the market and from our customers that that inventory is now gone and that we should see some growth in Q4 and into 2021.

Yes, Vincent, too early to tell, but we are seeing encouraging signs on the Ag business in North America and as Quinn mentioned, it was a driver of the 5% growth. The global growth the driver was North America. And things like corn prices about $4 and all of that is providing some help and we'll see how Q4 and 2021 develops. But it's encouraging signs.

All right, thank you very much.

Our next question comes from the line of Mike Harrison with Seaport Global Securities. Please go ahead.

Hi, good morning.

Good morning, Mike.

Good morning, Mike.

Quinn, I was wondering if we could start out with the Clariant's acquisition. The – I'm sure with the filings coming out later today, we'll get some more detail, but can you give us some sense of what that acquisition cost? What it should bring in terms of annual revenues and earnings contribution and also talk a little bit about the rationale for the deal in what seems to be the latest in kind of a roll-up of sulfonation assets in the Americas?

Yes, I would say the specific numbers of the acquisition will be in the filing. But having said that, so, yes, this is the third sulfonation business that we're combining, Stepan's business, BASF's business in Mexico and now Clariant's. So, we believe a combination of those three businesses will provide economies of scale, allow us to cost-effectively supply our customers in that marketplace from two sites, which we will continue to operate at our site in Matamoros, Mexico and then we have the BASF site in Ecatepec. So you've seen that we've been able to grow the business from a down year in 2019, where we had some transition production issues, I would refer them to. And the market itself down there is growing as a result of COVID. So we feel we're pretty well-situated to grow in that space and we've got confidence that we'll be able to add to our profitability. From an acquisition, we would anticipate that that acquisition will contribute about $3 million of EBITDA. So relatively small acquisition, but very complementary to what we had been previously doing at the site. $3 million a year EBITDA.

Yes. Right, understood, understood. Okay. And then in the Surfactants business, you showed very strong operating income improvement in North America and Latin America. But looking at the Europe operating income gain, it's pretty modest. Can you give us a little bit of color as to what's going on with that European Surfactants business?

Earlier in the year, we lost a fairly large piece of business in the fabric softener space. So that loss of that business has kind of held back the European results. If you exclude that, Europe was up nicely, based on an improved product mix with greater specialty sales, more biocidal quat sales and more agricultural sales in that region. So we're actually pleased with the progress that Europe has made this year.

All right. And then any updated thoughts on kind of the longer-term outlook for cleaning and disinfection products? I know that, in your view, we're going to see an elevated demand, not just during the pandemic, but for years to come and maybe include some comments on where you think customers are in their inventory levels or the restocking process. I know when I go to the stores, still I'm struggling to find the cleaning products and the specific brands that I would typically buy.

Yes. So what I would tell you is that we do believe that consumer habits have changed and there will be some sustained change in those habits that will drive increased growth for our product lines. If we take a look at recent large consumer product company announcements in this space, and based on our conversations with them, they are all – they all believe that there will be sustained increased demand in the segment. I – so that's the most important point. I think the second point that I would like is that – to make is that, we as consumers, you think about you're going to a restaurant, you're going to – on an airplane or a movie theater, your expectation for clean has increased. And as a result of that, even though we're not going out too much, going forward, you are going to see enhanced, industrial and institutional cleaning. So even if we were to see some modification and decrease in consumer habits, I think you're going to see an increase in industrial and institutional cleaning as well. So I do think there is going to be increases – demand for these products and we're seeing our customers come to us with increased requirements and increased demand not only just for today but in – for 2021 and 2022 as well. So they do believe that there is going to be – that this increase is sustained. Relative to customer inventory levels, yes, and let me just talk a little bit about disinfectants primarily because there is still a shortage of some of the key disinfectants on the marketplace today. Some of – it's – from a – and the products that we sell are biocidal quaternaries, and it hasn't been so much that the biocidal quaternaries have been short, but the raw materials that make those products have been short in the marketplace. So there are some increased capacity being added to the marketplace in late 2020, early 2021, where we will see those products more readily available. I would ask you and direct you to people that are supplying wipes and have them answer questions in terms of how their supply chain looks relative to substrates and their ability to impregnate those substrates with biocidal quaternaries. But that has been a bottleneck that the market is aggressively working on. And so I'd encourage you to get an update from them. But I do believe that there is going to be the necessary raw materials starting in 2021 to fuel additional layers of growth in the biocidal quat area. From other raw materials, amphoterics, amine oxide, butanes, I would say capacity is tight in the U.S. market, it's tight in Europe and LatAm and we, at Stepan, are adding some incremental capacity to our plant sites to – in order to respond to some of the market demands.

All right. And then last question for me, for now, is on the Polymers business. Maybe just give a little more detail on kind of the trends and the outlook there. Are we expecting a V-shaped recovery once we see some of these projects resume in the rigid polyols business? And, I guess, are you seeing these project delays or project cancellations kind of deferring until spring of next year? Maybe just a little detail on what you're hearing from customers there.

Yes. So what our customers are telling us is that they are anticipating 2020 was kind of going to be the bottom and that we're going to see some gradual improvement in 2021. I think people are becoming a little more comfortable going back in the construction market and the roofing market, specifically. And so our customers are optimistic that we're going to see some growth in the market and – minimal growth, but growth in 2021.

All right, thanks very much.

[Operator Instructions] Our next question comes from the line of David Silver with CL King. Please go ahead.

Yes, hi, good morning.

Good morning, David.

Yes, thanks. I had a couple of questions here. But first off, I was hoping you could just clarify one point about your expected insurance recoveries. So you did indicate $5 million was received this quarter as a partial claim, I guess. Could you remind me, maybe, or could you bracket it like how much might your ultimate recovery be and over what timeframe now do you anticipate receiving the balance of those proceeds? Thank you.

Yes, David. Look, so we collect $5 million pre-tax. I want to make sure that you guys understand that is a pre-tax number. And as we mentioned in Q1 when we had the event, we communicated that that is at least $10 million. So that numbers continues to be the same, and it's a complex claim. So we are doing all the work. We don't have a specific timings, and we will continue working with our insurance provider to do all the detail work to make sure that we can sustain everything and all the invoices, et cetera. So it's a complex claim and we will inform you guys when we make progress to the next phase.

Okay. And then, I guess, this is a question on your operational capabilities. But one quarter earlier, you indicated that, in most cases, you were able to supply all of your customers with their full requirement – product requirement or contractual volumes. You did mention maybe an amphoterics or one or two other areas you were on allocation. So, I'm just wondering, given another quarter of strong growth, whether you could just indicate whether there are any incremental, I guess, limitations or bottlenecks that has crept into your production and delivery system. Thanks.

So, David, I think you're referencing the Millsdale outage that we had in January of this year, and during that timeframe, we said we were able to use our broad-based Surfactant market in North America to keep the market supplied, while our Millsdale facility was down as a result of that power outage. During that period, we were tight on amphoterics. So now that capacity is back running and has been back running since February of this year. So – but having said that, let me answer your question with regard to capacity utilization. Capacity utilization within our sulfonation network in North America has increased, and we still have sufficient capacity to support many – most of the products we sell. We're a little bit tight today in terms of some of our higher active materials and we're looking at that and we'll look to debottleneck our facilities as appropriate. And with regard to amphoterics in North America, we are relatively tight today in North America, and we are looking at expanding our capabilities for that product line. We do have sufficient biocidal quat capacity today to supply our needs, but we are proactively adding capacity in our Mexican facility that will be able to supply North America as well. So the good news is, volumes are up and our plants are beginning to fill. So our overhead per pound is starting to drop a little bit and that's – you see that in our financials on a quarterly basis and in the Q3.

Okay, thank you for that. This is the time of year, I think, when a lot of companies with calendar year ends kind of start their planning and budgeting process for the upcoming year. And I wanted to ask you about, I guess, CapEx in particular. So for the last few years, I mean, your CapEx budget have kind of ticked up. I think you might, $87 million back in 2018, and you might be as much as $120 million you've indicated for this year. As you sit here right now, what do you think the incremental CapEx spend might be for 2021? In other words, are the opportunities in your core areas sufficient that you feel like you will be needing some incremental resourcing to keep up with demand and accomplish your production and distribution goals as you see them now? Thank you.

I would anticipate that the capital will move up a little bit in 2021, as we add some additional capacity and capabilities across the globe to capture some of the organic growth opportunities that are being presented to us. We're very fortunate today that we have some significant organic growth opportunities across our product lines, across our regions, that we will be making incremental investments in our network in 2020 and it'll carry over into 2021 that should provide growth for us over the next two to four years.

Okay. Thank you. I'll get back in queue.

Our next question comes from the line of Mike Harrison with Seaport Global Securities. Please go ahead.

Hi, just a couple more for me. Quinn, you mentioned that you're going to be increasing capacity to make low 1,4-dioxane products to meet new regulatory requirements. I know you mentioned that this is a byproduct. And it sounds like, it's requiring changes in your production process more so than changes in formulation of materials. But maybe provide a little bit more detail on what these changes mean for you. And one of the core questions I have is, as your customers are looking to reduce dioxanes or as the law requires that, does it mean that there is less Surfactant volume going into some of these cleaning and disinfectant products?

So let me answer your last question first. At this point in time, we do not anticipate significant reformulation or de-formulation away from one – from ether sulphates for the consumer product segment. We're working very closely with customers and with their support, we are making modifications of our product, so they can maintain the use of ether sulphates in the consumer products that they have. So, today, I would tell you, we don't – again, don't anticipate any significant changes in consumer product formulations. The regulations that we're talking about are two parts per billion, just to put it in perspective. So, two parts per...

Million.

So two parts per million, excuse me, two parts per million.

But we also need to understand that ether sulphates, at the end, is a very small portion of the product cost and even lower, if you think about shelf prices for all of these consumer products like shampoo and detergents and all of that. It's a very, very small piece and as Quinn was mentioning, we're working with our customers to make those changes.

And then maybe kind of a related question is, it seems like there is a push for greener surfactants coming from both regulatory, I guess, regulators as well as consumers. You guys bought this business that has a rhamnolipids product line earlier this year. I know that that business was pre-commercial at the time, but can you discuss the timeline to having some of those rhamnolipid biodegradable surfactants commercially available and maybe talk more broadly about how you're seeing the opportunity for green surfactants?

Yes. What I would tell you – it is a pre-development activity today. It is a long-term project for Stepan. We are – in terms of selling any meaningful quantities of this into the surfactant market, it would – it's going to be a number of years. So we're looking at options today to – in terms of where – how we would provide market introduction quantities. We have pilot capabilities today, we are sampling customers, we do not have commercial – access to commercial production today. So, getting samples out to the marketplace, getting customer feedback in three core segments that we've been targeting, and then getting customer confirmation in terms if the products work as they would like them to and then coming up with a plan to build large-scale capabilities. So that'll enable growth of the molecule in the marketplace today. Today, the cost to produce rhamnolipids in the marketplace is extremely high and it's not cost effective. So we need to have a production strategy that will bring those costs down. And we're actively working on that.

All right, sounds good. Thanks very much.

[Operator Instructions] Our next question comes from Vincent Anderson with Stifel. Please go ahead.

Yes, thanks. I just wanted to follow-up on a question Mike asked earlier. Going back to European Surfactants, that loss of the fabric softener business, was that due to a regulatory change in Europe, or was it just a reformulation by one of your customers?

It was a new capacity that was available in the marketplace that had better logistics than we could provide. So they were able to more cost-effectively supply the customer.

Okay, thank you. And then, separately, over in Europe, can you remind us what has been the carrying cost of the German facility you've been repurposing for polyols and just maybe if there is any update on the timeline for that?

Well, I mean, so we are currently making polyol at that plant. The incremental costs that the polyol business absorb was approximately $1.5 million or so when the Surfactant business was shut down at the site. But that site is fully commercial and operational and has been for a number of years and it's the supply location for our Polymer business in Europe today.

I see. Thank you. Appreciate the clarification.

Our next question comes from the line of David Silver with CL King. Please go ahead.

Yes. Hi, thanks. So I was hoping to follow-up maybe just a little bit on your Polymers business, and I'll confess I'm still trying to get my arms around some of the aspects there. But that business – the performance this quarter was down year-over-year a little bit on the operating income line, and I know there is an insurance recovery in there. But the year-over-year decline has narrowed quite a bit on the operating income line as the year has gone on. And with some of my industrial companies that have construction exposure, they would say that this quarter, in particular, was quite robust in parts of the construction market and, in particular, I guess, the residential side, whereas other areas, not so much. So I'm just wondering if the relative improvement in operating profit from the Polymer side is indicative of a pickup in at least some portions of your business. And more to the point, I guess, I was a tiny bit surprised when I looked at your slide deck to see that the North American portion of your Polymers business was down a little bit, year-over-year. So just wondering about how your product portfolio and your exposures kind of relate to exposure to the residential markets or other markets that are doing a little better now versus some of the other areas, which you've highlighted are not healthy just yet.

So, if we take a look at our Polymer business and the 2020 performance was significantly impacted by the power outage at our Millsdale facility in Q1. And then in Q2, we started getting into the more pandemic impact. What – you are correct, in Q3, and specifically in September, we saw – we actually were essentially flat.

Slightly positive.

Slightly positive in September for the first time since the pandemic started in North America. Volumes in Europe were up just a touch, as well. So, we have seen a gradual improvement in the Polymer business as the year has progressed from a volume perspective. We have talked about higher costs associated with our business in North America as a result of the closure of the Illinois River, which is the first time they closed it since they installed the locks over 100 years ago. So, that was a big project, and they did some necessary maintenance, but the river was shut down for over three months and is now coming back on. So there has been some incremental costs, which negatively impacted the profitability of our business in Q2 and also in Q3. It will carry over a little bit into Q4 as well. So – but we are seeing some increased demand and if you – as I read some of our customer reports as well, they are talking about September being a – the first month where they have seen an improvement year-over-year as well. So I think the market, as I mentioned earlier, is cautiously optimistic about growing from a relatively low 2020 base into 2021.

But, David, I will add to what just Quinn said. I mean, when you think about the first nine months, of course, the volume is down, especially because of – I mean, you have the two drivers there, Millsdale, as Quinn was mentioning, and then the pandemic. Our margins are holding okay because, as you know, oil prices collapsed. And we saw some help on raw material prices as well. So that's why – overall, our profitability is down on absolute basis, but we are trying to hold our margins, which is an extraordinary work done by the team, given all the three impacts, Millsdale, the pandemic, and the river closure.

Okay, thank you for all that color. I appreciate it. And then maybe one last question and I would associate this or categorize this as a high-class problem. But your stock price is kind of towards an all-time high, and your prospects look good and you chose to raise your dividend by a double-digit amount for – as you've done for a very long time. But I was kind of scratching my head...

You're welcome. You're welcome.

If you want, I can repeat that if you didn't hear me the first time. But a small point, but I was scratching my head as I was prepping for this call and I was looking at Vegas and if the odds were good, I was going to say now would be an excellent time to split your stock. Okay. So again, it's all relative, but your stock price is in triple-digits, your daily trading volume is in double-digits, under 100,000 shares. And at some point, some investors get a little squeamish, they kind of are not sure about their liquidity and things like that. So, again, not the biggest problem in the world, certainly, but I know a lot of companies like to time, maybe a stock split was when they raise their dividend, and you chose to kind of pass on that. So I'm just wondering, again, not the most pressing matter, but has something like that been kicked around there and do you see some value in boosting the liquidity of the trading volume and the ability of some shareholders to get in and out more easily, do you think that that would be an incremental benefit to you? Thanks.

Yes, I think it's something that our board of directors considers on a regular basis. At this point in time, given that the world's in a global pandemic, we didn't think it was something we wanted to address at this point in time, but we have periodically split our stock to increase the liquidity. The ability of people to get in and get out today is much improved versus four years ago, versus five years ago, versus two years ago. So we do believe people have a chance to get in and out and people have demonstrated that with fairly large quantities of shares. But, we will take your question under advisement and make sure that the Board contemplates that.

Okay, thanks very much, I appreciate it.

And Mr. Stepan, Mr. Rojo, there are no further questions at this time.

Okay.

I'll turn the call back over to you.

Thank you very much, Wayne. And thank you all very much for joining us on today's call. We appreciate your interest and ownership in Stepan Company. Please stay safe and healthy. Have a great day. Thank you.