Stepan Company

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Stepan Company

22 West Frontage Road
Northfield, Illinois 60093
(847) 446-7500
Fax: (847) 446-2853
Web site:

Public Company
Employees: 1,400
Sales: $610.45 million (1998)
Stock Exchanges: New York
Ticker Symbol: SCL
NAIC: 325613 Surface Active Agent Manufacturing; 325199 All Other Basic Organic Chemical Manufacturing; 325211 Plastics Material & Resin Manufacturing

Stepan Company has carved out a highly specific niche market for itself by producing and supplying specialty and intermediate chemicals that are sold to other companies to make a wide variety of end products. The companys three core business segments include: surfactants which are used in detergents for cleaning clothes, carpets, floors, and fine fabrics, as well as shampoos, toothpastes, and a host of other personal care products; polymers which are used in manufacturing plastics, refrigeration, and building materials; and specialty products, which are used in a range of flavoring, food, and pharmaceutical items. The companys production of surfactants generates the most sales, approximating $500 million by the end of 1998, with polymers and specialty products providing the balance. Management at the company has long held the strategic objective of continually expanding its manufacturing base, which has resulted in the establishment of production facilities in The Philippines, Canada, Columbia, Mexico, Germany, and France.

Early History

Stepan Corporation was founded by Alfred Stepan, Jr., descended from a long family line living in London, England. When his father relocated from London to the United States during the late 1890s, he got a job at the age of 13 as an office boy at Roessler and Haslacher, a chemical firm in New York City that was later acquired by Du Pont. Alfreds father developed into one of the preeminent chemical research scientists in the early part of the 20th century, and Alfred himself was destined to follow in the footsteps of his father.

After graduating from the University of Notre Dame, Stepan attended the law school at Northwestern University in Evanston, Illinois. One year of law school was enough for the ambitious young man, however, and he decided to plunge into the chemical business. With $500 borrowed from his mother, Stepan went into business as a jobber of cleaning solvents and refrigeration gas in 1932. Naming the firm after his own family name, he initially worked out of a $2 dollar a month office in downtown Chicago. For three years Stepan worked as a salesman, selling his products to companies located throughout the metropolitan area. In 1935, however, young Stepan began working as a manufacturing chemist making fishy oils and fatty acids for tannery companies.

It was a short step into the specialty chemicals industry. By the time the United States entered World War II in December 1941, Stepan Corporation was firmly established as one of the fastest growing manufacturers of surface-acting agents, which were made for use in detergents and disinfectants, perfumes, soap, bubble bath, and pesticides. When the war ended in 1945, Stepan Corporation enhanced its reputation as a specialty chemicals manufacturer by concentrating more and more on specialty chemicals for consumer products. By the end of the decade, the firm was rapidly becoming a leading supplier of aromatic chemicals, fragrances, and flavors that were used in the perfume, cosmetics, and household industries.

Growth and Expansion: 1950s60s

During the 1950s, the company under the direction of its founder focused on building a reliable customer base in the detergent industry. Alfred Stepan, Jr., was convinced that the industry was recession-proof, since hospitals and large corporate buildings would always purchase cleaning agents. Over the decade, Stepan succeeded beyond his expectations by carving out a niche that served nearly 2,000 customers, including almost all of the large Fortune 500 consumer products companies. From 1955 onward, sales began skyrocketing, and the owner plowed more and more capital into research and development. In 1958 Stepan Corporation made an initial public offering of stock on the New York Stock Exchange. Now even more capital was available for the company to expand its product line and its manufacturing facilities.

In 1964 Stepan made a decision to enter the rich citric acid market, but rather than use sugar beets as a base, he concentrated on making citric acid from blackstrap molasses at half the price. This significant effort cost the company a great deal in manpower, capital, and tons of blackstrap molasses. By the time Stepan realized that his venture was not going to be profitable, the company had lost more than $2.5 million in 1967, and per-share profits had declined precipitously from $1.67 in 1964 to a mere 12 cents by 1967. Incredibly, Stepan, Jr., turned the company around immediately. The owner refocused on the production of specialty chemicals for the consumer products industry; concluded an agreement with a British firm to become the exclusive manufacturer and marketer of a versatile new urethane foam; developed a chemical additive that doubled the life of an ordinary pair of blue jeans; and expanded the firms research facility in Maywood, New Jersey, so that it could become one of the leaders in the field of aromatic chemicals. The turnaround was so dramatic that by the end of the decade sales amounted to over $25 million and earnings increased to an all-time high of $1.69 per share.

Alfred Stepan, Jr., was not only successful in business but in his personal life as well. Although one side of his family had been deeply involved in chemistry, the other side of his family was drawn to the arts, and a number of Stepans ancestors had been closely associated with some of the more famous opera houses in Europe before immigrating to the United States. Stepan was therefore immersed in the operatic tradition and, while a prominent businessman in Chicago during the 1950s, was asked to serve as president of the Lyric Opera in Chicago. The Lyric Opera, through mismanagement and unanticipated misfortune, had fallen on difficult financial times. When Stepan became president, he immediately reorganized the management structure of the opera, and initiated the fundraising drive that brought the opera house back to financial stability.

Transition and Change: 1970s80s

In 1973 Alfred Stepan, Jr., stepped aside and relinquished the day-to-day operations of the company to his son F. Quinn Stepan. The new president of Stepan had been raised by his father within the chemical industry, spending most of his school vacations working in the firms plants and laboratories, and even taking business trips with his father around the country. Having graduated with a degree in chemistry from the University of Notre Dame, Quinn went to work full time in 1961 selling surfactants for the company. After receiving an M.B.A. from the University of Chicago in 1963, the young man worked in a variety of positions and, in 1967, was promoted to vice-president in change of corporate development. In 1969, he was appointed vice-president of the Industrial Chemicals Division. As the head of corporate development, the younger Stepan was instrumental in shaping the companys growth during the late 1960s and early 1970s. Under his leadership sales increased 18 percent a year since 1968, and by the end of fiscal 1973 the firms profits had increased an impressive 30 percent over the previous year. Even more impressive was the fact that the companys sales figures had skyrocketed from $25 million in 1968 to $65 million by 1973.

When Quinn assumed the post of president in 1973, he had already developed a strategic five-year growth plan that included the acquisition of numerous companies within the industry. In 1972, Stepan purchased the surfactants operation of Allied Chemical; the urethane foam systems division of Diamond Shamrock; the Presto Chemical Company, a manufacturer of gel coating, mold release agents, and pigment dispersions; and Westbrook-Marriner, a producer of lanolin. In 1973 the firm bought Armstrong Corks urethane foam systems business. These strategic acquisitions not only increased Stepans sales of urethane from $1.5 million to over $10 million, but the purchase of Allied Chemicals surfactants operation increased Stepans market share significantly. Soon after he became president, Quinn Stepan also implemented a comprehensive reorganization plan for the accounting, purchasing, manufacturing, and engineering departments.

Company Perspectives:

At Stepan, adding value is an important strategic imperative. We add value to everyday life by providing ingredients that are essential to the efficacy of countless products used daily by millions of people around the world. We add value for our customers by working with them to improve product features that help them gain a competitive advantage in their industries. We add value for our shareholders by continuing to grow our leadership in the marketplace and manage the business strategically, effectively and efficiently. And, we add value for our employees, many of whom have been with Stepan for years, by empowering them to meet the creative challenges posed by such a diverse array of end markets, provide end-user benefits to millions, and help customers become more successful in an increasingly competitive global marketplace.

By the end of fiscal 1985, under the leadership of Quinn Stepan, the company reported record-high sales of $235 million. Approximately 70 percent of this figure was accounted for by the firms strong presence in the surfactants market. Clearly, the growth through acquisitions strategy that Quinn Stepan implemented during the early 1970s was not only increasing revenues, but enlarging the firms manufacturing capacity and consequently expanding its market share in the specialty chemicals industry. During the mid-1980s, the company made a series of acquisitions that strengthened its traditional core business while simultaneously diversifying into process chemicals production. In June 1985, Stepan purchased Westvacos specialty surfactants division, estimated to be worth over $20 million. The purchase included a manufacturing facility located in Georgia, which made anionic surfactants that were used in industrial and agricultural products.

The purchase also enabled Stepan to enter a new market, since the facility produced defoamers for pulp and paper mills as well. One of the added benefits of the transaction was that it gave Stepan a strong presence in the Southeast, complementing the companys other regional manufacturing facilities in Illinois, California, and New Jersey. Along with the purchase of Westvacos specialty surfactants division, the company also purchased the designs, technology, customer lists, and inventory of polyurethane coating resins and polyether polyols of another small firm for a wide variety of urethane applications. Although this agreement did not include the acquisition of any plant or equipment, it was widely regarded within the industry as a highly successful purchase, since it was estimated to add approximately $4-$5 million to Stepans sales figures.

The 1990s and Beyond

The decade of the 1990s was a good one for the company. In 1992, sales amounted to just over $435 million, and by the end of fiscal 1997 sales increased to $581 million. The compounded annual growth rate in sales for these years was approximately six percent, not a dramatic figure, but nonetheless indicative of well-administrated, well-organized, thoughtful management. Yet Quinn Stepan, still in full control of the firms direction, had set a sales goal of $1 billion by the end of the year 2000, and in order to reach this goal he decided not only to increase the capacity of all Stepans current manufacturing facilities, but to make a concerted attempt to expand operations and enter the European market. In 1998 non-U.S. sales accounted for 16 percent of the companys total revenues, so the growth through acquisitions strategy that worked so well in the United States was implemented in western Europe. The grand strategy, according to Quinn Stepan, was to garner half of the companys sales from internal growth and the other half from acquisitions, both domestically and internationally. The core areas that Stepan intended to concentrate on included laundry and cleaning, personal care emulsion polymerization surfactants, agricultural surfactants, urethane systems, and food emulsifiers.

Stepan Company continued to search for niche markets that complemented its own product line, and those markets that strategically placed it in potential strong growth situations. Although the companys billion-in-sales goal was a lofty one, and perhaps unattainable by the end of 2000, the firm nonetheless was well-positioned for achieving such a landmark in the not too distant future.

Further Reading

Floreno, Anthony, Jobs & People, Chemical Market Reporter, March 29, 1999, p. 34.

He Started on Sales Trips Early in Life, Chemical Week, November 14, 1973, p. 48.

Levy, Robert, The Turnaround Specialist, Duns Review, October 1968, p. 92.

Morris, Gregory, Koppers and Stepan-Reichhold Join Aristech in Expansion Race, Chemical Week, October 16, 1996, p. 13.

Stepan Company, Soap & Cosmetics, February 1999, p. 66.

Stepan Company, Soap & Cosmetics, May 1999, p. 54.

Stepan Eyes Specialty Surfactants and Overseas Markets for Growth, Chemical Market Reporter, March 9, 1998, p. 5.

Trewhitt, Jeffrey, Stepan Steps Out in Surfactants, Urethanes, Chemical Week, July 3, 1985.

Thomas Derdak