STEPAN CO Q1 FY2025 earnings call

Management Statement and Operational Highlights

• The company reported adjusted EBITDA of $57.5 million in Q1 2025, up 12% year-over-year. Adjusted net income was $19.3 million, up 32% year-over-year, driven by earnings growth in Surfactants and Specialty Products and a lower tax rate.
• Volume grew 4% across segments, with Surfactants up 3%, Polymers up 7%, and MCT product line up 4%.
• Safe startup of the new Pasadena, Texas site, which is now operational, with plans to achieve full contribution in the second half of 2025.
• Board declared a quarterly cash dividend of $0.385 per share payable on June 13, 2025, with Stepan having paid increased dividends for 57 consecutive years.
• Key strategic priorities include customer-centric innovation, end market diversification, and supply chain resiliency.

Segment Performance

• Surfactant Segment: Net sales were $430.3 million in Q1 2025, a 10% increase year-over-year. Sales volume grew 3% due to growth in agricultural and oilfield end markets, offset by lower demand in commodity consumer products. Foreign currency translation negatively impacted net sales by 5%. Adjusted EBITDA increased $4.5 million or 10%.
• Polymer Segment: Net sales were $146.1 million, flat year-over-year. Selling prices decreased 7% due to lower raw materials and competition. Sales volume increased 7%, but North American and European Rigid Polyol volume was low-single-digits. Adjusted EBITDA decreased $0.3 million or 2%.
• Specialty Products Segment: Net sales were $16.8 million, an 11% increase year-over-year. Adjusted EBITDA increased $1.2 million or 21% due to margin recovery and volume growth in the medium chain triglycerides product line.

Guidance

• Expect full year adjusted EBITDA and net income growth, and positive free cash flow in 2025.
• Pasadena facility is expected to contribute more in the second half of 2025, enabling volume growth and supply chain savings.
• Continued growth in Surfactant key strategic end markets and improvement in polymer demand as market certainty increases.

Risks

• Global macroeconomic uncertainties and high interest rates restraining Rigid Polyol growth in North America and Europe.
• Tariffs and their potential impact on raw material costs, end market demand, and import competition.
• Volatile raw material pricing and uncertain tariff policies affecting margins and demand across segments.

Question and Answer

Q: About Pasadena facility utilization and customer qualification ramp up?

A: Luis Rojo stated Pasadena is producing 6 products with plans to produce over 60. Qualification is ongoing, and full contribution is expected in the second half of 2025, with full contribution from the plant anticipated in 2026.

Q: Surfactants commodity consumer products decline?

A: Luis Rojo mentioned sluggish demand from consumer products due to inflation and consumer experience, not an intentional shift of business to higher margin products.

Q: Polymers high cost inventory and pricing stabilization?

A: Luis Rojo said high cost inventory in Polymers is being worked through, with margin expected to improve. Pricing is expected to stabilize with raw material changes.

Q: Volume growth and inventory pull-forward?

A: Luis Rojo stated no significant inventory pull-forward; good orders in April were seen, but future months will be monitored for tariff impacts.

Q: Tariff impacts and import competition?

A: Luis Rojo mentioned monitoring indirect impacts on demand; MCT and Surfactant businesses have import competition, with strategies to capture share being evaluated.

Q: Distribution growth in Surfactants?

A: Luis Rojo said distribution growth in Surfactants is part of the global Tier 2, Tier 3 strategy, with over 400 new customers acquired, focusing on capturing share and market growth globally