Stepan Company Q3 FY2025 earnings call

• Customer focus: Tier 1 customer base is a solid foundation, with new customer acquisition in Tier 2 and 3 customers being a key priority, adding over 350 new customers in Q3 2025.
• End market diversification: Strong growth in crop productivity and oilfield businesses, North America Rigid Polyol business growth enhanced by new product introduction in spray-foam end market.
• Supply chain: Supply chain operation and resiliency continue to improve, with investments in Millville site to improve operational reliability.
• Capital investments: New Pasadena site is fully operational and ramping up production, with 41 different products made to date, expecting full contribution rate in 2026.

Surfactants: Net sales were $422.4 million for the quarter, a 10% increase vs prior year. Adjusted EBITDA decreased $6.2 million or 14% vs prior year due to 2% volume contraction, higher Pasadena site start-up expenses, and oleochemical raw material price inflation. Polymers: Net sales were $143.9 million for the quarter, a 4% decrease vs prior year. Adjusted EBITDA decreased $1 million or 4% vs prior year primarily due to lower unit margins and unfavorable mix, offset by 8% volume growth. Specialty Products: Net sales were $24 million for the quarter, a 68% increase vs prior year. Adjusted EBITDA increased $5.9 million or 113% primarily due to order timing fluctuations within the Pharmaceutical business.

• Optimistic about delivering full year 2025 adjusted EBITDA growth and positive free cash flow.
• Expect to return to normal effective tax rate range of 24% to 26%.
• Believe Surfactant business will experience continued growth in key strategic end markets, and Polymers demand will improve with market certainty and innovation plans.

• Prospects for foreign operations.
• Global and regional economic conditions.
• Oleochemical raw material price fluctuations.
• Higher start-up costs related to Pasadena, Texas facility.
• Market uncertainties including tariff uncertainties.

Q: Where are we right now in the process of recovering the oleochemicals cost run-up in surfactants?

A: Coconut oil prices have come down from peak of $3,000 per metric ton, recovered a lot of the 70% increase but still catching up, with another price increase in North America in October 1, aiming to recover margins by 2026.

Q: If raw material costs come lower, does it make it more challenging to get pricing needed and could pricing be given back?

A: Will continue driving balance between volumes and margins, will be competitive in market, balance volumes and margins to maximize net income.

Q: Longer-term goals for Surfactants segment margin?

A: Believe Surfactant business can be a healthy double-digit EBITDA margin business going forward, focusing on growing high EBITDA margin businesses.

Q: Pent-up demand in commercial roofing and insulation space and impact of lower interest rates?

A: Believes there is pent-up demand from construction in early 2000s needing renovation, lower interest rates in 2026 could stimulate construction activity if interest rates and inflation continue as expected.

Q: Margin recovery in Polymers if demand recovers?

A: Believe can improve margins, EBITDA margins improving slightly despite challenges, want to grow top line and volumes, inch up margins as drive scale.

Q: Philippines asset sale and other footprint optimization actions?

A: Committed to balanced approach of EBITDA and net income growth between productivity, asset rationalization, and top line growth, will make more announcements on asset rationalization in future.

Q: Growth room in spray foam for Polymers and European environment impact?

A: Spray foam has potential to grow, starting from almost 0 share, committed to investing and growing, European construction activities muted but market trends there for future.

Q: Sustainability of Specialty Products volume levels?

A: Extremely pleased with Specialty Products business performance, still has opportunities to grow, will continue investing to maximize return, high-margin business.