Executive Summary

Solid start to 2025 with broad-based volume growth; Surfactants and Specialty Products drove double‑digit adjusted EBITDA growth while Polymers lagged on mix and high‑cost inventory carryover .
Q1 beat Wall Street consensus on both revenue and EPS (S&P Global): management cited improved product/customer mix, lower tax rate, and Pasadena ramp as supports; free cash flow was negative on working capital build and tariff prep .
Outlook reiterated: cautiously optimistic for full‑year 2025 Adjusted EBITDA and Adjusted Net Income growth and positive free cash flow; Pasadena alkoxylation facility is operational with full contribution targeted for 2H25 .
Near‑term catalysts: sustained Ag/Oilfield strength and specialty alkoxylates ramp; watch tariff pass‑through, polymers mix normalization, and Pasadena pre‑operating drag moderation .

What Went Well and What Went Wrong

What Went Well
- Surfactants strength: double‑digit volume growth in Agricultural and Oilfield end markets and with distribution partners; improved product/customer mix lifted pricing and profitability .
- Specialty Products recovery: MCT margins improved; segment adjusted EBITDA up 21% y/y in Q1 .
- Strategic capacity online: “Our new Pasadena, Texas site…is now operational…this should enable us to deliver volume growth and Supply Chain savings during the second half of the year” — CEO Luis Rojo .
What Went Wrong
- Polymers headwinds: EBITDA slightly down despite +7% volume on less favorable mix (higher commodity PA share) and high‑cost inventory carryover; management expects margins to improve as inventory clears .
- Free cash flow negative on working capital build and raw material purchases in anticipation of tariffs; Q2 still expects some Pasadena drag before turning supportive later in 2025 .
- Consumer Products weakness and FX headwinds: commodity consumer demand remained soft; FX reduced Q1 net sales by ~$18.5m .

Financial Results

Headline metrics – trend across the last three reported quarters (oldest → newest):

Metric	Q3 2024	Q4 2024	Q1 2025
Net Sales ($m)	$546.8	$525.6	$593.3
Gross Profit ($m)	$75.7	$56.7	$75.5
Operating Income ($m)	$23.9	$7.7	$28.3
Net Income ($m)	$23.6	$3.4	$19.7
Diluted EPS ($)	$1.03	$0.15	$0.86
Adjusted Net Income ($m)	$23.7	$2.8	$19.3
Adjusted EPS ($)	$1.03	$0.12	$0.84
EBITDA ($m)	$53.0	$35.8	$58.0
Adjusted EBITDA ($m)	$53.1	$35.0	$57.5

Margins

Metric	Q3 2024	Q4 2024	Q1 2025
Gross Margin %	13.8% (75.7/546.8)	10.8% (56.7/525.6)	12.7% (75.5/593.3)
EBIT Margin %	4.4% (23.9/546.8)	1.5% (7.7/525.6)	4.8% (28.3/593.3)
EBITDA Margin %	9.7% (53.0/546.8)	6.8% (35.8/525.6)	9.8% (58.0/593.3)

Q1 2025 vs Prior Year (Q1 2024)

Metric	Q1 2024	Q1 2025	YoY Change
Net Sales ($m)	$551.4	$593.3	+8%
Operating Income ($m)	$20.2	$28.3	+40%
Net Income ($m)	$13.9	$19.7	+42%
Diluted EPS ($)	$0.61	$0.86	+41%
Adjusted EPS ($)	$0.64	$0.84	+31%
EBITDA ($m)	$50.2	$58.0	+16%
Adjusted EBITDA ($m)	$51.2	$57.5	+12%

Segment breakdown – Q1 2025 vs Q1 2024

Segment	Net Sales Q1’24 ($m)	Net Sales Q1’25 ($m)	Op Inc Q1’24 ($m)	Op Inc Q1’25 ($m)	Adj EBITDA Q1’24 ($m)	Adj EBITDA Q1’25 ($m)
Surfactants	$390.8	$430.3	$26.1	$28.9	$43.8	$48.3
Polymers	$145.5	$146.1	$8.4	$8.0	$16.4	$16.1
Specialty Products	$15.1	$16.8	$4.3	$5.5	$5.8	$7.0

KPIs and operating context (oldest → newest)

KPI	Q3 2024	Q4 2024	Q1 2025
Global Sales Volume YoY	-1%	-1%	+4%
Cash from Operations ($m)	$22.7	$68.3	$6.9
Free Cash Flow ($m)	-$4.0	$32.1	-$25.8
Effective Tax Rate	-10.7%	—	20.1%
Net Debt ($m)	$541.2 (9/30/24)	$525.7 (12/31/24)	$551.8 (3/31/25)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Adjusted EBITDA	FY 2025	Expect growth vs FY24 and positive FCF in 2025	Expect FY25 Adjusted EBITDA growth and positive FCF	Maintained
Adjusted Net Income	FY 2025	Expect growth vs FY24	Expect growth vs FY24	Maintained
Pasadena contribution	2H 2025	Startup Q1’25; benefit during 2025	Operational; full contribution rate expected 2H25	Clarified timeline
Dividend per share	Quarterly	$0.385 declared 2/19/25	$0.385 declared 4/29/25, payable 6/13/25	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q1 2025)	Trend
Pasadena alkoxylation ramp	Q3: pre‑op expense; build progressing . Q4: pre‑commissioning costs, startup expected Q1’25 .	Operational; 6 products made; ~$4m pre‑op drag in Q1; Q2 still negative, ramping to positive in 2H25 .	Improving toward 2H inflection
Surfactants end‑market mix	Q3: double‑digit growth in Ag/Oilfield/distribution . Q4: continued double‑digit growth; consumer softness .	Continued double‑digit Ag/Oilfield growth; better mix/pricing; consumer still soft .	Positive mix; consumer soft
Polymers demand/margins	Q3: Rigid Polyol down; Polymers EBITDA down . Q4: demand shortfall; pricing down .	Volume +7% but mix and high‑cost inventory weighed margins; inventory cost headwind abating in Q2; pricing stabilizing .	Stabilizing; margin rebuild
Tariffs/macro and pricing	Q3/Q4: macro uncertainty, high rates pressuring Rigid Polyols .	Built raw materials ahead of tariffs; intend to price for tariffs and adjust sourcing; monitoring demand impact .	Manageable with pass‑through
Distribution/tier 2‑3 strategy	—	Added 400+ new customers; distribution growth alongside strategy to expand T2/T3 globally .	Expanding channel
Specialty (MCT)	Q3: MCT margin recovery . Q4: margin and volume strength .	Continued margin recovery; adj. EBITDA +21% y/y .	Sustained recovery

Management Commentary

“I am encouraged by the earnings and volume growth we delivered in the first quarter… Our new Pasadena, Texas site…is now operational. We are pleased with the start of 2025 and remain focused on continued earnings improvement.” — Luis E. Rojo, President & CEO .
“Looking forward…we remain cautiously optimistic that we will deliver full year Adjusted EBITDA and Adjusted Net Income growth and positive free cash flow in 2025.” — Luis E. Rojo .
“Surfactants…selling prices were up 12% primarily due to improved product and customer mix and the pass through of higher raw material costs…volume was up 3% year‑over‑year…partially offset by lower demand within the commodity Consumer Products end markets.” .
“Despite 7% volume growth, Polymer EBITDA was down slightly due to less favorable product mix and high cost inventory carryover.” .

Q&A Highlights

Pasadena ramp and earnings cadence: ~6 products qualified to date; ~$4m pre‑operating expense in Q1; Q2 still negative but less so; full contribution expected in 2H25, with full plant contribution in 2026 as qualifications proceed .
Polymers margin path: high‑cost inventory that pressured Q1 margins is being worked down; margins should improve beginning Q2; pricing expected to stabilize as raws stabilize .
Demand/volumes and channel: No evidence of customer overstocking in Q1; April trends similar with stronger Polymers volumes; distribution growth reflects both underlying market and share gains; >400 new customers added .
Tariffs and pricing: majority local‑for‑local production limits direct impact; will price to recover tariff costs and adjust sourcing where practical; USMCA covers Mexico/Canada shipments .
Raw materials: Oleochemicals rose in Q1, creating lagged pass‑through in Surfactants; raw materials have stabilized recently, but tariffs add uncertainty .

Estimates Context

Q1 2025 actuals vs S&P Global consensus

Metric	Consensus	Actual	Surprise
Revenue ($m)	$562.27*	$593.26	+$30.99 / +5.5%
Diluted EPS ($)	$0.597*	$0.84	+$0.243 / +40.8%

Values marked with * retrieved from S&P Global.

Implications: Broad‑based volume growth, improved mix, and a lower tax rate (20.1%) underpinned the beat; Street models may need higher Surfactants margin and Specialty MCT recovery, while modeling Pasadena pre‑op drag rolling off and Polymers mix normalization over 2H25 .

Key Takeaways for Investors

Quality beat on revenue and EPS with positive breadth across Surfactants and Specialty; momentum likely into 2H as Pasadena ramps and supply chain savings accrue .
Polymers remains the swing factor: mix and inventory headwinds should fade from Q2, setting up incremental margin recovery into 2H25 .
Tariff uncertainty manageable via pass‑through and sourcing actions; monitor for secondary demand effects in construction and consumer .
Working capital build and tariff‑related inventory purchases drove negative FCF; management still targets positive FCF for FY25, making Q2/Q3 cash conversion key checkpoints .
Surfactants mix shift toward Ag/Oilfield and T2/T3 customers supports structurally better pricing and margins versus consumer commodity exposure .
Specialty (MCT) margin recovery continues; supportive to consolidated EBITDA resilience .
Dividend maintained at $0.385/share; signals confidence while preserving flexibility for ramp and growth execution .

STEPAN CO (SCL)·Q1 2025 Earnings Summary