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STEPAN CO (SCL)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 net sales were $594.7M (+7% YoY), adjusted EPS was $0.52 (+27% YoY), and adjusted EBITDA was $51.4M (+8% YoY); however, GAAP diluted EPS was $0.50 and free cash flow was negative $14.4M due to inventory builds ahead of tariffs and safety stock preparation .
  • Versus Wall Street: Q2 revenue modestly missed consensus ($594.7M vs $598.3M) and EPS significantly missed ($0.52 vs $0.90). Q1 2025 was a strong beat on both revenue and EPS; Q4 2024 was a slight revenue beat but EPS miss. Adjustments to estimates likely needed for near-term margin recovery pacing and raw material inflation pass-through (values retrieved from S&P Global)*.
  • Key drivers: Polymers volume +7% supporting segment EBITDA +17%; Surfactants saw pricing/mix uplift but margin headwinds from oleochemical inflation and one-time items (~$6.1M pre-tax across Pasadena start-up, Millsdale remediation reserve, and EPA penalty) .
  • Management reiterated confidence in delivering full-year adjusted EBITDA and adjusted net income growth and positive free cash flow in 2025, citing price actions, Pasadena ramp (31 products made; full contribution targeted in Q4 2025), and asset optimization (Philippines sale expected to close in Q4) .

What Went Well and What Went Wrong

What Went Well

  • Polymers delivered 7% sales volume growth, lifting adjusted EBITDA by $3.8M (+17% YoY), despite pricing pressure from lower raw material pass-through .
  • Strong demand mix: Double-digit growth in Agricultural and Oilfield end-markets within Surfactants; specialty products MCT volumes up sharply per management commentary .
  • Pasadena alkoxylation ramp progressing: 31 products produced to date; management expects full contribution rate by Q4 2025 and supply-chain savings thereafter .
  • Quote: “Quarterly earnings were up double digits driven by improved Polymer and Crop Productivity results as well as a lower effective tax rate… We remain encouraged by the growth within several of our key strategic end markets” — CEO Luis E. Rojo .

What Went Wrong

  • Surfactants margins compressed due to significant oleochemical raw material inflation; adjusted EBITDA down slightly YoY (-1%) and volume down -1% despite pricing/mix gains .
  • One-time pre-tax impacts of $6.1M from Pasadena startup costs, Millsdale remediation reserve, and an EPA penalty ($1M; management plans recovery) weighed on results .
  • Free cash flow negative ($14.4M) as working capital rose to build inventories ahead of anticipated tariffs, hurricane season, and a new collective bargaining agreement at Millsdale .

Financial Results

Headline Performance vs Prior Quarter, Prior Year, and Consensus

MetricQ4 2024Q1 2025Q2 2025
Net Sales ($USD Millions)$525.6 $593.3 $594.7
GAAP Diluted EPS ($)$0.15 $0.86 $0.50
Adjusted Diluted EPS ($)$0.12 $0.84 $0.52
EBITDA ($USD Millions)$35.8 $58.0 $50.6
Adjusted EBITDA ($USD Millions)$35.0 $57.5 $51.4
Cash from Operations ($USD Millions)$68.3 $6.9 $11.2
Free Cash Flow ($USD Millions)$32.1 -$25.8 -$14.4

Consensus vs Actual (S&P Global)

MetricQ4 2024 EstimateQ4 2024 ActualQ1 2025 EstimateQ1 2025 ActualQ2 2025 EstimateQ2 2025 Actual
Revenue ($USD Millions)520.97*525.61 562.27*593.26 598.25*594.69
Primary EPS ($)0.33*0.12 0.597*0.84 0.90*0.52
  • Q2 2025: Revenue slight miss; EPS significant miss. Q1 2025: Both revenue and EPS beats. Q4 2024: Revenue beat; EPS miss (values retrieved from S&P Global)*.

Margins

MetricQ4 2024Q1 2025Q2 2025
Gross Profit Margin %10.79%*12.72%*12.09%*
EBITDA Margin %6.77%*9.75%*8.32%*
Values with asterisks retrieved from S&P Global.

Segment Net Sales and Operating Income

SegmentQ4 2024 Net Sales ($MM)Q1 2025 Net Sales ($MM)Q2 2025 Net Sales ($MM)
Surfactants$378.8 $430.3 $411.5
Polymers$129.8 $146.1 $162.8
Specialty Products$17.0 $16.8 $20.5
Total$525.6 $593.3 $594.7
SegmentQ4 2024 Operating Income ($MM, pre-tax)Q1 2025 Operating Income ($MM, pre-tax)Q2 2025 Operating Income ($MM, pre-tax)
Surfactants$16.17 $28.93 $13.37
Polymers$3.40 $8.02 $17.16
Specialty Products$5.59 $5.51 $5.26
Total Segment OI$25.16 $42.46 $35.78
Corporate Expenses($17.47) ($14.17) ($17.82)
Consolidated OI$7.70 $28.29 $17.97

KPIs and Balance Sheet Highlights

KPIQ4 2024Q1 2025Q2 2025
Global Sales Volume YoY-1% +4% +1%
Effective Tax RateFY 2024: 16.7% Q1: 20.1% H1: 19.2%
Net Debt Ratio31% 31% 31%
Inventories ($MM)$288.7 $309.3 $329.5
Dividend/Share ($)$0.385 (declared) $0.385 (declared) $0.385 (declared)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDAFY 2025“Cautiously optimistic to deliver full year Adjusted EBITDA growth” “Remain optimistic to deliver full year Adjusted EBITDA growth” Maintained
Adjusted Net IncomeFY 2025“Cautiously optimistic to deliver growth” “Remain optimistic to deliver growth” Maintained
Free Cash FlowFY 2025Positive FCF expected Positive FCF expected Maintained
Effective Tax RateOngoingNormal range 24–26% Normal range 24–26% (post discrete benefits) Maintained
DepreciationFY 2025$128–$132M midpoint $130M (Pasadena-driven) No update in Q2; Pasadena ramp ongoing Maintained
DividendQuarterly$0.385/share declared $0.385/share declared Maintained

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
Pasadena alkoxylation rampStart-up expected Q1’25; pre-op costs pressured Q4 6 products produced; ~$4M quarterly start-up drag; benefits later in 2025 31 products produced; full contribution targeted Q4’25; supply-chain savings ahead Improving ramp
Oleochemical/raw materials—Oleochemicals up; margin lag; price actions underway Significant rise; margins pressured; plan to recover via pricing in H2 Inflation headwind; recovery planned
Tariffs/macro—Inventory builds; pricing to offset tariff impacts Inventory builds ahead of anticipated tariffs; negative FCF Monitoring; pricing response
Surfactants end marketsAg/Oilfield double-digit growth Continued double-digit growth (Ag, Oilfield, distribution) Continued double-digit growth in Ag & Oilfield; commodity consumer demand weak Positive mix; consumer weak
Polymers demandSluggish Rigid demand; volume down Volume +7%; margins hit by mix & high-cost inventory Volume +7%; adjusted EBITDA +17% Recovery
Asset optimization——Philippines asset sale on track for Q4; ongoing footprint review Streamlining
AOS capacity——AOS capacity +25% via investments/process improvements Capacity expansion
Tax rateFY ETR 16.7% Q1 ETR 20.1% (discrete) H1 ETR 19.2%; normal 24–26% going forward Normalizing

Management Commentary

  • “Second quarter adjusted EBITDA grew 8%… despite higher start-up expenses at our Pasadena site, [and] significant run up in Oleochemical raw material costs that we are planning to recover during the second half of the year.” — CEO Luis E. Rojo .
  • “Polymer adjusted EBITDA increased $3.8 million, or 17%, versus the prior year primarily due to the 7% sales volume growth.” — Press release segment detail .
  • “The $6 million includes all the one-timers… Pasadena, [Millsdale] environmental remediation reserve… and the EPA fine (~$1 million) which we are planning to recover.” — CEO Luis E. Rojo (Q&A) .
  • “We expect the full contribution rate of [Pasadena] will be achieved during the fourth quarter of 2025, with full-year benefits in 2026.” — CEO Luis E. Rojo .
  • “The effective tax rate was 19.2% during the first half… primarily driven by favorable discrete items associated with a tax settlement in the U.S.” — CFO Ruben Velasquez .

Q&A Highlights

  • One-time impacts: $6M pre-tax drag from Pasadena start-up, Millsdale remediation, and EPA penalty ($1M), with intent to recover EPA penalty .
  • Raw materials and pricing cadence: Coconut oil at ~$3,000/MT vs ~$1,000/MT 18 months ago; price actions executed late Q2 to catch-up in H2 .
  • Labor agreement: New 4-year collective bargaining agreement at Millsdale; inventory builds to manage transition; operations improving but still targeted for productivity gains .
  • AOS expansion: Strategy to be “one-stop shop” with sulfate-free growth focus; added capacity supports Tier 2/3 and broader mix .
  • Tax rate outlook: Discrete benefits lowered H1 ETR; normal effective tax rate range remains 24–26% going forward .

Estimates Context

  • Q2 2025: Revenue slight miss ($594.7M vs $598.3M estimate); EPS significant miss ($0.52 vs $0.90). Q1 2025: Revenue/EPS beats; Q4 2024: Revenue beat, EPS miss (values retrieved from S&P Global)*.
  • Implications: Street likely reduces near-term EPS for Surfactants margin normalization and one-time items, while Polymers’ volume strength and Pasadena savings later in 2025 may offset medium-term.

Key Takeaways for Investors

  • Polymers momentum is real: volume +7%, adjusted EBITDA +17% — a key offset to Surfactants margin pressures and a positive read-through for H2 earnings quality .
  • Surfactants margins should improve as price increases roll through and oleochemical inflation is recovered; monitor H2 cadence and any further tariff-related impacts to demand/pricing .
  • Pasadena is the swing factor: 31 products produced; savings and throughput expected to inflect by Q4 2025 — an important medium-term catalyst .
  • Near-term FCF headwinds from working capital are transitory (tariff and safety stock builds); management still targets positive full-year FCF .
  • Watch regulatory and remediation costs: Millsdale reserve and EPA penalty were one-time drags; recovery efforts and risk management will be key .
  • Portfolio optimization underway: Philippines asset sale (Q4 closure) and broader footprint review can sharpen returns and capital efficiency .
  • Dividend sustained ($0.385/quarter) with 57 years of increases; supportive signal of cash flow confidence despite Q2 working capital builds .

Appendix: Additional References

  • Q2 2025 8-K and Press Releases: results, dividend, tables .
  • Q2 2025 Earnings Call: prepared remarks and Q&A (start-up costs, tax rate, AOS, Pasadena ramp) .
  • Prior Quarters: Q1 2025 (8-K, transcript) for trend analysis ; Q4 2024 (8-K, transcript) for baseline .

Notes: Values with asterisks are retrieved from S&P Global.