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STEPAN CO (SCL)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered slight top-line growth but missed consensus: revenue $590.3M vs $593.7M cons* and adjusted EPS $0.48 vs $0.615 cons*, while adjusted EBITDA rose 6% YoY to $56.2M; reported EPS was $0.47 . Surfactants margin pressure and Pasadena start-up costs weighed on earnings despite Specialty Products strength .
  • Segment mix: Surfactants net sales +10% YoY but adjusted EBITDA −14% on higher oleochemical costs and start-up expenses; Polymers volumes +8% but unit margins lower; Specialty Products EBITDA +113% on pharma order timing .
  • Cash generation improved: Cash from operations $69.8M and free cash flow $40.2M on working capital reductions; capex $29.6M. Net debt fell to $537.0M (30% net debt ratio) .
  • Guidance tone: Management reiterated confidence in full‑year adjusted EBITDA growth and positive FCF in 2025; effective tax rate expected to normalize to 24–26% (call). Adjusted net income growth commentary from Q2 was not reiterated in Q3, a subtle guidance shift .
  • Stock reaction catalysts: trajectory of coconut oil/oleochemical costs and speed of surfactant price recovery, Pasadena ramp into 2026, Specialty Products momentum, and portfolio actions (Philippines asset sale) .

What Went Well and What Went Wrong

  • What Went Well
    • Specialty Products outperformance: Adjusted EBITDA up 113% YoY on pharma order timing; MCT volumes +26% (call) . Quote: “Specialty Products adjusted EBITDA increased significantly, driven by favorable order timing within the pharmaceutical business” (CEO) .
    • Cash generation and balance sheet: Free cash flow $40.2M on $69.8M CFO; net debt down $32.1M vs Q2 to $537.0M; net debt ratio 30% .
    • Polymers volume growth: +8% with double‑digit growth in North American rigid and PA; supports later-cycle recovery optionality despite margin pressure .
  • What Went Wrong
    • Surfactants margin pressure: Adjusted EBITDA −14% YoY due to −2% volumes, higher oleochemical raw materials, and Pasadena start‑up costs .
    • Profitability compression vs prior year: Adjusted net income fell 54% YoY to $10.9M ($0.48/share) on higher taxes, depreciation and net interest (non‑cash impacts) .
    • Q3 execution vs expectations: Revenue and EPS were below consensus; EBITDA also modestly below, reflecting slower-than-modeled margin recovery despite pricing/mix tailwinds*.

Financial Results

Quarterly trend (YoY + sequential) – actuals

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Net Sales ($M)$546.8 $593.3 $594.7 $590.3
EBITDA ($M)$53.0 $58.0 $50.6 $56.1
Adjusted EBITDA ($M)$53.1 $57.5 $51.4 $56.2
Net Income ($M)$23.6 $19.7 $11.3 $10.8
Diluted EPS ($)$1.03 $0.86 $0.50 $0.47
Adj. Diluted EPS ($)$1.03 $0.84 $0.52 $0.48

Q3 2025 actual vs consensus and YoY

MetricQ3 2025 ActualQ3 2025 Consensus*SurpriseYoY Change
Revenue ($M)$590.3 $593.7*−$3.4M (−0.6%)*+8.0% vs $546.8M
Adjusted EBITDA ($M)$56.2 $57.9*−$1.7M (−2.9%)*+6.0% vs $53.1M
Adjusted EPS ($)$0.48 $0.615*−$0.135 (−22.0%)*−53% vs $1.03

*Values retrieved from S&P Global.

Segment breakdown – Q3 2025 vs Q3 2024

SegmentNet Sales Q3’24 ($000s)Net Sales Q3’25 ($000s)YoY %Operating Income Q3’24 ($000s)Operating Income Q3’25 ($000s)YoY %
Surfactants382,724 422,358 +10% 26,303 15,718 −40%
Polymers149,796 143,928 −4% 15,248 14,104 −8%
Specialty Products14,322 23,998 +68% 3,727 9,634 +158%
Total546,842 590,284 +8% 23,949 21,794 −9%

KPIs and cash/returns

KPIQ3 2025Reference
Global sales volume growth+1% YoY
Surfactants volume growth−2% YoY
Polymers volume growth+8% YoY
MCT product line volume+26% YoY (call)
Cash from Operations ($M)$69.8
Free Cash Flow ($M)$40.2
Capital Expenditure ($M)$29.6
Net Debt ($M)$537.0
Net Debt Ratio30%
Dividend per share$0.395 (2.6% increase)

Guidance Changes

Metric/ItemPeriodPrevious Guidance (Q2 2025)Current Guidance (Q3 2025)Change
Adjusted EBITDAFY 2025“Deliver full‑year Adjusted EBITDA growth” “Deliver full‑year adjusted EBITDA growth” Maintained
Adjusted Net IncomeFY 2025“Deliver full‑year Adjusted Net Income growth” Not reiterated in Q3 release Lowered emphasis (not restated)
Free Cash FlowFY 2025“Positive free cash flow in 2025” “Generating positive free cash flow in 2025” Maintained
Effective Tax RateFY 2025+Not explicitly guidedNormal range ~24%–26% (management forecast, call) New detail
Pasadena rampThrough 2026“Provide benefits in 2H25 and going forward” Fully operational; full contribution in 2026 (call) Timing clarified
Portfolio actionsQ4 2025On track to close PH asset sale in Q4 Still on track; broader footprint optimization under review Maintained; scope expanded (call)
DividendQ4 2025$0.385/sh (Q2) $0.395/sh; 58th consecutive annual increase Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Oleochemical inflation & pricing recoveryPlan to recover higher oleochemical costs via 2H25 pricing Coconut oil ~+$1,000/t YoY (70% increase); prices off peak; margin recovery targeted by 2026 Recovery extended into 2026; raw costs easing
Pasadena (alkoxylation) rampOperational; benefits expected 2H25 and onward Fully operational; 41 products made; full contribution expected in 2026 Execution progressing; timeline clarified
Surfactants mix & demandAg and oilfield strength; consumer commodity softness Same pattern; volume −2% as laundry/cleaning weak; mix/pricing supportive Ongoing mix shift to higher‑value niches
Polymers demand & marginsVolumes up; margins pressured by mix and pricing Volumes +8%; unit margins softer; benefit expected with volume scale; Europe remains weak Gradual recovery tied to volumes; EU headwinds
Tariffs/macroTariff uncertainty noted “Ongoing market and tariff uncertainties” persist Unchanged risk backdrop
Portfolio optimizationNoted willingness to optimize footprint PH asset sale on track; more optimization actions under evaluation (call) Accelerating portfolio discipline

Management Commentary

  • Strategic focus: “We remain focused on accelerating our business strategies through enhanced operational excellence, improved product and customer mix and accelerated free cash flow generation” (CEO) .
  • Surfactants recovery: “We will continue driving the right balance between volumes and margins... This is an asset‑intensive business... to maximize net income” (CEO) .
  • Pasadena update: “Our new Pasadena, Texas site is fully operational... We expect that the full contribution rate of the plant will be achieved in 2026” (CEO) .
  • Specialty Products: “Specialty Products adjusted EBITDA increased significantly, driven by favorable order timing within the pharmaceutical business” (CEO) .
  • Outlook tone: “We remain optimistic about delivering full year adjusted EBITDA growth and generating positive free cash flow in 2025” (CEO) .

Q&A Highlights

  • Surfactants margin recovery timing: Management aims to restore margins impacted by coconut oil inflation by 2026; prices have pulled back from ~$3,000/t peak, but catch‑up continues; pricing actions taken Oct 1 in North America .
  • Pricing vs raw material deflation: Team will balance volume and margins to maximize returns; will remain competitive without sacrificing share (asset utilization focus) .
  • Polymers outlook: Pent‑up reroofing/insulation demand expected over coming years; lower rates could support activity in 2026; unit margins should improve gradually with scale, but no near‑term step‑change planned .
  • Portfolio optimization: PH asset sale on track for Q4; additional asset rationalization under evaluation to address industry overcapacity (no specifics disclosed) .
  • Specialty sustainability: Strong MCT growth (+26%) and pharma order timing supported results; viewed as high‑margin, strategically important niche with further runway .

Estimates Context

  • Q3 2025 vs consensus: Revenue $590.3M vs $593.7M cons* (−0.6%); Adjusted EBITDA $56.2M vs $57.9M cons* (−2.9%); Adjusted EPS $0.48 vs $0.615 cons* (−22%)*. Actuals cited above from company filings .
  • Forward consensus: Q4 2025 EPS $0.395*, revenue $570.6M*, EBITDA $52.2M*; FY 2025 EPS $2.245*, revenue $2.349B*, EBITDA $214.95M*. Post‑print, EPS estimates may bias lower given tax/depreciation/interest headwinds and slower surfactant margin recovery cadence into 2026 (call) .
    *Values retrieved from S&P Global.

Key Takeaways for Investors

  • Specialty strength and positive FCF are offsets, but the quarter was a modest miss on revenue, EBITDA, and EPS versus consensus as surfactant margin recovery trails pace* .
  • Pasadena is ramping as planned, with full contribution expected in 2026; this should aid alkoxylation economics and supply chain savings over time .
  • Surfactants remain pressured by oleochemical inflation and start‑up costs; management is using pricing/mix and expects normalization as coconut oil prices ease and pricing catches up by 2026 .
  • Polymers volume momentum (+8%) provides leverage to a construction/roofing recovery, but margins hinge on mix and regional demand (Europe still weak) .
  • Guidance nuance: Adjusted EBITDA growth and positive FCF for 2025 reiterated; adjusted net income growth not reiterated, reflecting tax/depreciation/interest headwinds .
  • Portfolio optimization is an active lever (PH sale Q4; further actions possible) that could improve capital efficiency if executed prudently .
  • Near‑term trading: Watch commodity inputs (coconut oil), pace of price realization, and Pasadena ramp updates; dividend increase (2.6%) underscores capital return discipline .