Stepan Company (SCL) Q3 2025 Earnings Call Transcript

Oct. 29, 2025 2:06 PM ETStepan Company (SCL) StockSCL

Q3: 2025-10-29 Earnings Summary

EPS of $0.48 misses by $0.14

 | Revenue of $590.28M (7.94% Y/Y) misses by $3.37M

Stepan Company (SCL) Q3 2025 Earnings Call October 29, 2025 9:00 AM EDT

Company Participants

Ruben Velasquez – VP & Chief Financial Officer
Luis Rojo – President, CEO & Director

Luis Rojo
President, CEO & Director

Thank you, Ruben. Good morning, and thank you all for joining us today to discuss our third quarter 2025 results. I plan to share highlights of the quarterly performance and we will also share updates on our key strategic priorities, while Ruben will provide additional details on our financial results.

We delivered 9% adjusted EBITDA growth through the first 9 months of 2025, bringing year-to-date adjusted EBITDA to $165 million.

These results were restrained by the significant increase in oleochemical raw material prices, which continues to impact Surfactant margins and by higher start-up costs related to our new Pasadena, Texas facility.

We remain focused on gradually recovering our margins and keeping a healthy balance between volumes and margins. Third quarter adjusted EBITDA was $56 million, up 6% year-on-year.

Specialty Products adjusted EBITDA increased significantly, driven by favorable order timing within the pharmaceutical business.

Polymers delivered volume growth across rigid polyols and commodity PA, while EBITDA was slightly lower due to unfavorable mix and margin pressures.

Surfactant adjusted EBITDA declined versus the prior year, driven by higher Pasadena start-up costs, oleochemical raw material cost inflation and lower demand within our global commodity consumer products end market.

Total company sales volumes grew 1%, with Polymers up 8% and our NCT product line up 26%, while Surfactants volume declined 2%. In Surfactants, we continue to experience double-digit volume growth within the crop productivity business and mid-single-digit growth in the oilfield end market.

This growth was offset by lower demand within the global commodity consumer products end market. North America Rigid Polyol and commodity PA volumes were both up double digits, while European Rigid Polyol volumes continue to be impacted by macroeconomic uncertainties and low construction activity.

Despite a very challenging environment for the chemical sector, we remain encouraged by the volume growth across several of our key strategic end markets.

We finished the third quarter of 2025 with $10.9 million of adjusted net income, down 54% versus the prior year, largely reflecting a higher effective tax rate, higher interest net and higher depreciation, none of which had cash impact.

Free cash flow was positive at $40 million during the quarter, driven by reduced working capital and disciplined capital spending. During the third quarter of 2025, the company paid $8.7 million in dividends to shareholders.

Ruben Velasquez
VP & Chief Financial Officer

This was partially offset by improved product and customer mix. Moving to Slide 8, Polymers net sales were $143.9 million for the quarter, a 4% decrease versus the prior year.

Selling prices decreased 14%, primarily due to the pass-through of lower raw material costs and competitive pressures. Sales volume increased 8% in the quarter.

North America Rigid Polyol volume grew double digits and our commodity Phthalic Anhydride business continued to deliver strong growth.

Global Specialty Polyols volume grew mid-single digits despite the continued challenging overall environment.

European and China Rigid Polyols volume was impacted by softer demand across their respective regional end markets.

Luis Rojo
President, CEO & Director

Thank you, Ruben. I will focus my comments on our strategic priorities. Our customer will always remain at the center of our strategy and innovation efforts.

Our Tier 1 customer base remains a solid foundation of our business. Continuing our new customer acquisition within Tier 2 and Tier 3 customers remains a key priority. This is an important and profitable growth channel within our Surfactant business. For the third quarter of 2025, our volume grew low single digits year-over-year, and we added over 350 new customers.

Our end market diversification strategy remains a key focus area. For the third quarter, we continue to see a strong growth in our crop productivity and oilfield businesses. We are pleased to see our North America Rigid Polyol business continue to deliver year-over-year growth.

This growth was enhanced by our new product introduction in the growing spray-foam end market. Our supply chain operation and resiliency continue to improve, and we delivered another solid quarter in all our key operational metrics.

Michael Harrison
Seaport Research Partners

All right. And then over on the Polymers business, just a couple of questions here. First of all, do you believe that there is pent-up demand in the commercial roofing and commercial insulation space? And I’m curious, do you think that lower interest rates could help to stimulate some additional activity there?

Luis Rojo
President, CEO & Director

[ Fully aligned ] Mike. There is — we believe there is a lot of pent-up demand from all the construction that happened in the early 2000. I mean if you look at all the construction that happens in industrial construction, warehousing, plants, flat roofs in early 2000, which was a huge peak a lot of those buildings need renovation in the next 5 years.

We’re aligned 100% with the belief from some of our customers that all that reroofing needs to happen. It’s not going to happen overnight, but it needs to happen and PIR insulation is the preferred choice for all those flat roof projects coming up.

And you are 100% right that, I mean, we should see another interest rate reduction today, 98% probabilities now of an interest rate reduction in December Fed meeting.

So we believe 2026 will give us some upside on the construction activity if the interest rate continues the way they are and inflation rates continues the way they are, right? I mean we need shelter and rental inflation to keep coming down so we can achieve — so the Fed can achieve their 2% inflation target.

Michael Harrison
Seaport Research Partners

All right. And just to follow up on Polymers. From the margin side, I believe you mentioned that unit margins are down, the pricing was down quite a bit. You referred to some competitive dynamics that are challenging. Is your expectation that if we started to see some recovery in demand that we would also see some recovery in unit margins as well?

Luis Rojo
President, CEO & Director

Look, I mean, we’re happy — look, we always can improve our margins, right? But if you look at the first 9 months of the Polymers business, we were able to grow EBITDA modestly, very little, but modestly, we were able to grow despite sales down. So EBITDA margins are improving slightly in the Polymers business despite everything that is going on in Europe and especially in Europe, which is a very tough situation.

So we believe we want to grow the top line. We want to grow the volumes, and we need to keep inching up the margins as we drive scale. I mean, the benefit of higher volumes and scale should improve our margins, but we are not planning a significant increase. But we’re happy with the margins that we have, and we need to continue inching those up as we grow our business. And we had a negative impact on margin as we grow PA and as we grow in some of the other markets because those are typically a mix impact to the overall Polymers business.

David Storms
Stonegate Capital Partners, Inc., Research Division

I wanted to start, you mentioned on the call, spray foam has really been a nice driver for you in the Poly section. Could we — I guess my question is, how much more room for growth do you think there is there? And could we maybe see a second wave of growth if the European environment improves?

Luis Rojo
President, CEO & Director

Great question, Dave. Look, we have talked about spray foam in the past few quarters. We’re serious about this end market. We have developed great technologies and products to serve the high-growth margin, and we started this year. So I’m pleased with what the team has delivered and with the benefits that we are starting to get.

This is very early. And it’s a good market. It’s a good market that has a lot of potential to grow not only in the U.S., eventually in Europe in the future. But we are happy with our participation, and we need to grow more share. We are starting. We are starting from almost 0 share, and we are committed to continue investing and developing this business. And when you think about Europe, of course, we had higher expectations of our European region to start growing more on the construction activity.

And when you think about the war in Ukraine and all of those things, the reality is that construction activities are very muted still in the European region. Now as interest rates come down, as they keep focusing on energy conservation, which is a huge issue in Europe and the biggest opportunity is to consume — is to reduce the consumption of energies in the buildings. So we believe the market trends are there for the future. It’s not going to happen in the short term for sure. But we believe this is a good industry for the next 3 and 5 years, and we are committed to continue investing and to continue growing our European Polymers business.

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