• Adjusted EBITDA: $57.5 million, up 12% year-over-year.
• Volume Growth: Overall volume grew 4%; Surfactants up 3%, MCT product line up 4%.
• Adjusted Net Income: $19.3 million, a 32% increase from the prior year.
• Net Income per Share: $0.84 per diluted share, up from $0.64 per diluted share last year.
• Surfactant Net Sales: $430.3 million, a 10% increase year-over-year.
• Polymer Net Sales: $146.1 million, with a 7% increase in sales volume.
• Specialty Products Net Sales: $16.8 million, an 11% increase year-over-year.
• Free Cash Flow: Negative $25.8 million for the quarter.
• Dividends Paid: $8.7 million in dividends to shareholders.
• Quarterly Cash Dividend: $0.385 per share, payable on June 13, 2025.
• Effective Tax Rate: 20%, lower than the normal range of 24% to 26%.

• Warning! GuruFocus has detected 8 Warning Signs with SCL.

Release Date: April 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Stepan Co (NYSE:SCL) reported a 12% increase in adjusted EBITDA for the first quarter of 2025, reaching $57.5 million.
• The company experienced a 4% volume growth, with notable increases in the Surfactants and MCT product lines.
• Stepan Co (NYSE:SCL) successfully started operations at its new Pasadena, Texas site, which is expected to contribute positively in the second half of 2025.
• The company paid $8.7 million in dividends and declared a quarterly cash dividend, marking 57 consecutive years of dividend increases.
• Stepan Co (NYSE:SCL) added over 400 new customers in the first quarter, reflecting successful customer acquisition efforts.

Negative Points

• Free cash flow was negative at $25.8 million for the first quarter, down $37.2 million year over year.
• The Polymers segment experienced a slight decrease in adjusted EBITDA due to less favorable product mix and high-cost inventory carryover.
• Global macroeconomic uncertainties and high-interest rates continue to restrain Rigid Polyol growth in North America and Europe.
• The company faced higher pre-operating expenses at the Pasadena, Texas site, impacting overall profitability.
• Foreign currency translation negatively impacted net sales by 5% in the Surfactants segment.

Q & A Highlights

Q: Can you provide details on the Pasadena, Texas facility's contribution and ramp-up process? A: Luis E. Rojo, President and CEO, explained that the Pasadena facility is currently producing six products, with plans to produce over 60. The full contribution is expected in the second half of 2025, with the plant filling up quickly due to existing volumes. The facility incurred $4 million in pre-operating expenses in Q1, impacting EBITDA negatively, but future quarters should see supply chain savings offsetting these costs.

Q: What is causing the decline in the commodity consumer products segment within surfactants? A: Luis E. Rojo stated that the decline is not intentional but due to sluggish demand from consumer product customers. The company is not shifting volumes intentionally but will optimize assets if necessary. The current market environment, including inflation, is affecting consumer demand.

Q: How are tariffs impacting Stepan's operations, particularly regarding raw materials and customer relationships? A: Luis E. Rojo noted that tariffs are a significant concern, with potential impacts on raw material costs and customer pricing. The company is working to mitigate these impacts through sourcing strategy changes and pricing adjustments. Most of Stepan's business is local for local, minimizing direct tariff impacts, but indirect effects are being monitored.

Q: What is the outlook for the polymer business, considering high-cost inventory and pricing stabilization? A: Luis E. Rojo mentioned that high-cost inventory was a major issue in Q1, but margins should improve as these costs are phased out in Q2. Pricing is expected to stabilize, with improvements anticipated as raw material costs decrease.

Q: Can you elaborate on the growth strategy for Tier 2 and Tier 3 customers in the surfactants business? A: Luis E. Rojo highlighted that the growth strategy involves expanding relationships with Tier 2 and Tier 3 customers globally, not just in North America. This strategy is part of the company's core focus, with over 400 new customers added, contributing to market growth and share capture.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.