| Revenue of $593.26M (7.59% Y/Y) beats by $30.99M
Stepan Company (NYSE:SCL) Q1 2025 Earnings Conference Call April 29, 2025 8:00 AM ET
Company Participants
Sam Hinrichsen – VP & Interim CFO
Luis Rojo – President & CEO
Luis Rojo
Thank you, Sam. Good morning and thank you all for joining us today to discuss our first quarter 2025 results.
I plan to share highlights of the quarterly performance and will also share updates on our key strategic priorities while Sam will provide additional detail on our financial results.
We are pleased with the start of 2025 and I’m proud of our team that is committed to further improving earnings going forward. The company reported first quarter adjusted EBITDA of $57.5 million, up 12% versus the prior year. Surfactant and Specialty Products delivered double-digit adjusted EBITDA growth while Polymers adjusted EBITDA decreased slightly year-over-year.
Volume grew 4% and the growth was broad-based with Surfactants up 3%, Polymers up 7% and our MCT product line up 4%. We continue to experience double-digit volume growth within the agricultural and oil field end markets and with our distribution partners in Surfactants.
North America and European Rigid Polyol volume grew single-digits while the Specialty Polyols and Commodity PA businesses delivered a strong growth year-over-year. We believe that Rigid Polyol growth in North America and Europe continues to be restrained by global macroeconomic uncertainties and the high interest rate environment. We’re encouraged by the broad-based volume growth across several of our key strategic end markets.
We finished the first quarter of 2025 with $19.3 million of adjusted net income, up 32% versus the prior year driven by earnings growth in Surfactants and Specialty Products and a lower tax rate.
We executed the safe startup of our new Pasadena, Texas site, which is now operational. During the first quarter of 2025, the company paid $8.7 million in dividends to shareholders. Our Board of Directors declared a quarterly cash dividend on Stepan common stock of $0.385 per share payable on June 13, 2025. Stepan has paid an increased dividend for 57 consecutive years.
Sam Hinrichsen
Now on Slide 8, Polymer net sales were $146.1 million for the quarter flat versus the prior year. Spending prices decreased 7% primarily due to the pass-through of lower raw material costs and competitive pressures. Sales volume increased 7% in the quarter. North American and European Rigid Polyol volume were low-single-digits despite the continued challenging overall environment. Specialty Polyols and Commodity Phthalic Anhydride volume delivered strong growth year-over-year. China polymers volume was up low-single-digits.
Luis Rojo
Thanks, Sam.
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 with Tier 2 and Tier 3 customer remains a key priority. This is an important and profitable growth channel within our Surfactant business.
For the first quarter of 2025, our volume grew mid-single-digits year-over-year and we added over 400 new customers. Our end market diversification strategy remains a key focus area. For the first quarter, we grew double-digits in our agricultural and oilfield businesses. We are pleased to see our North America and European Rigid Polyol business return to year-over-year growth after a challenging 2023 and 2024.
Insulation remains a critical enabler of a more sustainable and energy efficient world and we are confident in the long-term growth prospect of this business. Our focus continue to be on developing the next-generation rigid polyol technologies that can increase the energy efficiency and cost performance of our customer insulation products. Additionally, we are excited about the new products we are introducing in the growing spray foam end market.
Within Polymers, we were able to achieve a strong growth in our Specialty Polyol and our Commodity PA business. This will enable us to deliver earnings growth in 2025. Our supply chain operation and resiliency continues to improve and we deliver a solid quarter in all our key operational metrics. We’re continuing to make the necessary investments in our new website to ensure reliable operations both today and in the future.
Moving to Slide 11, we safely start up our new Pasadena, Texas site. We have made six different products today. We expect to achieve the full contribution rate of the plan during the second half of 2025. Our commercial teams continues to develop and deliver new specialty alkoxylation opportunities. Specialty alkoxylation volume grew strong double-digits in the first quarter.
To conclude, we remain focused on accelerating our business strategy to improve executions to grow volume, improve product and customer mix and accelerate free cash flow generation. We believe Surfactant will experience continued growth in our key strategic end markets and that polymer demand will continue improving as we get more market certainty and we execute our innovation and growth plans.
In addition, our Pasadena facility is now operational and as frivolous communicated, we believe this will enable us to deliver volume growth and supply chain savings during the second half of the year. Despite all the current market uncertainties including the impact of tariffs, we remain cautiously optimistic that we will deliver full year adjusted EBITDA and adjusted net income growth and positive free cash flow in 2025.
David Silver
Okay, very good. Thank you for that. I did have a question follow-up maybe on your comments on the Polymer side this quarter. So I think you did speak to some of the inventory issues that may have impacted your margins. But I was hoping, not sure if you commented on this but in the slide deck, you did cite a less favorable product mix and I’m just wondering if you could comment on that. Is that particular end markets, is that a particular region, just the less favorable product mix that maybe impacted your margin performance this quarter and what is the outlook for that — for the balance of the year? Thank you.
Luis Rojo
Yes, good point, David. The issue is the following. We were very clear. We grew single-digits, our Rigid Polyol business like North America and Europe combined low-single-digits. We grew very strong double-digits in our Phthalic Anhydride, our PA business. And of course, Phthalic Anhydride is a commodity, it has lower margins and we are capturing a lot of new business and new share in that end market because other competitive dynamics. So that is what is driving the mix impact in the Polymers business. That will continue because we continue growing in our PA business. But of course, I mean we need — the issue in Q1 was the high inventory cost that we had across the Polymers business that really drag the margins and that’s why we had basically flattish EBITDA with volumes of 7%. That was the main drag.
David Silver
Okay, great. Thanks for that. Next question would probably be a two-parter, but the topic would be tariff impacts as you see them currently. And I do think you’re largely a local for local kind of structure right now, certainly in the U.S. and Europe maybe. But I am wondering about if you could comment on how the tariff situation as it currently stands, which I recognize is uncertain, but are there any kind of pressure points maybe from your — in your Mexican production base in particular, is any — is all of that product covered by the USMCA agreement or might some of it be sold into the U.S. and be subject to some of the tariffs that have recently been announced? But — and admittedly unsettled. But where would you kind of characterize your greatest sensitivity, direct impact from potential tariff policies?
Luis Rojo
Sure. Of course, the question of the week and the month, right? Look, as you said, David, things are changing every day. This is a very volatile and uncertain dynamic that we all have to navigate through right now. As you clearly said, the majority of our business is sourced, produced and sold within the regions, right? So the majority of our volumes are in each of the regions that we compete. And so — but of course, there are still impacts on the tariff because we import raw materials.
And there is going to be always some impact that we are working right now to mitigate through changes on our sourcing strategy where possible and where it makes sense. And also pricing, we all know tariffs are inflationary. Many — I believe many customers and many competitors will price for tariff. And we’re working on that right now because our objective will be to recover any impact.
When you think about Mexico and Canada, our products are included in the USMCA. So we’re good with Mexico and Canada, but we still have other things that we need to recover via pricing and via supply chain changes.
Luis Rojo
The comments that we made was we had single-digit growth in our Rigid Polyol business in North America and Europe and that we believe there is a start — there is still constrained demand because of the uncertainties in the market because of the high interest rate environment. So we believe there is a lot of pent-up demand in this industry and this end market and we haven’t seen the full potential of it.
And hopefully, with more certainty and lower interest rates in the future, that’s where we will see this business growing faster like it did in the last, if you think of the last 10 to 20 years, this business grew high-single-digits, the markets grew high-single-digits and we are not seeing the markets growing high-single-digits now. So that, that will take some times to go back to those levels.
Dmitry Silversteyn
Okay. But it is improving — excuse me, the demand level you’re seeing in the first quarter is better than what you saw in 2024 and 2023.
Luis Rojo
Yes, yes. We grew 7% volumes in polymers and we grew single-digits in Rigid Polyol.
Dmitry Silversteyn
Okay, okay. But okay, so the business is growing, but there’s still more growth to come, assuming the interest rate environment and the economic environment improves. Understood. Thank you.
Mike Harrison
Hi, just a couple more for me. I know you’ve addressed a lot of questions on tariffs. My question relates to imports of competitor products. I believe in the past, you guys maybe particularly in the Rigid Polyol side, you’ve talked about some competition from imports in the U.S. And I believe this has also come up in the context of the medium chain triglycerides business within your Specialty business. So are you — based on what you’re seeing with the tariffs right now, are you expecting that maybe some import competition could decline because of the impact of tariffs in any of your three segments?
Luis Rojo
Great question, Mike. And not in Polymers. The Polymers business is heavily sourced all time competition within the region. So — but you are 100% right that our MCT business have imported competition. And we are evaluating options. And to some degree, the Surfactant business as well. I mean, we always see some levels of Surfactants import from China, especially in the West Coast. These are not significant volumes, but there is always some imported products in the Surfactant business that, that for sure we will evaluate and try to grow our business and grow our shares.
Mike Harrison
All right, very helpful. And then, last question for me is on the distribution piece of the Surfactant business and the growth that you’re seeing there, is that just underlying market growth? Are you seeing some broader shifts away from a direct-to-customer and more volume just naturally moving through distributors? Or is this part of a more concerted effort on your part to expand distribution relationships or partnerships? And if that is the case, is that a North America thing? Is it a global thing? What color could you provide on that? Thank you.
Luis Rojo
Look, we are continue working on our Tier 2, Tier 3 strategy globally. I wouldn’t say this is a North America only focus. I mean, it’s a focus area for all our regions in our Surfactant business. But of course, North America continues to be the biggest region. And what I would say is that you have both, you have market growth and you have our ongoing efforts to capture share, to capture more customers. I mentioned that we acquired more than 400 new customers in this space. So it’s part of our core strategy as we continue developing this business and continues to pay out.
