Stepan Company ((SCL)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Stepan Company’s latest earnings call painted a mixed picture of its financial performance. While the company celebrated significant achievements in adjusted EBITDA growth and the success of its specialty products segment, it also faced notable challenges, particularly in its surfactants segment. The call highlighted a sharp decline in adjusted net income, primarily due to tax and depreciation impacts.
Adjusted EBITDA Growth
The company reported a commendable 9% growth in adjusted EBITDA for the first nine months of 2025, reaching a total of $165 million year-to-date. This growth underscores Stepan’s ability to navigate a challenging economic environment and deliver solid financial results.
Specialty Products Segment Success
Stepan’s specialty products segment experienced remarkable success, with adjusted EBITDA soaring by 113% due to favorable order timing. Net sales in this segment also rose by an impressive 68% compared to the previous year, highlighting the strength and demand for these products.
Free Cash Flow Improvement
The company achieved positive free cash flow of $40 million during the quarter, driven by reduced working capital and disciplined capital spending. This improvement in cash flow is a positive indicator of Stepan’s financial health and operational efficiency.
Dividend Increase
In a testament to its commitment to returning value to shareholders, Stepan’s Board of Directors declared a quarterly cash dividend of $0.395 per share, representing a 2.6% increase. This marks the 58th consecutive year of dividend increases, reinforcing the company’s strong dividend policy.
Surfactants Segment Challenges
The surfactants segment faced significant challenges, with adjusted EBITDA decreasing by 14%. This decline was attributed to higher startup costs, raw material cost inflation, and lower demand in global commodity consumer products, reflecting the segment’s vulnerability to external pressures.
Adjusted Net Income Decline
Adjusted net income for the quarter fell by 54% to $10.9 million, impacted by a higher effective tax rate and increased depreciation. This decline highlights the financial pressures the company faces despite its operational successes.
Polymers Segment Pressure
The polymers segment experienced a 4% decrease in net sales and adjusted EBITDA, despite an 8% increase in sales volume. This was due to lower unit margins and an unfavorable mix, indicating challenges in maintaining profitability in this segment.
Oleochemical Raw Material Costs
Significantly higher oleochemical raw material costs have impacted surfactant margins, with raw material prices increasing by 70% compared to 2024. This substantial rise in costs underscores the external challenges affecting Stepan’s profitability.
Forward-Looking Guidance
Looking ahead, Stepan Company remains focused on enhancing operational excellence and improving its product and customer mix. The company anticipates fully recovering from raw material cost impacts by 2026 and aims to deliver positive free cash flow for the full year 2025. The new Pasadena site, which recently began operations, is expected to contribute to future growth.
In summary, Stepan Company’s earnings call revealed a mixed sentiment, with notable achievements in adjusted EBITDA growth and specialty products success, contrasted by challenges in the surfactants segment and a decline in adjusted net income. The company remains committed to overcoming these challenges and delivering value to its shareholders.