Core Insights - Stepan Co. reported revenue of $593.26 million for Q1 2025, a 7.6% year-over-year increase, with an EPS of $0.84 compared to $0.64 a year ago [1] - The revenue exceeded the Zacks Consensus Estimate of $558.6 million by 6.20%, and the EPS surpassed the consensus estimate of $0.51 by 64.71% [1] Financial Performance Metrics - Specialty Products net sales were $16.80 million, exceeding the estimated $16.50 million, reflecting an 11.4% increase year-over-year [4] - Polymers net sales reached $146.12 million, slightly above the estimated $138.70 million, with a year-over-year increase of 0.4% [4] - Surfactants net sales amounted to $430.34 million, surpassing the estimated $403.45 million, marking a 10.1% year-over-year increase [4] - Operating income for Surfactants was $28.93 million, exceeding the average estimate of $25.90 million [4] - Operating income for Specialty Products was $5.51 million, above the average estimate of $3.70 million [4] - Operating income for Polymers was $8.02 million, below the average estimate of $11.25 million [4] Stock Performance - Stepan Co. shares have returned -12.5% over the past month, compared to a -0.8% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 5 (Strong Sell), indicating potential underperformance relative to the broader market in the near term [3]

Group 1: Earnings Performance - Stepan Co. reported quarterly earnings of $0.84 per share, exceeding the Zacks Consensus Estimate of $0.51 per share, and up from $0.64 per share a year ago, representing an earnings surprise of 64.71% [1] - The company posted revenues of $593.26 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 6.20%, compared to year-ago revenues of $551.42 million [2] Group 2: Stock Performance and Outlook - Stepan Co. shares have declined approximately 25.5% since the beginning of the year, while the S&P 500 has decreased by 6% [3] - The current consensus EPS estimate for the upcoming quarter is $0.84 on revenues of $586.4 million, and for the current fiscal year, it is $2.99 on revenues of $2.31 billion [7] Group 3: Industry Context - The Chemical - Diversified industry, to which Stepan Co. belongs, is currently ranked in the bottom 15% of over 250 Zacks industries, indicating potential challenges for stock performance [8]

Financial Data and Key Metrics Changes - The company reported first quarter adjusted EBITDA of $57.5 million, up 12% year over year [5][10] - Adjusted net income for the quarter was $19.3 million, or $0.84 per diluted share, representing a 32% increase compared to $14.7 million, or $0.64 per diluted share, in the prior year [7][9] - Cash from operations was $6.9 million, while free cash flow was negative at $25.8 million, down $37.2 million year over year [10][16] Business Line Data and Key Metrics Changes - Surfactants and specialty products delivered double-digit adjusted EBITDA growth, while polymers adjusted EBITDA decreased slightly year over year [6][12] - Surfactant net sales were $430.3 million for the quarter, a 10% increase year over year, with sales volume growing 3% [12][13] - Polymer net sales were flat at $146.1 million, with a 7% increase in sales volume but a 7% decrease in selling prices [14][15] - Specialty product net sales increased by 11% to $16.8 million, primarily due to higher selling prices [15] Market Data and Key Metrics Changes - The company experienced double-digit volume growth in agricultural and oilfield end markets, while North American and European rigid polyol volume grew in low single digits [6][19] - Foreign currency translation negatively impacted net sales by 5% [13] Company Strategy and Development Direction - The company remains focused on customer acquisition, particularly in Tier two and Tier three markets, with over 400 new customers added in the first quarter [18][19] - The company is committed to developing next-generation rigid polyol technologies to enhance energy efficiency and cost performance [20] - The new Pasadena, Texas site is now operational, with expectations for full contribution in the second half of 2025 [21][23] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about delivering adjusted EBITDA and adjusted net income growth, as well as positive free cash flow in 2025 despite market uncertainties [22][23] - The company noted that the high interest rate environment continues to restrain growth in rigid polyol markets [6][19] Other Important Information - The effective tax rate was 20%, lower than the normal range of 24% to 26%, primarily due to favorable discrete items from a tax audit settlement [10][11] - The company paid $8.7 million in dividends during the first quarter and has increased its dividend for 57 consecutive years [8] Q&A Session Summary Question: Contribution of Pasadena facility - Management confirmed that the Pasadena facility is currently producing six products, with plans to produce over 60 products, and full contribution expected in 2026 [27][28] Question: Earnings contribution from Pasadena - Management indicated that Q2 is expected to show improvement but will still be negative, with positive contributions anticipated in Q3 and Q4 [32] Question: Decline in commodity consumer products - Management clarified that the decline is not due to intentional shifts but rather sluggish demand from consumer product customers [34][35] Question: Polymer business inventory costs - Management stated that high inventory costs were a drag on margins but are expected to improve in Q2 as those costs are cleared [36][37] Question: Down channel inventory levels - Management reported no significant overstocking in Q1 and noted strong volume growth continuing into April [43][44] Question: Customer mix and growth - Management confirmed that growth is coming from both Tier two and Tier three customers, as well as end market diversification [47][48] Question: Tariff impacts - Management indicated that while tariffs are a concern, most products are sourced and sold within regions, mitigating direct impacts [65][66] Question: Collaboration with customers - Management affirmed that collaborative work with customers continues without significant changes due to tariff announcements [68][70]

Core Insights - The company reported strong earnings and volume growth in Q1 2025, with adjusted EBITDA growing double digits, driven by the Surfactant and Specialty Product businesses [2][6][9] - Net sales increased by 8% year-over-year, reflecting a 4% increase in sales volume and higher selling prices, despite a negative impact from foreign currency translation [4][6] - The company is optimistic about continued growth in key strategic end markets and expects to improve free cash flow generation in 2025 [9] Financial Performance - Net Sales for Q1 2025 were $593.3 million, up from $551.4 million in Q1 2024, marking an 8% increase [3][19] - Operating Income rose to $28.3 million, a 40% increase from $20.2 million in the previous year [3][19] - Net Income was reported at $19.7 million, a 42% increase compared to $13.9 million in Q1 2024 [3][19] Segment Performance - Surfactants segment net sales increased by 10% to $430.3 million, driven by a 12% increase in selling prices and a 3% increase in sales volume [7][14] - Polymers segment net sales remained flat at $146.1 million, with a 7% increase in sales volume offset by a 7% decrease in selling prices [14] - Specialty Products segment net sales grew by 11% to $16.8 million, primarily due to higher selling prices [14] Cash Flow and Working Capital - Cash from operations was $6.9 million, while free cash flow was negative at $25.8 million due to higher working capital requirements [6][11] - The company’s total debt increased by $33.9 million, with net debt rising by $26.1 million compared to the end of 2024 [32][33] Tax and Corporate Expenses - The effective tax rate decreased to 20.1% in Q1 2025 from 28.6% in Q1 2024, attributed to favorable discrete items from a tax audit settlement [8] - Total corporate expenses decreased by 24% to $14.2 million, with adjusted corporate expenses down by 1% [29]

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Core Viewpoint - Stepan Company will release its first quarter 2025 earnings results on April 29, 2025, followed by a conference call to discuss financial and operational performance [1][2]. Company Profile - Stepan Company is a major manufacturer of specialty and intermediate chemicals, particularly known for its surfactants used in cleaning, disinfection, and agricultural products [4]. - The company is also a leading supplier of polyurethane polyols for the thermal insulation market and CASE (Coatings, Adhesives, Sealants, and Elastomers) industries [4]. - Headquartered in Northbrook, Illinois, Stepan operates modern production facilities across North and South America, Europe, and Asia [5]. Conference Call Details - The conference call will be hosted by Luis E. Rojo, President and CEO, and Samuel S. Hinrichsen, Vice President and Interim CFO [2]. - Participants can access the call via phone or webcast, with a recommendation to join ten minutes early to avoid delays [3].

Environmental Compliance and Expenditures - The Company reported a capital expenditure of $12.0 million for environmental compliance in 2024, representing approximately 10% of total capital expenditures for the year[23]. - Recurring costs for waste treatment and environmental compliance were approximately $51.3 million in 2024[23]. - The Company made capital investments to reduce 1,4 dioxane content in ethoxylated surfactants to comply with recent regulations, positioning itself for new market opportunities[23]. - The Company has recorded a liability for environmental remediation costs, with potential changes based on ongoing discussions with regulatory agencies[108]. - The Company has paid $4.0 million for environmental response costs at the Wilmington site through December 31, 2024, with potential liabilities subject to change[110]. - Environmental expenditures for capital projects were $12.0 million in 2024, with recurring costs of $51.3 million for environmental compliance[187]. - Environmental remediation expenses for 2024 were reported at $2.6 million, compared to $1.0 million in 2023[203]. Competition and Market Position - The Company is one of the leading merchant producers of surfactants globally, competing with several large global and regional producers[18]. - The company is subject to significant competition, with some competitors having greater financial resources and internal manufacturing capabilities, leading to potential loss of business[56]. - The company lost sales volume from a customer in 2022 who invested in internal production capabilities for low-1,4 dioxane products[56]. - The company is focused on developing new products to replace declining sales, but success in achieving growth expectations is uncertain[51]. Financial Performance - The company's net income in 2024 increased by $10.2 million, or 25%, to $50.4 million, equating to $2.20 per diluted share, compared to $40.2 million, or $1.75 per diluted share in 2023[134]. - Adjusted EBITDA for 2024 was $187.0 million, up 4% from $180.0 million in 2023, while EBITDA increased by 13% to $186.8 million[135]. - Consolidated net sales decreased by $145.5 million, or 6%, primarily due to lower average selling prices, which negatively impacted sales by $160.3 million[136]. - Operating income in 2024 rose by $11.9 million, or 20%, with surfactant and specialty products operating income increasing by $13.2 million and $9.4 million, respectively[137]. - The company's effective tax rate slightly decreased to 16.7% in 2024 from 16.9% in 2023[141]. - The Company recognized $4.6 million in investment gains for deferred compensation assets in 2024, compared to $5.2 million in 2023, alongside a decrease in foreign exchange losses from $3.7 million in 2023 to $1.4 million in 2024[140]. - Cash generated from operating activities was $162.1 million in 2024, down from $174.9 million in 2023[164]. - Total net sales for 2024 were $2,180.3 million, a decrease of $145.5 million (6%) compared to 2023, with surfactants sales down by $70.7 million (4%) and polymers down by $57.6 million (9%) year-over-year[142]. Debt and Financial Obligations - As of December 31, 2024, the Company had $311.7 million of debt on its balance sheet, with additional borrowings of $313.7 million under a credit agreement[86]. - The Company had $125.1 million remaining for future share repurchases under its authorized program as of December 31, 2024[172]. - Consolidated balance sheet debt decreased by $28.7 million to $625.4 million as of December 31, 2024, primarily due to scheduled debt repayments[173]. - The Company's total debt obligations amounted to $625.8 million, with $292.8 million due within one year[180]. - The ratio of net debt to net debt plus shareholders' equity was 31.0% as of December 31, 2024, compared to 30.0% as of December 31, 2023[175]. - The Company amended two note purchase agreements to increase available facility amounts and extend the issuance period to August 27, 2027, with a total credit facility of $450.0 million[175]. Operational Challenges - The Company’s manufacturing plants primarily operate on electricity and interruptible natural gas, with temporary shutdowns occurring during peak heating demand periods[19]. - The company experienced unplanned production disruptions in 2022 due to weather-related issues, impacting operations at the Elwood, Illinois facility[40]. - In 2024, the Millsdale facility operations were negatively affected by a flood event, highlighting vulnerability to natural disasters[40]. - The company faced increased raw material prices in 2022 due to supply chain disruptions and inflationary pressures, which may not be passed on to customers[45]. - The company relies heavily on third-party transportation, and disruptions in this area could materially affect operations and costs[46]. - Conflicts and instability in energy-producing nations have led to increased energy prices, impacting the company's operations and supply chain[47]. Regulatory and Compliance Risks - Compliance with environmental, health, and safety laws may require the Company to incur additional costs or reformulate certain products, potentially affecting its financial results[61]. - The REACH regulations impose substantial compliance costs that are expected to increase as product sales rise, impacting the Company's ability to sell certain products[64]. - The Company may face increased regulatory scrutiny regarding the use of ethylene oxide, which could require material changes to its manufacturing operations[66]. - Environmental regulations may restrict the Company's ability to expand facilities or require costly modifications, impacting operational capabilities[67]. - The evolving nature of environmental laws may impose greater compliance costs and risks, potentially restricting the sale of existing or new products[73]. - The Company may incur significant legal expenses defending against environmental litigation, which could adversely affect its financial position[72]. Human Resources and Management - The Company employed 2,396 persons as of December 31, 2024, a slight increase from 2,389 employees in 2023[25]. - The Company’s executive team includes a new Chief Human Resources Officer appointed in September 2023 and an Interim Chief Financial Officer appointed in October 2024[36][37]. - The Company's future success significantly depends on the skills and experience of its executive management and key personnel, with potential adverse effects on financial position if unable to retain talent[97]. International Operations and Risks - The Company generated approximately 45% of its net sales from international operations in the year ended December 31, 2024[76]. - The Company is subject to various international business risks, including fluctuations in currency exchange rates, which may adversely affect profitability[76]. - The Company faces risks related to political, economic, and market conditions in foreign operations, which may be unstable[77]. - Fluctuations in foreign currency exchange rates could materially affect the Company's financial results, especially during a strengthening U.S. dollar[80]. - The company had forward contracts with an aggregated notional amount of $149.6 million to mitigate foreign currency exchange risk as of December 31, 2024[207].

Core Points - Stepan Company announced the retirement of Edward J. Wehmer from its Board of Directors effective April 29, 2025, during the next annual meeting of stockholders [1] - Mr. Wehmer has been a board member since 2003, serving as Lead Independent Director since 2016 and Chair of the Audit Committee from 2007 to 2023 [2] - The Board will reduce its size from eight to seven directors following Mr. Wehmer's retirement, with Randall S. Dearth succeeding him as Lead Independent Director [3] Company Profile - Stepan Company is a major manufacturer of specialty and intermediate chemicals used across various industries, including surfactants for cleaning and disinfection products, agricultural solutions, and polyurethane polyols for thermal insulation [4] - The company is headquartered in Northbrook, Illinois, and operates modern production facilities in North and South America, Europe, and Asia [5]

Financial Data and Key Metrics Changes - The company reported fourth quarter adjusted EBITDA of $35 million, down 7% year-over-year, and full year adjusted EBITDA of $187 million, a 4% increase compared to the prior year [7][23] - Full year adjusted net income was $50.5 million, flat versus the prior year, with strong earnings growth in Surfactant and Specialty Products fully offset by Polymers [9] - Free cash flow for the year was positive at $39 million, in line with expectations, and the company delivered $48 million in pretax cost savings during 2024 [10][25] Business Line Data and Key Metrics Changes - Surfactant net sales for the fourth quarter were $379 million, a 3% increase year-over-year, with adjusted EBITDA increasing by $3 million or 10% [17][19] - Polymer net sales were $130 million for the quarter, a 12% decrease year-over-year, with adjusted EBITDA decreasing by $9 million or 44% [20][22] - Specialty product net sales were $17 million for the quarter, a 10% increase year-over-year, with adjusted EBITDA increasing by 65% [22] Market Data and Key Metrics Changes - Global sales volume was down 1% versus the prior year, with double-digit growth in surfactant end markets offset by softer demand in rigid polymers [14] - The agricultural business grew volume by 30% in the second half of 2024, indicating a recovery after a difficult first half [43] - The company experienced sluggish demand in polymers due to high interest rates and slow construction activity, particularly in Europe [48] Company Strategy and Development Direction - The company focuses on customer acquisition, particularly in tier two and three markets, which remains a key priority [28] - Investments in the new Pasadena facility are expected to enhance production capabilities and supply chain resilience, with startup anticipated in Q1 2025 [32][35] - The company aims to improve adjusted EBITDA across all reporting segments and is optimistic about growth in the surfactant business in key strategic end markets [34][35] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment with overall financial performance in 2024 but highlighted the company's strategic investments aimed at returning to profitable growth [7] - The company expects to see continued double-digit growth in the agricultural business and is optimistic about polymers as new products are introduced [43][49] - Management indicated that 2025 should see improved profitability and free cash flow generation, with a focus on avoiding one-time costs experienced in 2024 [64][65] Other Important Information - The company declared a quarterly cash dividend of $0.385 per share, marking 57 consecutive years of dividend payments [11] - Corporate expenses increased due to the CEO transition and other one-time events, but overall expenses were down year-over-year due to productivity efforts [24] Q&A Session Summary Question: Outlook for Agricultural Business - Management noted strong growth in the agricultural business, with expectations for continued double-digit growth in the first half of 2025 [43] Question: Challenges in Polymers - Management acknowledged challenges in the polymers segment but highlighted pockets of strength, particularly in specialty polymers and growth in China [48] Question: Surfactants Price Mix - Management explained that the positive price mix in surfactants was driven by growth in tier two and three customers and strong performance in agricultural and oilfield markets [56][57] Question: 2025 EBITDA Starting Point - Management discussed the impact of one-time events in 2024 and indicated a potential normalized EBITDA performance of around $60 million per quarter without those effects [64][65] Question: Pasadena Facility Impact - Management confirmed that the Pasadena facility would contribute to EBITDA but would also incur initial costs during its ramp-up phase [67] Question: Currency Sensitivity - Management identified the euro as the main currency risk, while the impact of the Mexican peso and Brazilian real was deemed manageable [80] Question: Polymers Business in China - Management highlighted the diversified nature of the polymers business in China, which is not solely reliant on the construction market [83]

2 AGENDA Fourth Quarter 2024 Earnings Results February 19, 2025 Safe Harbor Certain information in this presentation consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements include statements about Stepan Company's plans, objectives, strategies, financial performance and outlook, trends, the a ...