Stepan(SCL) - 2025 Q2 - Quarterly Report

Part I FINANCIAL INFORMATION Item 1. Financial Statements Stepan Company's H1 2025: Net sales up 7.2% to $1.19B, net income up 32.6% to $31.1M, operating cash flow at $18.1M Condensed Consolidated Statements of Income Highlights | (In thousands, except per share amounts) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,187,944 | $1,107,823 | +7.2% | | Gross Profit | $147,348 | $139,833 | +5.4% | | Operating Income | $46,253 | $38,836 | +19.1% | | Net Income | $31,052 | $23,414 | +32.6% | | Diluted EPS | $1.36 | $1.02 | +33.3% | Condensed Consolidated Balance Sheet Highlights | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $906,106 | $810,429 | | Total assets | $2,416,130 | $2,304,648 | | Total current liabilities | $673,021 | $669,034 | | Total liabilities | $728,378 | $732,688 | | Total equity | $1,241,713 | $1,169,934 | Condensed Consolidated Statements of Cash Flows Highlights | (In thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Cash Provided By Operating Activities | $18,135 | $71,056 | | Net Cash Used In Investing Activities | ($51,468) | ($54,036) | | Net Cash Provided By (Used In) Financing Activities | $13,258 | ($16,005) | | Net Decrease in Cash and Cash Equivalents | ($10,761) | ($5,115) | Notes to Condensed Consolidated Financial Statements Notes detail segment performance, $19.5M environmental accrual, $75M senior note issuance, and Philippine asset sale - The company has three reportable segments: Surfactants, Polymers, and Specialty Products. For the six months ended June 30, 2025, Surfactants accounted for 71% of net sales, Polymers for 26%, and Specialty Products for 3%[59][84][85] Segment Operating Income (Six Months Ended June 30) | (In thousands) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Surfactants | $42,297 | $43,142 | -2.0% | | Polymers | $25,177 | $21,979 | +14.5% | | Specialty Products | $10,766 | $11,587 | -7.1% | | Total Segment Operating Income | $78,240 | $76,708 | +2.0% | - The company is managing various environmental and legal proceedings, with an estimated range of possible losses between $19.5 million and $44.9 million as of June 30, 2025. The company has accrued for the lower end of this range, totaling $19.5 million[37] - On May 21, 2025, the company issued and sold $75 million in aggregate principal amount of its 6.17% Senior Notes due May 21, 2033[68] - On May 27, 2025, the company's subsidiary in the Philippines entered into an agreement to sell its manufacturing assets. The asset disposal group includes $8.7 million of assets and $4.8 million of liabilities[74] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A reports 7% net sales growth for Q2/H1 2025, Q2 operating income down, H1 up, Polymers driving growth, cash flow decreased Results of Operations - Three Months Ended June 30, 2025 and 2024 Q2 2025 net income rose 19%, net sales grew 7%, operating income fell 4%, driven by mixed segment performance and a lower tax rate Q2 2025 vs Q2 2024 Performance | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $594.7M | $556.4M | +7% | | Operating Income | $18.0M | $18.7M | -4% | | Net Income | $11.3M | $9.5M | +19% | | Diluted EPS | $0.50 | $0.42 | +19% | | Adjusted Net Income | $12.0M | $9.4M | +28% | - Surfactant operating income decreased 22% to $13.4 million, mainly due to higher operating expenses, including a $1.1 million USEPA penalty, and margin pressure in North America from new facility start-up costs[103][107] - Polymers operating income increased 26% to $17.2 million, driven by an 18% sales volume increase in North America and improved margins[108][111] - The effective tax rate decreased to 17.7% from 44.7% in Q2 2024, primarily due to the non-recurrence of an unfavorable GILTI-related event and a favorable tax audit settlement in 2025[96] Results of Operations - Six Months Ended June 30, 2025 and 2024 H1 2025 net income increased 32.6%, net sales grew 7%, operating income rose 19%, driven by Polymers and lower corporate expenses H1 2025 vs H1 2024 Performance | Metric | H1 2025 | H1 2024 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,187.9M | $1,107.8M | +7% | | Operating Income | $46.3M | $38.8M | +19% | | Net Income | $31.1M | $23.4M | +33% | | Diluted EPS | $1.36 | $1.02 | +33% | | Adjusted Net Income | $31.3M | $24.1M | +30% | - Consolidated sales volume increased 2%, with Surfactants up 1%, Polymers up 7%, and Specialty Products up 8%[120] - Corporate expenses decreased by $5.9 million (16%) year-over-year, primarily due to the non-recurrence of a $3.5 million charge from 2024 and lower deferred compensation expenses[145] Liquidity and Capital Resources H1 2025 operating cash flow decreased to $18.1M due to working capital, cash fell to $88.9M, $75M in new senior notes issued - Cash from operating activities decreased to $18.1 million in H1 2025 from $71.1 million in H1 2024, primarily due to higher working capital requirements[147][149] - Capital expenditures for H1 2025 were $58.3 million, and the full-year estimate is projected to be between $120.0 million and $125.0 million[152] - The company issued $75.0 million of 6.17% Senior Notes due 2033 in May 2025[153][155] - As of June 30, 2025, the company had $139.6 million available under its primary credit agreement[69] Item 3. Quantitative and Qualitative Disclosures about Market Risk No material changes to market risks were reported compared to the 2024 Annual Report on Form 10-K - There have been no material changes to the market risks as disclosed in the Company's 2024 Annual Report on Form 10-K[177] Item 4. Controls and Procedures Disclosure controls were effective as of June 30, 2025, with no material changes to internal financial reporting controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[178] - No changes occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[178] Part II OTHER INFORMATION Item 1. Legal Proceedings The company received a USEPA notice for FIFRA violations, paid a $1.1M civil penalty, and is seeking indemnification - On March 19, 2025, the company received a notice from the USEPA for violations of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)[180] - The USEPA assessed a civil penalty of $1.1 million, which the company paid on July 2, 2025. The company is pursuing indemnification claims to recover this cost[180] Item 1A. Risk Factors No material changes to risk factors were reported compared to the 2024 Annual Report on Form 10-K - There have been no material changes to the risk factors as disclosed in the Company's 2024 Annual Report on Form 10-K[182] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No open market share repurchases occurred in Q2 2025, with $125.1M remaining under the repurchase program - The company did not purchase any shares of its common stock on the open market during the second quarter of 2025[154][183] - As of June 30, 2025, the company had $125.1 million remaining under its share repurchase program authorized by the Board of Directors[154][183]