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Stepan Company (SCL) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Materials· Jul 29, 2026

Source: earnings call transcript

Executive summary

Stepan Company Q2 FY26 — Strong Earnings Growth Driven by Volume and Margin Recovery

Stepan Company delivered a strong second quarter, marked by significant earnings improvement driven by broad-based organic volume growth and effective margin recovery. The company's strategic initiatives, including Project Catalyst, are progressing as planned, contributing to productivity gains and cost reductions. Management remains focused on disciplined capital allocation, cash generation, and continued balance sheet deleveraging amidst ongoing market uncertainties.

Highlights

5

  • Adjusted EBITDA increased 45% year-over-year to $74 million.

  • Organic volume grew 6% across all end markets, with strategic end markets growing high single digits.

  • Adjusted earnings per diluted share more than doubled to $1.18.

  • Net leverage ratio improved to 2.5 times, down from 2.7 times in Q1 FY26 and 2.9 times in Q2 FY25.

  • Project Catalyst is on track to deliver its targeted $60 million in pre-tax savings for 2026.

Concerns

5

  • A portion of Q2 demand, estimated at $5 million to $10 million in EBITDA, was attributed to customer pre-buying from Q3.

  • Adjusted corporate expenses increased $2.7 million, or 17%, due to inflation and higher incentive compensation.

  • A $58 million working capital investment was required due to stronger sales and higher raw material costs.

  • Full-year restructuring charges are anticipated to be in the range of $75 million to $80 million.

  • Polymer segment expects a $4 million to $5 million impact in the second half of the year from maintenance turnarounds.

Guidance & targets

CategoryTargetConfidence
Project Catalyst Pre-Tax Savings
approximately $60 million
high materiality
High
Project Catalyst Savings Run Rate
$22 million per quarter
medium materiality
Medium
Project Catalyst Total Savings Run Rate
$100 million
high materiality
Medium
Full-Year Restructuring Charges
$75 million to $80 million
medium materiality
High
Adjusted EBITDA
goals
high materiality
High
Free Cash Flow
positive
high materiality
High
Balance Sheet Deleveraging
continued
high materiality
High
Polymer Maintenance Turnaround Impact
$4 million to $5 million
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Surfactants
Broad-based organic volume growth across all end markets and regions, led by industrial cleaning, laundry, construction and industrial, and oil field. Pricing actions and contractual pass-through mechanisms contributed to margin recovery.
Selling prices: up 12%Reported volume: up 3%Organic volume: up 7%Foreign currency translation impact on net sales: +4%Adjusted EBITDA growth: 59%North America & Asia earnings: improvedLatin America earnings: increasedEurope earnings: up modestlyStrategic end markets organic volume growth: high single digits
$484 million18%—$55 million Adjusted EBITDA
Polymers
Sales volume growth and margin recovery drove improved EBITDA. North America saw strong growth in rigid polyols and ethylene hydrate, including spray foam. Europe and Asia experienced softer demand.
Selling prices: up 3%Sales volume: up 5%North American volume: strong double digitsEuropean & Asian volumes: lowerForeign currency translation impact on net sales: +1%Adjusted EBITDA growth: 22%North America EBITDA: up $5 millionEurope performance: improved modestlyAsia performance: slightly lower
$178 million9%—$31 million Adjusted EBITDA
Specialty Products
Adjusted EBITDA was slightly down primarily due to a less favorable product mix within the medium chain triglycerides product line.
Volume: up 4%
$22 million8%—$6.5 million Adjusted EBITDA

Deals & partnerships

Unknown Sale of non-productive land

Advancing the previously announced agreement to sell a parcel of non-productive land adjacent to the Joliet, Illinois plant, subject to customary closing conditions.

Capital programs

Project Catalyst underway $100 million
Spent to date: more than $60 million (2026 target)

Benefit:pre-tax savings

Comprehensive plan to optimize asset base and create a more productive and agile organization. Expected to deliver $100 million in pre-tax savings over two years, with ~60% in 2026. Current run rate $18-20M/quarter, targeting $22M/quarter by year-end, and $100M run rate next year.

Fieldsboro, NJ Site Closure completed

Benefit:consolidated volume into more efficient sites, expected savings

Completed closure of the site and decommissioning of select assets at Millsdale, IL and Staley Bridge, UK facilities during the first half. Transition remains on track and delivering expected savings.

Pasadena, Texas Site Ramp-up underway

Benefit:supply chain savings, strategic future growth in specialty accoutsulates

Site continues to ramp up production and deliver expected supply chain savings. Currently at 70-80% utilization, ahead on tolling savings due to product mix.

Risks & headwinds

Customer Pre-buying and Demand Volatility Q3 FY26

$5 million to $10 million EBITDA pulled forward from Q3 to Q2

Mitigation:Monitoring geopolitical and raw material uncertainty; adapting to 'just in time' vs. 'just in case' inventory dynamics.

Raw Material Cost Volatility Ongoing

Coconut oil (CNO) down 13% vs Q2 FY25, other oil-related raw materials up

Mitigation:Disciplined pricing actions and execution of contractual pass-through mechanisms; committed to gradual margin improvement.

Soft Construction Demand in Europe Q2 FY26

Lower volumes in Europe Polymers

Mitigation:Margin recovery helped offset the impact.

Softer Demand in China Q2 FY26

Asia Polymers slightly lower EBITDA

Polymer Maintenance Turnaround H2 FY26

$4 million to $5 million impact

Mitigation:Scheduled maintenance turnarounds occurring every four to five years.

Higher Corporate Expenses Q2 FY26

Increased $2.7 million, or 17%

Mitigation:Driven by normal inflation and higher incentive-based compensation associated with improved operating performance.

What to watch in Q3 FY26

Project Catalyst Savings Run Rate

by year-end (Q4 FY26)
Current $18 million to $20 million per quarter
Target $22 million run rate per quarter

Why it matters

Verifying the ramp-up of Project Catalyst savings is crucial for assessing the company's cost-out initiatives and overall profitability improvement.

we believe we can finish the year with all the interventions that we have announced in a, you know, call it a $22 million run rate savings per quarter.

Find out whether SCL delivers this. Inve re-checks your case every morning.

Q&A highlights

How much of the Q2 organic volume growth in surfactants (7%) and polymers (5%) was due to customer pre-buying?

Management estimated that customer pre-buying, likely due to geopolitical and raw material uncertainty, contributed $5 million to $10 million in EBITDA that was pulled forward from Q3 into Q2.

“we believe probably between five. uh... and and so for the midpoint of five to ten million ebitda is that fact all the three dying into to so uh... i agree that a couple of points uh... of that is is some of the pre-binding we saw because of the iran conflict so collier at five to between 5 and 10 million EBITDA from Q3 to Q2.”

asked by Michael Harrison · answered by Luis Rojo

2 min read 5 chapters

Detailed narrative

Safety Performance and Operational Excellence

Stepan Company achieved its strongest safety performance on record over the last 12 months, underscoring its commitment to safety as a top priority. This focus on operational excellence extends to its manufacturing network, with the flagship MuleZero site reporting a great quarter in production volumes and improved operating metrics. The Pasadena, Texas site continues its ramp-up, delivering expected supply chain savings and acting as a critical enabler for future growth in specialty accoutsulates.

Strategic Priorities and Market Diversification

The company's strategy is built on four pillars: customer-centric innovation, market diversification, operational excellence, and financial strength. Progress was noted in diversifying markets and customers, particularly in accelerating growth in higher-value end markets and expanding reach into Tier 2 and Tier 3 customers. This approach aims to balance growth across various segments and customer bases.

Project Catalyst Progress and Organizational Changes

Project Catalyst, a comprehensive plan to optimize assets and create a more agile organization, is on track to deliver approximately $60 million in pre-tax savings for 2026. Footprint optimizations included the completion of the Fieldsboro, New Jersey site closure and decommissioning of assets at Millsdale, Illinois, and Staley Bridge, UK. Additionally, a plan to reduce around 100 salaried positions will be implemented in Q3 FY26, following a disciplined approach to minimize impact.

Surfactants Segment Growth Drivers

The Surfactants business demonstrated broad-based growth across multiple regions and end markets. North America surfactants, the largest business, saw significant growth, driven by 500 new customer/product combinations in the first half of the year. Double-digit growth was achieved in Tier 2 and Tier 3 segments and the oil field market. The agricultural business also grew low single digits despite market challenges, reflecting strong performance in functional applications.

Pasadena Site Ramp-Up and Utilization

The Pasadena, Texas site has achieved 70% to 80% utilization, with the team making outstanding progress in ramping up production and ensuring safety. The site is ahead of schedule on tolling savings projections due to a favorable product mix. Management expects to reach 100% utilization in the next few quarters, highlighting the site's importance for strategic future growth in specialty accoutsulates.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.