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    SCL
    Earnings call· Jun 2026(Q2 FY26)

    STEPAN Q2 FY26 earnings call SCL

    Jul 29, 2026 Source

    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

    8
    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

    3
    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

    Operational metrics

    23
    Adjusted EBITDA
    $74 millionup 45% versus prior year
    Q2 FY26

    All three levers (volume growth, margin recovery, productivity/cost out) contributed to the result.

    Adjusted EPS
    $1.18up 126% versus prior year
    Q2 FY26

    More than double the prior year's $0.52 per diluted share.

    Net Sales
    $684 millionup 15% versus prior year
    Q2 FY26

    Driven by higher selling prices, higher volume, favorable product and customer mix, and favorable currency translation.

    Reported Net Income
    $22.9 millionup 102% versus prior year
    Q2 FY26

    Includes a $5.1 million pre-tax restructuring charge.

    Reported EPS
    $1.00up 100% versus prior year
    Q2 FY26

    Compared to $0.50 per diluted share in the prior year.

    Pre-tax Restructuring Charge
    $5.1 million
    Q2 FY26

    Related to the closure of Fieldsboro, NJ site and decommissioning of assets at Millsdale, IL and Staley Bridge, UK facilities.

    After-tax Restructuring Charge
    $4 million
    Q2 FY26

    Included in reported net income.

    Cash Impact from Restructuring
    $6 million
    Q2 FY26

    Associated with restructuring activities during the quarter.

    Adjusted Net Income
    $27.1 millionup 126% versus prior year
    Q2 FY26

    Compared to $12 million in the prior year.

    Adjusted Corporate Expenses
    up $2.7 millionup 17%
    Q2 FY26

    Driven by normal inflation and higher incentive-based compensation.

    Cash Flow Operations before Working Capital
    $56 million
    Q2 FY26

    Includes a $6 million cash impact associated with restructuring activities.

    Cash Flow after Capital Expenditures
    -$15 million
    Q2 FY26

    Reflected a $58 million working capital build.

    Capital Expenditures
    $23 million
    Q2 FY26

    Executed flawlessly across sites.

    Working Capital Build
    $58 million
    Q2 FY26

    Associated with stronger sales and higher raw material costs.

    Net Debt
    $534 million
    Q2 FY26

    Ended the quarter with this amount.

    Net Leverage Ratio
    2.5 timesvs 2.7 times in Q1 FY26 and 2.9 times in Q2 FY25
    Q2 FY26

    Improving cash generation and deleveraging the balance sheet remains a key focus.

    Dividends Paid
    $9 million
    Q2 FY26

    Company increased its dividend for the 58th consecutive year.

    Customer Pre-buying Impact on EBITDA
    $5 million to $10 millionpulled forward from Q3
    Q2 FY26

    A portion of incremental demand experienced in Q2 reflects customer pre-buying in response to geopolitical and raw material uncertainty.

    CNO Price Change
    down 13%vs Q2 FY25
    Q2 FY26

    Coconut oil prices have come down significantly, while other oil-related raw materials increased.

    New Customer/Product Combinations
    500
    H1 FY26

    Driving very strong double-digit growth in Tier 2 and Tier 3 segments within surfactants.

    Pasadena Site Utilization
    70% to 80%
    Q2 FY26

    The site continues to ramp up production, with a target to reach 100% utilization in the next few quarters.

    Polymer Maintenance Turnaround Impact
    $4 million to $5 million
    H2 FY26

    Impact from special turnarounds that happen every four to five years.

    Salaried Positions Reduction
    around 100
    Q3 FY26

    Part of the Project Catalyst organization effectiveness component, to be implemented during the third quarter.

    Industry KPIs

    2
    MetricValueDetails
    Volume vs price split6%%
    Productivity cost savings program$100 millionUSD

    Deals & partnerships

    1
    UnknownSale 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

    3
    Project Catalystunderway$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 Closurecompleted

    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-upunderway

    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

    6
    Customer Pre-buying and Demand VolatilityQ3 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 VolatilityOngoing

    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 EuropeQ2 FY26

    Lower volumes in Europe Polymers

    Mitigation: Margin recovery helped offset the impact.

    Softer Demand in ChinaQ2 FY26

    Asia Polymers slightly lower EBITDA

    Polymer Maintenance TurnaroundH2 FY26

    $4 million to $5 million impact

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

    Higher Corporate ExpensesQ2 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

    5

    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.

    Q&A highlights

    8

    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 read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.