Stepan (NYSE:SCL) reported higher third-quarter earnings as volume growth, margin recovery and cost savings lifted results across its three operating segments, while the company continued efforts to reduce debt and optimize its manufacturing footprint.
Reported net income rose 64% from a year earlier to $17.8 million, or $0.78 per diluted share. Adjusted net income nearly doubled to $21.7 million, or $0.94 per diluted share, from $10.9 million, or $0.48 per diluted share, in the prior-year quarter.
Adjusted EBITDA increased 18% year over year to $66.3 million. President and Chief Executive Officer Luis Rojo said the improvement reflected global volume growth, margin recovery and savings from the company’s Project Catalyst restructuring and productivity initiative.
Volume Growth Across All Segments
Organic volume increased 7% companywide during the quarter, with growth in Surfactants, Polymers and Specialty Products. Rojo said Stepan’s three segments each delivered higher earnings than a year earlier despite ongoing economic uncertainty and supply-chain disruption.
Surfactants net sales increased 15% to $487 million, as selling prices rose 10%, reported volume increased 3% and foreign-currency translation added 2% to sales. Organic volume rose 8%, led by double-digit increases in consumer products, construction and industrial applications, and oilfield markets. Lower crop-productivity demand partly offset those gains.
Surfactants adjusted EBITDA rose 27% to $48 million. North America and Asia benefited from consumer products, oilfield and construction-and-industrial volume growth, as well as margin recovery. Latin American earnings increased on double-digit organic volume growth, pricing and margin recovery, while European earnings were modestly lower as softer crop-productivity demand outweighed growth in consumer markets.
Polymers net sales rose 24% to $179 million, primarily reflecting a 22% increase in selling prices tied to higher raw-material costs. Sales volume rose 3%, including double-digit growth in North America driven by rigid polyols, phthalic anhydride and continued expansion in spray-foam products.
Polymer adjusted EBITDA increased 4% to $23 million. North American gains more than offset a regulatory-mandated maintenance turnaround at the company’s Germany facility, lower European rigid-polyol volume and weaker Chinese demand. Rojo said the Germany turnaround created a more than $2 million impact in the quarter, while maintenance costs at a U.S. phthalic anhydride facility are expected to affect the fourth quarter.
Specialty Products net sales increased 12% to $27 million, while volume climbed 20%. Adjusted EBITDA rose 5% to $11.7 million, supported by higher volume in the medium-chain triglycerides, or MCT, product line, partly offset by less favorable mix.
Pricing and Raw-Material Costs
Management said volatile oil and raw-material markets, including disruption associated with the Middle East conflict, continued to pressure input costs. The company said its pricing actions and contractual pass-through mechanisms offset higher costs during the quarter.
Rojo told analysts that the majority of pricing recovery had been completed based on third-quarter oil prices, although Stepan was still making adjustments in certain areas. He said the company’s year-to-date margin profile was improving, citing double-digit EBITDA margins in Surfactants and EBITDA margins of roughly 13% to 15% in Polymers.
Rojo also said demand in Europe and China remained a macroeconomic challenge for the Polymers segment. However, he cited potential longer-term demand in Europe for energy-efficiency improvements in buildings, where the company’s products are used.
Project Catalyst Savings Ahead of Plan
Project Catalyst generated an approximately $23 million quarterly savings run rate in the third quarter. The company said it now expects to exceed its target of achieving 60% of a two-year, $100 million pre-tax savings objective during 2026.
During the call, Rojo said the company expects 2026 savings from the program to reach roughly $66 million to $70 million, above the prior $60 million expectation. He added that Stepan expects average quarterly savings to exceed $25 million in 2027, with further benefits expected as the Pasadena, Texas, facility continues to ramp production and other projects are implemented.
Through September, Stepan recorded $76 million in pre-tax restructuring charges related to Project Catalyst, with a year-to-date cash impact of $13 million. Third-quarter reported results included a $5.6 million pre-tax restructuring charge tied largely to the planned closure of the Fieldsboro, New Jersey, site, asset decommissioning at Millsdale, Illinois, and Stalybridge, United Kingdom, and a global salaried workforce reduction announced in July.
Cash Flow, Debt Reduction and Outlook
Cash flow from operations before working-capital changes totaled $49 million in the third quarter. Free cash flow was $8 million after $21 million in capital expenditures, a $32 million working-capital build and $6 million in restructuring-related cash payments.
Net debt ended the quarter at $536 million, and the company’s net leverage ratio improved to 2.4 times from 2.7 times a year earlier. Rojo said Stepan completed the sale of a parcel of land near its Millsdale site in October for $28.5 million and plans to use the full cash proceeds to pay down debt in November.
The company also paid $9 million in dividends during the quarter and raised its quarterly dividend by $0.01 per share, or 2.5%. Rojo said the increase marked Stepan’s 59th consecutive year of dividend growth.
For the first nine months of 2026, adjusted EBITDA increased 15% and adjusted earnings per share rose 40% from the prior-year period. Management said it expects full-year adjusted EBITDA growth, positive free cash flow and continued deleveraging in 2026.
About Stepan (NYSE:SCL)
Stepan Company (NYSE:SCL) is a global manufacturer of specialty and intermediate chemicals. Founded in 1932 and headquartered in Northfield, Illinois, the company develops products used by manufacturers in consumer and industrial markets.
Stepan’s principal products include surfactants, which are used in detergents, cleaners, personal-care products, agricultural formulations and other applications. The company also produces polyurethane polyols, phthalic anhydride and other specialty chemicals used in insulation, construction materials, coatings, plastics, food packaging and related industrial products.
Stepan serves customers across North America, Latin America, Europe and Asia through a network of manufacturing facilities, research and development operations, and sales organizations.
