Stepan (SCL) Q4 2025 Earnings Call Transcript

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DATE

Monday, February 23, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Luis E. Rojo
• Senior Vice President and Chief Financial Officer — Ruben Velasquez

TAKEAWAYS

• Adjusted EBITDA -- $33.8 million for the quarter, a 3% decline driven by lower Surfactants organic volume and increased raw material costs.
• Organic Volume -- Down 3% in Surfactants segment, attributed to weaker demand in commodity consumer and construction/industrial markets.
• Polymers Segment Volume -- Increased 11% year over year, with notable growth in North America and Asia rigid polyols, and commodity phthalic anhydride.
• Specialty Products Performance -- EBITDA and net sales both modestly lower, primarily due to order timing in pharmaceutical applications.
• Net Sales (Surfactants) -- $402 million, up from $379 million; higher driven by foreign currency (3% impact), improved mix, and pricing actions offsetting a 3% volume decline.
• Net Sales (Polymers) -- $132 million, versus $113 million prior year, with positive currency impact (2%), but pricing pressure from raw material pass-through and competition.
• Free Cash Flow -- Positive $25.4 million in the quarter, a turnaround from negative $200,000 prior-year comparable, mainly from working capital improvements and disciplined capital spending.
• Net Debt -- $494 million at quarter end, a $32 million reduction year over year, resulting in net leverage ratio of 2.5x trailing 12-month adjusted EBITDA.
• Dividend Actions -- Paid $8.9 million in dividends during the year and increased quarterly dividend to $0.395 per share, a 2.6% annual increase, with the next payment scheduled for March 13, 2026.
• Project Catalyst Announcement -- Targeting $100 million in pretax savings over two years, with about 60% of those savings ($60 million) expected to be realized in 2026.
• Facility Rationalization -- Closure of Fieldsboro, New Jersey, and decommissioning of assets at Millsdale (alkoxylation) and Stalybridge (commodity organics), all related to the Surfactants segment.
• Commissioning Update -- Pasadena alkoxylation facility fully commissioned; ramp-up expected to reach 70%-80% utilization in 2026, with full utilization targeted for 2027.
• Full Year Adjusted EBITDA Growth -- 6% increase, reaching $199 million, underscoring management’s focus on pricing, mix, and strategic business contributions.
• Full Year Organic Sales Volume -- Up 2%, especially from growth in crop productivity, oilfield, global Polymers, and Specialty Products, partially offset by subdued demand in global consumer surfactants.
• Capital Expenditure Guidance -- Management signaled 2026 CapEx range of $105 million-$115 million, with base CapEx under $100 million and select discretionary growth investments included.

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RISKS

• Management confirmed, "there is an impact of around $6 million in Q1 2026 on an EBITDA basis due to the weather," predominantly affecting Surfactants segment demand and absorption.
• Persistent inflation across key fixed cost categories and ongoing tariff volatility are explicitly cited as anticipated headwinds offsetting expected Project Catalyst cost savings.
• Sustained lower demand for commodity surfactants necessitated the closure of Fieldsboro and asset rationalization at Millsdale and Stalybridge, described as responses to "continued lower demand in commodity surfactants used in the production of laundry detergents."
• Quarterly adjusted net loss of $500,000 reflects margin compression in Surfactants, a less favorable tax rate, and reduced capitalized interest, partially cushioned by improvements in Polymers and lower corporate expenses.

SUMMARY

Stepan Company (NYSE:SCL) prioritized operational transformation in the quarter, unveiling Project Catalyst as the core initiative to optimize its asset base and drive around $100 million in pretax savings by 2027. Cash generation and deleveraging remain central, as reflected in net debt reductions and increased dividend payouts for the 58th year. The company fully commissioned its Pasadena alkoxylation facility, with utilization gains set to support further manufacturing consolidation. Distinctly, 2026 earnings are projected to be second-half weighted, with management attributing early-year pressures to weather and lingering raw material cost lags. Reported full-year net income declined 7%, while adjusted net income reached $41.7 million, highlighting profitability headwinds despite organic sales volume growth.

• Management emphasized automation and digital tools will facilitate ongoing growth in tier two and three customer segments as part of the Project Catalyst transformation.
• Inventory levels decreased quarter over quarter, which management attributed to both seasonal timing and ongoing working capital discipline.
• Segment mix is changing, with non-commodity surfactant, polymer, and specialty volume growth outpacing commodity consumer surfactant declines.
• "We are also expecting demand recovery in the second half versus the first half," with benefits from raw material normalization, Project Catalyst, and anticipated macroeconomic improvements such as interest rate cuts.

INDUSTRY GLOSSARY

• Alkoxylation: Chemical process used to produce surfactants by adding alkylene oxides to compounds; central to Stepan's Pasadena facility.
• Phthalic anhydride: Commodity chemical used for resins and plasticizers, highlighted as a growth area in Stepan's Polymers segment.
• AOS (Alpha olefin sulfonate): Surfactant platform cited for growth capacity following asset consolidation.
• CNO: Coconut oil, a key oleochemical input influencing Surfactant margins and procurement dynamics.
• PKO: Palm kernel oil, another major raw material in surfactant manufacturing, with margin relevance due to price spreads versus CNO.

Full Conference Call Transcript

Good morning, and thank you all for joining us today to discuss our fourth quarter and full year 2025 results. I plan to share highlights of the performance and will also share updates on our key strategic priorities, while Ruben will provide additional details on our financial results. 2025 was a transformational year for Stepan. We divested two manufacturing plants, made significant progress on the foundational work required to further optimize our global footprint, and positioned the company to execute against a more disciplined and resilient operating model in 2026 and beyond. I also want to highlight that we delivered the best year on safety results in our history. Congrats to the whole Stepan team on these excellent safety results.

Despite a challenging macro environment, the continued pressure across the chemical sector, unprecedented raw material inflation, and tariff impacts, we delivered full year adjusted EBITDA growth of 6%. We delivered adjusted EBITDA of $199 million reflecting disciplined pricing and cost management, favorable mix, and solid growth across all our strategic businesses. Organic volume increased 2% year over year, driven by strong growth in crop productivity, oilfield tier two and tier three customers, global polymers, and specialty products. This was partially offset by softer demand in global consumer surfactants. Throughout the year, we maintained a disciplined approach to capital allocation. We generated positive free cash flow in 2025, strengthening our balance sheet and reducing net debt.

Our leverage ratio improved from 2.8x to 2.5x at the end of the year. We did all of this while continuing to invest in the business. Consistent with our long-standing commitment to shareholder returns, we increased our dividend for the 58th consecutive year, underscoring our confidence in Stepan’s cash flow strength and long-term outlook. During 2025, the company paid $8.9 million in dividends to shareholders. Our Board of Directors declared a quarterly cash dividend on Stepan common stock of $0.395 per share, payable on 03/13/2026. This represents a 2.6% increase in our dividend versus the prior year. Importantly, in 2025, we demonstrated our ability to deliver earnings resilience, advance strategic priorities, and take decisive actions in a difficult operating environment.

We successfully commissioned our Pasadena alkoxylation facility, optimized our asset footprint through targeted divestitures, and established the foundation to implement Project Catalyst, which we will discuss later today. I will now turn the call back to Ruben to walk you through the financial details for the quarter and the year.

Ruben Velasquez: Thank you, Luis. My comments will generally follow the slide presentation. Let us start with slide five, which summarizes Q4 2025 performance. Fourth quarter 2025 adjusted net loss was $500,000, or down $0.02 per diluted share. Reported net income was $5 million, up 49% versus prior year, primarily reflecting the gain on sale of assets and certain nonrecurring items. The decrease in adjusted earnings was mainly driven by lower Surfactants operating income, lower capitalized interest expense, and a less favorable effective tax rate, partially offset by improved Polymers performance and lower corporate expenses.

Importantly, several of these drivers, including higher depreciation and the declining capitalized interest associated with the Pasadena startup, had no cash impact compared to the fourth quarter of last year. Consolidated adjusted EBITDA was $33.8 million, compared to $35 million in the prior year, a 3% decrease. The slight decline in adjusted EBITDA was primarily driven by a 3% decrease in Surfactants organic volumes due to softer demand in global commodity consumer product end markets and elevated raw materials costs. Polymers delivered year-over-year growth, driven by strong volume performance in North America and Asia rigid polyols and in global commodity phthalic anhydride. Specialty Products results were modestly lower year over year, due primarily to order timing within the pharmaceutical business.

Cash from operations was $60 million for the quarter, and free cash flow was positive at $25 million, compared to negative $200,000 in the prior year. The improvement was driven by reductions in working capital and disciplined capital spending. We remain focused on strengthening liquidity and maintaining disciplined capital allocation. Slide six shows the total company pretax income bridge for the 2025 fourth quarter compared to last year. Because this is a pretax view, the figures noted reflect operating performance before the impact of income taxes. Fourth quarter pretax income declined year over year, primarily driven by lower Surfactants operating income and lower capitalized interest expense. These headwinds were partially offset by improved performance in Polymers and lower corporate expenses.

Slide seven shows the total company adjusted EBITDA bridge for the fourth quarter compared to last year. Adjusted EBITDA was $33.8 million, slightly down from prior year. Surfactants decreased by $2.6 million, driven by lower organic demand and elevated raw material costs. Polymers increased by $1 million, reflecting an 11% growth and improving operating leverage. Specialty Products decreased by $400,000, and corporate expenses declined year over year due to continued spending discipline and the nonrecurrence of CEO transition expenses recorded in 2024. Slide eight focuses on Surfactants. Surfactants net sales were $402 million, up from $379 million in the prior year.

Organic volume declined 3% year over year, primarily due to weaker demand across commodity consumer and construction and industrial solutions end markets. Price and mix benefited from pass-through of higher raw material costs, improved product and customer mix, and pricing actions. Foreign currency translation positively impacted net sales by 3%. Surfactants adjusted EBITDA declined slightly, reflecting lower organic volume and elevated oleochemical input costs. Moving now to slide nine, Polymers net sales were $132 million versus $113 million in the same quarter of last year. Volume increased 11%, driven by North America and Asia rigid polyols and commodity phthalic anhydride growth. Price was negatively impacted by the pass-through of lower raw material costs and competitive pressure.

Foreign currency translation positively impacted net sales by 2%. Polymers adjusted EBITDA increased 9% versus the prior year, driven primarily by strong volume growth, partially offset by lower unit margins and unfavorable product and customer mix. Specialty Products net sales and EBITDA were modestly lower year over year due to order timing fluctuations within the pharmaceutical business, though medium chain triglycerides continue to deliver double-digit volume growth. Let us move now to slide 12 to review balance sheet and cash flow. Free cash flow generation remains a key focus. Cash from operations was $60 million in the fourth quarter and free cash flow totaled $25.4 million, driven by working capital reductions.

We ended the fourth quarter with net debt of $494 million, a $32 million reduction versus the prior year, and a net leverage ratio of approximately 2.5x trailing twelve-month adjusted EBITDA. This improvement reflects our continued focus on cash generation, debt reduction, and maintaining financial flexibility. Turning to full year results, reported net income was $46.9 million, down 7% year over year, while adjusted net income was $41.7 million. The decrease in 2025 adjusted net income was primarily driven by lower Surfactants operating income, lower capitalized interest expense, and a higher effective tax rate.

Global organic sales volume increased 2% for the full year, driven by strong growth in crop productivity, oilfield, tier two and tier three customers, global Polymers, and Specialty Products. This was partially offset by softer demand in global commodity consumer end markets. Full year EBITDA increased 11% to $208 million and adjusted EBITDA increased 6% to $199 million. Cash from operations in 2025 was $148 million and free cash flow was $25.4 million. Disciplined working capital management and capital spending allowed us to generate positive free cash flow while funding strategic investments in 2025. With that, I will turn the call back to Luis to discuss our strategic outlook and Project Catalyst.

Luis E. Rojo: Thanks, Ruben. I will begin with a brief update on our strategic priorities before turning to Project Catalyst, which represents a significant step forward in strengthening the Stepan foundation for long-term superior value creation. Our strategy remains centered on four key pillars. First, our continued focus on customer-centric innovation to create new applications and better solutions for our customer products and strengthening our strategic technical partnerships. Second, our diversification strategy is to deliver growth in higher value end markets and expand our reach in the tier two and tier three customer segments.

Third, operational excellence in our supply chain remains a key priority for the future, improving the reliability and resiliency of our manufacturing network and operating metric results at our Millsdale site. And fourth, we continue improving our financial position by a relentless focus on improving free cash flow generation, deleveraging the balance sheet, and a disciplined and efficient capital allocation. Throughout 2025, we saw significant growth in crop productivity, oilfield, and Specialty Products, while Polymers also delivered strong volume growth across North America and Asia. We also grew mid single digits in our tier two and tier three business. We also made meaningful progress in growing our reliability in Millsdale. We fully commissioned our Pasadena facility, with production ramping up.

This effort resulted in EBITDA growth, positive free cash flow generation, and a reduction of our leverage ratio during 2025. Let us move now to slide 14. Today, we announced Project Catalyst, which is a comprehensive plan designed to further optimize our asset base and create a more productive, agile, and accountable organization to enable growth. Project Catalyst is expected to deliver around $100 million in pretax savings over the next two years, with approximately 60% of the savings expected in 2026. Project Catalyst is not a short-term cost reduction program alone. It is a strategic transformation designed to enhance the competitiveness of our cost base while preserving customer service and growth flexibility.

Project Catalyst is built around three core value levers. First, footprint optimization by consolidating volume and improving utilization rates in our more modern and cost-competitive sites. Another component of this effort is the ramp-up of our Pasadena facility, which we expect to reach around 70% to 80% in 2026 and full utilization in 2027. Second, operational efficiency and cost optimization. This includes procurement savings, productivity improvement across our manufacturing and logistics network, and the deployment of an enterprise-wide operating system that drives discipline, data-driven execution, and continuous improvement. Third, organizational effectiveness. We are clarifying accountabilities, streamlining decision-making, and aligning resources more tightly to our growth priorities to accelerate the value capture across the organization and improve productivity.

Importantly, Project Catalyst is designed to partially offset inflationary pressures and other headwinds while creating the capacity to reinvest in growth initiatives, innovation, and supply chain resiliency. Today, we announced the closure of our Fieldsboro, New Jersey site. This is in response to continued lower demand in commodity surfactants used in the production of laundry detergents. In addition, we are decommissioning select assets at our Millsdale and Stalybridge sites. We are planning to execute these actions in the next few months. I want to acknowledge that the decisions we are making are difficult, especially as they impact people and communities that have been part of the Stepan story for many years.

We deeply appreciate the dedication and hard work of our teams at these locations. We will continue to evaluate additional opportunities to further optimize our footprint and strengthen our competitive position while unlocking the potential of our existing sites. This is a dynamic environment, and we will adjust and make changes if necessary. As we look forward to 2026, we remain focused on delivering superior shareholder returns with a balanced approach between top-line growth and productivity cost-out efforts. We believe we are well positioned to deliver adjusted EBITDA growth and positive free cash flow in 2026, despite the ongoing market challenges. This concludes our prepared remarks. We will now open for questions.

Didi, please review the instructions for the questions portion of today's call.

Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from Michael Joseph Harrison of Seaport Research Partners.

Michael Joseph Harrison: Hi. Good morning. Good morning. I wanted to start out with a couple questions on Project Catalyst. I understand a lot of this consolidation has been a long time coming, but can you give us a sense of what capacity utilization looks like within the Surfactants business today, and following the optimization actions that you have enumerated here in Fieldsboro and the other two facilities, what would that do for capacity utilization going forward in Surfactants?

And I guess I was looking to understand, the facilities that you are closing or the assets that you are closing, are they losing money on an operating income or EBITDA basis in 2025, or were they still providing some kind of a positive earnings contribution?

Luis E. Rojo: Great questions, Mike. Look, of course, Surfactants have different platforms and different chemistries. What I will say is with the consolidation that we are doing, we are trying to optimize our cost structure. We are moving volume to, you know, less cost-effective sites to more modern and cost-efficient sites, and we still have a certain capacity for growth. And, of course, if you think about our calculation, we still have capacity for growth. AOS, and even in ether sulfates and lauryl alcohol ethoxylates we have capacity to grow in the future, but we know where the market is going, and that is why we took the decisions that we are making.

It is not like we are losing money in those sites. The point is that we are moving the volume to other sites to improve the utilization rate in those sites and continue serving our customer at a more efficient cost structure.

Michael Joseph Harrison: Alright. And then in terms of the $100 million worth of savings and just the timing, you mentioned $60 million is expected in 2026. But I wanted to understand also that you have noted that these savings are intended to help cover inflation that you might be seeing, and I was just hoping you could help us understand how we might think about the net savings, you know, that $60 million minus whatever inflation you are anticipating during this year?

Luis E. Rojo: No. Good point, Mike, because, yes, we believe we are going to deliver at least the $60 million pretax in 2026. But as you know, it is public information that we have around $750 million in fixed costs when you think about, you know, salaries and maintenance and all of that. And, of course, inflation is still there. Right? I mean, you could argue that the inflation of 3% is still there. In some cases, the inflation is even higher when you think about health care, when you think about insurance, when you think about incentive-based compensation.

So call it you have a three-plus inflation rate in our cost structure, and that, of course, is going to eat up some of the savings that we will deliver for sure in 2026.

Michael Joseph Harrison: Alright. You had talked a little bit about oleochemicals creating some raw material pressure. I was wondering, did the impact of oleochemicals get worse in Q4 than it was in Q3, and should it get better as we get into Q1 given that it looks like the market prices of some of those oleochemicals have come lower? Maybe just help us understand a little bit more what is going on with the timing of those costs and also the timing of your pricing actions or any kind of index pass-through response that might be happening.

Luis E. Rojo: No. Yeah. This is, of course, very relevant to our EBITDA margins in the Surfactants business. If you look at the business in Q1 2025, we still had a double-digit EBITDA margin, and that is when we saw the start of the escalation of oleochemicals. And there is a lag. Right? I mean, we typically carry a lot of inventory because it is from Asia, and all that supply chain is pretty long. So while you saw, you know, coconut oil prices going from the $2,000 to $3,000 per metric ton, and really, really, I mean, you felt all that impact in the P&L in the second half of 2025.

Coconut oil prices are coming down significantly now and, actually, PKO is going up, which at the end is narrowing the gap, which at the end important piece is the gap between CNO and PKO. And the reality is that if you look at where we are now, January, February, that spread between CNO and PKO is almost at a normal level. Right? $200 difference. You have CNO at $2,200. You have PKO at $2,000. And that $200 delta is, you know, historically has been in the $130 to $150. So we are getting to a point where we feel very, very good.

However, again, last year, we saw the impact in the second half, the, you know, the hurt of higher oleochemical in the second half. You are going to see the help in 2026 in the second half. We carry a lot of inventory. This is a very long supply chain. And as we, I mean, we keep increasing prices, and you have seen this in our price/mix numbers. But at the end, we will recover those margins at the end of 2026, more in the second half than in the first half. In the first half, you are going to still see the impact of lower margins in Surfactants.

Michael Joseph Harrison: Alright. And then, my last question for now is just a little bit about the timing of earnings. I understand you have given a 2026 outlook that calls for EBITDA growth. Would love it if you could help us understand, you know, maybe some ranges or ideas of how much growth we could anticipate. But it sounds like between the oleochemical impact and maybe the savings starting to accelerate as the year goes on, it sounds like the second half should be quite a bit better than the first half. And I know this is adding an extra question, but I also assume there is maybe some weather impact that could drag on your first quarter.

So maybe just a little bit of color on how we should think about the cadence of earnings and how much growth is anticipated next year in 2026. Thank you.

Luis E. Rojo: Good questions, Mike. And so let me think about this. We are committed, and we feel good—that is why we had it in our prepared remarks—that we expect EBITDA growth in 2026 versus 2025. You are 100% correct that when you think about four, five big factors that are helping the second half and not helping the first half. So we already talked about the oleochemical raw material situation. Right? It is going to be significantly better in the second half versus the first half. Catalyst savings—we are committing to the $60 million pretax—and, of course, those are going to be heavily skewed to the second half. I mean, procurement savings and some of those things are throughout the year.

But when you think about footprint and the other stuff, it is mostly second half. We are also expecting demand recovery in the second half versus the first half when you think about, you know, two interest rate cuts. Right? That is very important. I mean, if all the banks and everybody is projecting at least two interest rate cuts throughout the year, especially in the second half. So we expect demand to improve in the second half versus the first half. This is important for our construction business, both in Polymers and a little bit also in Surfactants. So when you think about all of those effects and the fact that we started Q1 with a historic weather impact.

Right? Nobody was expecting this winter. I am telling you that we are pleased. We are extremely pleased with the supply chain that we have, and we did extremely well compared to many other winters, but it is true that some demand was lost. When you think about the Polymers business and construction activities and re-roofing, when you think about how this impacts some of our Surfactants business, there was some demand loss and there is also absorption, right, because we did not produce everything that we intended to produce in Q1.

So there is an impact of around $6 million in Q1 2026 on an EBITDA basis due to the weather, but the good news is that we are expecting to recover at least half—hopefully more than half, but at least half of that—between Q2 and Q4. When you think about the absorption piece and some of the demand loss, we expect to recover at least half or more in the following quarter. So, yes, Q1 is a tough quarter to start.

I think many chemical companies saw that impact, and it was a historic winter in the U.S., but the good news is that we did extremely well and we are well positioned to recapture some of that EBITDA that we lost in Q1.

Michael Joseph Harrison: Alright. Very helpful. Thanks very much.

Luis E. Rojo: Thank you, Mike.

Operator: Thank you. Our next question comes from David Joseph Storms of Stonegate. Your line is open.

David Joseph Storms: Good morning, and thank you for taking my questions. I just want to maybe circle back. Morning. I want to circle back to Project Catalyst. Just curious as to what your anticipated impacts on that project are to tier two and three customers. Is this going to make it easier for them to engage everyone there, or is this going to be maybe a little more challenging for them since there are going to be fewer areas for them to go to interact with you?

Luis E. Rojo: No. Look. Thanks, Dave, for the question. And look, Project Catalyst has three levers. Right? The first two levers are heavily focused on supply chain and footprint, but the third lever is very, very important, which is we are working on a more agile, accountable, and productive organization that is going to accelerate the growth of the company in the future. Right? So we are working those details right now. We are going to announce more things in the future. But what we are planning to do with the new organizational structure and with all the investments that we are doing on automation and systems is to actually facilitate the growth with tier two and tier three.

We are very happy with the growth that we are having in this segment. We did mid single digits in 2025, and I am expecting this to grow even higher in 2026 as we facilitate to them doing business with us. So there are plenty of investments that we are making on automation, systems, and tools to make sure that we capture an even bigger share of the pie of the tier two and tier three segment. So I think Project Catalyst is just great news for our tier two and tier three customer segment.

David Joseph Storms: Understood. And then if I could ask a question. It sounded like the answer around demand loss in the first quarter due to the weather sounded like that was mostly based on polymer demand loss, in the Polymer segment. Are you seeing any demand loss in ag? I know Q1 tends to be a big ag quarter for you. Just curious as to what you are seeing given the weather that we have had in the U.S. this year.

Luis E. Rojo: No. Great point. Great point. Let me clarify. Out of the $6 million that I mentioned, the majority of that is Surfactants. That is where we saw the biggest impact. And Polymers, even though it is a low season—you know, Q1 is a low season on re-roofing—still we saw a lot of delays from our customers because of the weather. So at the end, the $6 million is more Surfactants than Polymers, but it is not in ag. I mean, ag continues growing very nicely. We are very happy with our ag business. We are very happy with our oilfield business. We are very happy with our tier two and tier three business.

So we keep growing in all our strategic areas, and we will continue managing our commodity Surfactants business to make sure that it is more productive and cost-effective.

David Joseph Storms: Understood. That is very helpful. One more if I could. Just around your inventories, I know you mentioned that there tends to be a little bit of a lag. I also know in the past, as the raw materials prices tend to increase, your inventory levels have increased as well. I noticed your inventory levels are actually down quarter over quarter. Is this you kind of learned your lessons from past, you know, inventory run-ups? Or is this just the lag that we should expect?

Luis E. Rojo: No. Look. I would say this is the normal lag of Q4, but the reality is that of course we are extremely focused on free cash flow. We will continue managing our working capital to ensure that we have, you know, what we need and no more. So free cash flow continues to be a key priority. We deleveraged the balance sheet, and our leverage ratio went down to 2.5x because that is a key focus in the company. And having the right inventory levels is a priority for all of us.

And, again, in some of those cases, as I mentioned, I mean, when you have a supply chain from Asia, including, you know, all the way to coconut oil, all the way to produce methyl esters, all the way to bring those to the U.S., it is a very long supply chain. And, of course, those have an impact when you think about the raw material situation that we have. But at the end, we feel good with our inventory levels and we will keep our inventory levels as we streamline our footprint asset base.

David Joseph Storms: Understood. Thank you for taking my questions. Thank you.

Operator: Our next question comes from David Silver of Freedom Capital Markets. Your line is open.

David Silver: Yeah. Hi. Good morning. Thank you. Good morning, David. David. I have a bit of a scatter of questions, so I am sorry. It will be a little disjointed. You know, regarding Project Catalyst, you did go into some detail as to what production would be reduced from the actions at Fieldsboro. I was wondering if you might be able to do the same for Millsdale and for your U.K. facility. In other words, are all of the facilities affected? Are they all in the commodity Surfactant area, or might there be some other areas affected?

And should we assume that, you know, all of the activities will mainly affect, you know, Surfactants segment as opposed to Polymers or Specialty Products?

Luis E. Rojo: Great point, David. Welcome you back. And, look, all is in Surfactants. You will see in the press release a little bit more details. It is about the alkoxylation assets in Millsdale. And, of course, we have great capacity and a modern and state-of-the-art facility in Pasadena. So we want to make sure that we produce those products in the most cost-effective way, and that brings Pasadena. And in the case of Stalybridge, it is also Surfactants—of course, a Surfactant site—but it is more a commodity, low-margin, high-capex organics business that we are exiting. This is a business that does not produce a return that we deserve, and we are exiting that business.

So it is all Surfactants, and it is to make sure that we improve the profitability and the return and the ROIC of the company.

David Silver: Okay. Great. Thank you. I wanted to ask a question about your CapEx guidance for 2026. So at a range of $105 million to $115 million, that would be your lowest spend in several years, although if you go back a ways, you know, it was a little bit lower. Should we think of the 2026 CapEx as your new base level for sustaining CapEx, or might there be a certain amount of discretionary or growth-oriented CapEx? And if there is, could you just highlight the areas where you still feel discretionary CapEx is warranted in the current environment?

Luis E. Rojo: No. Good point, David. And you saw before COVID and all of that, we were running in the, call it, at a $100 million range for our normal CapEx. Now, of course, we have a few new sites. Right? We acquired two sites with Invista, and we have Pasadena. But, look, the $110 million—let us take the midpoint—the $110 million reflects very, I mean, some small but good growth capital projects, and then our normal base CapEx for infrastructure, and EHS, IT, R&D, and all of those buckets. So what I will say is you can call it, you know, less than $100 million for the normal base CapEx and then some growth CapEx on top.

It is not significant, but it is still giving us the opportunity to move forward with the projects and the innovation plan that we have for the next few years.

David Silver: Okay. Great. I had a question on the demand side. And maybe this relates more to North America and Europe, but maybe not. But, you know, amongst some other ingredients producers that I track, there has been a lot of commentary about the stretched consumer—middle income or thereabouts—in the demographic customer. And there has been a lot of talk for a while, but even recently about consumers trading down, right, in their choice of personal care, let us say, personal care products. Would you say that has been part of your view here and now?

And, you know, how are you kind of adapting to that somewhat evolving demand profile, maybe, you know, to reflect a stretched, you know, kind of middle income consumer for personal care?

Luis E. Rojo: Yeah. No. Very good points, David. And I think you are asking about personal care. I mean, if you think about it, I mean, you have two things: personal care, and then you have all the cleaning piece. But on the personal care, what I will say is that is why our huge focus is on tier two and tier three, and our huge focus on sulfate-free. When you think about personal care, you are rightly so that those are the dynamics. Right? I mean, you have consumers trading down not only on personal care, but on overall cleaning and disinfection and laundry and all of that.

So our focus of tier two and tier three, on sulfate-free for personal care, is the right focus to continue growing where the consumer is going. Right? That is where the consumer is going, and that is where we are investing and that is where we are putting our focus.

David Silver: Okay. Great. And then maybe just the last question. And this would have to do with, you know, kind of the global evolving kind of tariff situation. And, you know, I know, I guess it is difficult to ask the question in the current environment because there has just been another announcement over the past couple of days. But I am thinking more of your global footprint and in particular, you know, Mexico.

And I am just wondering if, you know, the current status of how the U.S. is deploying their tariffs—has that had a negative impact on the ability of your assets to compete, you know, let us say, for business in the U.S., or, you know, how would you assess Stepan’s overall positioning, you know, in the current tariff environment?

Luis E. Rojo: Look. Tariffs will continue to change, and you know better than me that this is an evolving thing. We are focusing on what we control. We have a great supply chain with a lot of options, and we will continue optimizing those options. Right? The reality is that we had an impact in 2025, and that is why I put it in my remarks. Right? I mean, inflationary pressures in raw materials and tariffs—we were not expecting that when we started 2025—and the reality is that all those millions of dollars add up. And we will see where the new policy goes.

I mean, we have production in the majority of the regions where we source and where we serve our customers, so that gives us an advantage that we are very close to our customers, and that is the strategy. But, of course, we need to continue evaluating every supply chain based on where these dynamics go. But, again, we expect 2026 to be as volatile as 2025 in regards to tariffs, and we will look for every opportunity that we have in that front, including, you know, refunds of the previous tariffs that we paid.

David Silver: Okay. Great. I appreciate all the help. Thank you.

Operator: Thank you. This concludes our question and answer session. I would like to turn it back to Luis E. Rojo for closing remarks.

Luis E. Rojo: Well, thank you so much for joining us today. Have a nice and safe day. Thank you.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.

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