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CONSHOHOCKEN, Pa., Aug 02, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Quaker Chemical Corporation (NYSE: KWR) today announced record quarterly sales of $118.7 million in the second quarter of 2006 and a 67% improvement in net income to $3.0 million, compared to second quarter 2005 sales of $107.0 million and net income of $1.8 million. Diluted earnings per share increased to $0.30 for the second quarter of 2006 versus $0.18 in the second quarter of last year.
Second Quarter 2006 Summary
Net sales for the second quarter of 2006 were $118.7 million, up 10.9% from $107.0 million for the second quarter of 2005. The increase in net sales was driven by a combination of higher selling prices and volume growth. Volume growth was mainly attributable to market share growth and increased demand in both the U.S. and China. Selling price increases continue to be broadly implemented across all regions and market segments to offset significantly higher raw material costs.
Gross margin as a percentage of sales was 30.4% for the second quarter of 2006 compared to 30.6% for the second quarter of 2005. Higher selling prices and a stronger performance from the Company's CMS business helped maintain margins notwithstanding continued increases in raw material prices, as crude oil prices have spiked from the low fifty dollar per barrel range in the second quarter of 2005 to the low seventy dollar per barrel range in the second quarter of 2006. Sequentially, the second quarter 2006 gross margin as a percentage of sales represents an improvement over the first quarter 2006 gross margin percentage of 29.6%.
Selling, general and administrative expenses for the quarter increased $0.7 million compared to the second quarter of 2005. Cost savings from restructuring efforts completed in 2005 substantially offset increased spending in higher growth areas, higher variable compensation, higher professional fees and inflationary increases.
The increase in net interest expense is attributable to higher average borrowings and higher interest rates. The decrease in minority interest expense is due to lower financial performance from the Company's minority affiliates.
Net sales for the first half of 2006 were $228.5 million, up 8.2% from $211.2 million for the first half of 2005. The same factors discussed above, volume growth in U.S. and China and selling price increases implemented across all regions and market segments, were the primary reasons for the increase in net sales.
Net income for the first half of 2006 was $5.5 million compared to $4.9 million for the first half of 2005, which included a $4.2 million pre-tax gain from the Company's real estate joint venture, partially offset by a $1.2 million pre-tax restructuring charge. Gross margin as a percentage of sales was 30.0% for the first half of 2006 compared to 30.1% for the first half of 2005. Higher selling prices and a stronger performance from the Company's CMS business helped maintain margin percentage despite continued increases in raw material prices, particularly crude oil derivatives.
Selling, general and administrative expenses for the first half of 2006 decreased $0.2 million compared to the first half of 2005. Cost savings from restructuring efforts completed in 2005 substantially offset increased spending in higher growth areas, higher variable compensation, higher professional fees and inflationary increases. The Company recorded a pension gain in the first quarter of 2006 of $0.9 million relating to legislative changes to one of its European pension plans. During the first quarter of 2005, the Company took a net pre-tax charge of $1.2 million related to a reduction in its workforce.
The decrease in other income is largely due to $4.2 million of pre-tax gain relating to the Company's real estate joint venture recorded in 2005. The remainder of the decrease was the result of foreign exchange losses in the first half of 2006 compared to gains in the first half of 2005.
The increase in net interest expense is attributable to higher average borrowings and higher interest rates. The decease in minority interest expense for the year is due to the acquisition of the remaining 40% interest in the Company's Brazilian affiliate in March of 2005 and lower financial performance from the Company's minority affiliates.
Balance Sheet and Cash Flow Items
The Company's net debt increased from December 2005, primarily to fund working capital needs, as well as the restructuring actions taken in the fourth quarter of 2005. The Company's net debt-to-total capital ratio was 39% at June 30, 2006, compared to 40% at March 31, 2006 and 35% at December 31, 2005.
Ronald J. Naples, Chairman and Chief Executive Officer, commented, "We continue to make solid progress towards restoring our profitability to historical levels. On sequential and prior year comparisons, we had a fine second quarter. Our earnings momentum is driven by persistent pricing actions, firming of steel demand, and strong progress in such key initiatives as Asia/Pacific growth and chemical management services. While gross margin percentage improvement remains elusive due to higher raw material costs, higher revenues are driving absolute dollar improvement in gross margin. Further, the restructuring actions taken in 2005 have enabled this gross margin improvement to substantially flow to net income while allowing for continued investment in business building initiatives. For the remainder of 2006, we are cautiously optimistic that we will continue to generate year- over-year improvement in core earnings, although, of course, we are concerned about the recent events in the Middle East and the unpredictable impact they may have on our business environment and costs."
Quaker Chemical Corporation, headquartered in Conshohocken, Pennsylvania, is a worldwide developer, producer, and marketer of custom-formulated chemical specialty products and a provider of chemical management services for manufacturers around the globe, primarily in the steel and automotive industries.
This release contains forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such statements. A major risk is that the Company's demand is largely derived from the demand for its customers' products, which subjects the Company to downturns in a customer's business and unanticipated customer production shutdowns. Other major risks and uncertainties include, but are not limited to, significant increases in raw material costs, customer financial stability, worldwide economic and political conditions, foreign currency fluctuations, and future terrorist attacks such as those that occurred on September 11, 2001. Other factors could also adversely affect us. Therefore, we caution you not to place undue reliance on our forward-looking statements. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.
As previously announced, Quaker Chemical's investor conference call to discuss second quarter results is scheduled for August 3, 2006 at 2:30 p.m. (EDT). Access the conference by calling 877-269-7756 or visit Quaker's Web site at http://www.quakerchem.com for a live webcast.
Quaker Chemical Corporation Condensed Consolidated Statement of Income (Dollars in thousands, except per share data and share amounts) (Unaudited) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Net sales $118,683 $107,042 $228,499 $211,203 Cost of goods sold 82,618 74,333 159,949 147,567 Gross margin 36,065 32,709 68,550 63,636 % 30.4% 30.6% 30.0% 30.1% Selling, general and administrative 29,789 29,120 57,151 57,337 Restructuring and related activities, net - - - 1,232 Operating income 6,276 3,589 11,399 5,067 % 5.3% 3.4% 5.0% 2.4% Other income, net 387 648 515 5,516 Interest expense, net (1,252) (740) (2,217) (1,174) Income before taxes 5,411 3,497 9,697 9,409 Taxes on income 2,127 1,136 3,680 3,057 3,284 2,361 6,017 6,352 Equity in net income of associated companies 125 153 238 206 Minority interest in net income of subsidiaries (417) (719) (721) (1,637) Net income $2,992 $1,795 $5,534 $4,921 % 2.5% 1.7% 2.4% 2.3% Per share data: Net income - basic $0.31 $0.19 $0.57 $0.51 Net income - diluted $0.30 $0.18 $0.56 $0.50 Shares Outstanding: Basic 9,769,682 9,676,463 9,746,685 9,660,163 Diluted 9,833,117 9,795,798 9,824,968 9,826,166 Quaker Chemical Corporation Condensed Consolidated Balance Sheet (Dollars in thousands, except par value and share amounts) (Unaudited) June 30, December 31, 2006 2005* ASSETS Current assets Cash and cash equivalents $12,111 $16,121 Accounts receivable, net 105,341 93,943 Inventories, net 48,934 45,818 Prepaid expenses and other current assets 12,775 10,111 Total current assets 179,161 165,993 Property, plant and equipment 150,400 140,903 Less accumulated depreciation 91,623 84,006 Net property, plant and equipment 58,777 56,897 Goodwill 37,999 35,418 Other intangible assets, net 8,192 8,703 Investments in associated companies 6,607 6,624 Deferred income taxes 24,284 24,385 Other assets 35,564 33,975 Total assets $350,584 $331,995 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term borrowings and current portion of long-term debt $2,393 $5,094 Accounts and other payables 55,917 52,923 Accrued compensation 8,964 9,818 Other current liabilities 16,944 19,053 Total current liabilities 84,218 86,888 Long-term debt 82,684 67,410 Deferred income taxes 4,930 4,608 Other non-current liabilities 58,274 60,573 Total liabilities 230,106 219,479 Minority interest in equity of subsidiaries 7,201 6,609 Shareholders' equity Common stock, $1 par value; authorized 30,000,000 shares; issued 2006 - 9,866,005, 2005 - 9,726,385 shares 9,866 9,726 Capital in excess of par value 4,154 3,574 Retained earnings 112,622 111,317 Accumulated other comprehensive loss (13,365) (18,710) Total shareholders' equity 113,277 105,907 Total liabilities and shareholders' equity $350,584 $331,995 * Condensed from audited financial statements. Quaker Chemical Corporation Condensed Consolidated Statement of Cash Flows For the six months ended June 30, (Dollars in thousands) (Unaudited) 2006 2005* Cash flows from operating activities Net income $5,534 $4,921 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation 4,893 4,548 Amortization 708 646 Equity in undistributed earnings of associated companies, net of dividends (33) 28 Minority interest in earnings of subsidiaries 721 1,637 Deferred income taxes 334 - Deferred compensation and other, net 61 27 Stock-based compensation 385 271 Restructuring and related activities, net - 1,232 Gain on sale of partnership assets - (2,989) Gain on disposal of property, plant and equipment (8) - Insurance settlement realized (157) - Pension and other postretirement benefits (2,752) (368) Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions: Accounts receivable (8,746) (2,481) Inventories (2,011) (721) Prepaid expenses and other current assets (2,449) (171) Accounts payable and accrued liabilities 1,475 2,718 Change in restructuring liabilities (3,411) (1,382) Net cash (used in) provided by operating activities (5,456) 7,916 Cash flows from investing activities Capital expenditures (4,863) (3,196) Payments related to acquisitions (1,069) (6,700) Proceeds from partnership disposition of assets - 2,989 Proceeds from disposition of assets 46 670 Interest received on insurance settlement 154 - Change in restricted cash, net 3 - Net cash used in investing activities (5,729) (6,237) Cash flows from financing activities Net decrease in short-term borrowings (2,813) (5,217) Long-term debt borrowings 14,340 - Repayments of long-term debt (474) (518) Dividends paid (4,199) (4,163) Issuance of common stock 335 181 Distributions to minority shareholders (350) (2,205) Net cash provided by (used in) financing activities 6,839 (11,922) Effect of exchange rate changes on cash 336 (1,728) Net decrease in cash and cash equivalents (4,010) (11,971) Cash and cash equivalents at the beginning of the period 16,121 29,078 Cash and cash equivalents at the end of the period $12,111 $17,107 * Certain reclassifications of prior year data have been made to improve comparability.
SOURCE Quaker Chemical Corporation
Neal E. Murphy, Vice President and Chief Financial Officer, Quaker Chemical Corporation, +1-610-832-4189