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News Release


Quaker Chemical Announces Record Quarterly Sales and 39% Earnings Improvement for the Second Quarter 2007

CONSHOHOCKEN, Pa., Aug. 1 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR) today announced record quarterly sales for the second quarter of $137.6 million and net income of $4.2 million, increases of 15.9%, and 38.7%, respectively, compared to the second quarter of 2006. Earnings per diluted share increased to $0.41 from $0.30 for the second quarter of 2006.

Second Quarter 2007 Summary

Net sales for the second quarter were $137.6 million, compared to $118.7 million for the second quarter of 2006. The increase in net sales was primarily attributable to a combination of volume growth and higher sales prices. Volume growth was mainly attributable to strong sales growth in Asia/Pacific, South America and Europe, as well as higher revenue related to the Company's CMS channel. Foreign exchange rate translation also increased revenues by approximately 4% for the second quarter of 2007, compared to the same period in 2006. Selling price increases were realized across all regions and market segments, in part as an ongoing effort to offset higher raw material costs. CMS revenues were higher due to additional CMS accounts and the first quarter 2007 renewal and restructuring of several of the Company's CMS contracts.

Gross margin as a percentage of sales was 31.0% for the second quarter of 2007, compared to 30.4% for the second quarter of 2006. Higher selling prices and additional contribution from the Company's CMS channel helped improve margins. On a sequential basis, the second quarter 2007 gross margin percentage was in line with the first quarter 2007 gross margin percentage of 30.9%.

Selling, general and administrative expenses ("SG&A") for the quarter increased $5.6 million, compared to the second quarter of 2006. Foreign exchange rate translation accounted for approximately $1.1 million of the increase. The remainder of the increase was due to continued planned spending in higher growth areas, primarily China, higher legal and environmental costs, increased incentive compensation as a result of higher earnings, as well as higher commissions as a result of higher sales.

The increase in other income was the result of foreign exchange gains recorded in the current year. The increase in net interest expense was attributable to higher average borrowings and higher interest rates. The increase in equity income was due to improved financial performance from the Company's Mexican and Venezuelan affiliates.

Year-to-Date Summary

Net sales for the first half of 2007 were $262.5 million, up 14.9% from $228.5 million for the first half of 2006. Double-digit volume increases in China and selling price increases realized across all regions and market segments were the primary reasons for the increase in net sales. Foreign exchange rate translation also increased revenues by approximately 4% for the first half of 2007, compared to the same period in 2006.

Gross margin as a percentage of sales was 30.9% for the first half of 2007, compared to 30.0% for the first half of 2006. Higher selling prices and a stronger performance from the Company's CMS business helped improve margin percentage despite continued increases in raw material prices.

Selling, general and administrative expenses for the first half of 2007 increased $10.2 million, compared to the first half of 2006. Foreign exchange rate translation accounted for approximately $2.0 million of the increases over the first half of 2006. Also negatively affecting the comparison with the prior year was a pension gain of $0.9 million recorded in the first quarter of 2006 due to a legislative change. The remainder of the increase was due to continued planned spending in higher growth areas, primarily China, higher incentive compensation as a result of higher earnings, higher commissions as a result of higher sales, higher legal and environmental costs, as well as inflationary increases.

The increase in other income was due to foreign exchange gains recorded in the first half of 2007, compared to losses in 2006. The increase in net interest expense was attributable to higher average borrowings and higher interest rates.

The Company's effective tax rate was 33.9% for the first half of 2007, compared to 37.9% for the first half of 2006. The decrease in the effective tax rate was primarily attributable to a changing mix of income among tax jurisdictions, which was offset, in part, by the Company's first quarter 2007 adoption of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48").

The increase in equity income was due to improved financial performance from all of the Company's equity affiliates.

Balance Sheet and Cash Flow Items

The Company's net debt has increased from December 31, 2006, primarily to fund working capital needs driven by higher business volume, as well as the start-up of a new operation in China. The Company's net debt-to-total-capital ratio was 42% at June 30, 2007, compared to 40% at December 31, 2006. Operating cash flow improved $2.2 million during the second quarter of 2007, compared to the first quarter of 2007.

In connection with the first quarter 2007 adoption of FIN 48, the Company recorded a non-cash charge to shareholders' equity of $5.5 million, which negatively impacted the Company's net debt-to-total-capital ratio by approximately 1 percentage point.

Ronald J. Naples, Chairman and Chief Executive Officer, commented, "We had a strong second quarter that showed not only impressive performance improvement over last year's second quarter, but also progress up and down the income statement compared to the first quarter. Particularly encouraging was the volume growth we achieved in a number of geographies and markets, not just China where we've seen strong real growth for some time. The quarter was led by this growth combined with our efforts to improve gross margins even in the face of raw material prices that have continued to escalate. Indeed, raw material costs impose an ongoing challenge, as vegetable oils and animal fats demand grows with bio-diesel activity, even as mineral oil prices have been largely stable. But demand appears solid in most of our markets, and we continue to invest where we see opportunity, both of which suggest promise for our long-term future."

Quaker Chemical Corporation is a leading global provider of process chemicals, chemical specialties, services, and technical expertise to a wide range of industries -- including steel, automotive, mining, aerospace, tube and pipe, coatings, and construction materials. Our products, technical solutions, and chemical management services enhance our customers' processes, improve their product quality, and lower their costs. Quaker's headquarters is located near Philadelphia in Conshohocken, Pennsylvania.

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 2, 2007 at 2:30 p.m. (ET). 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)

                                   Three Months Ended      Six Months Ended
                                         June 30,               June 30,
                                     2007       2006        2007       2006

    Net sales                     $137,598    $118,683    $262,489   $228,499

    Cost of goods sold              94,986      82,618     181,331    159,949

    Gross margin                    42,612      36,065      81,158     68,550
     %                               31.0%       30.4%       30.9%      30.0%

    Selling, general and
     administrative expenses        35,409      29,789      67,328     57,151

    Operating income                 7,203       6,276      13,830     11,399
     %                                5.2%        5.3%        5.3%       5.0%

    Other income, net                  909         387       1,236        515
    Interest expense, net           (1,501)     (1,252)     (2,851)    (2,217)
    Income before taxes              6,611       5,411      12,215      9,697

    Taxes on income                  2,298       2,127       4,142      3,680
                                     4,313       3,284       8,073      6,017

    Equity in net income of
     associated companies              266         125         391        238
    Minority interest in net
     income of subsidiaries           (428)       (417)       (776)      (721)

    Net income                      $4,151      $2,992      $7,688     $5,534
     %                                3.0%        2.5%        2.9%       2.4%

    Per share data:
       Net income - basic            $0.42       $0.31       $0.77      $0.57
       Net income - diluted          $0.41       $0.30       $0.76      $0.56

    Shares Outstanding:
       Basic                     9,983,535   9,769,682   9,945,819  9,746,685
       Diluted                  10,118,653   9,833,117  10,074,060  9,824,968


                          Quaker Chemical Corporation
                      Condensed Consolidated Balance Sheet
           (Dollars in thousands, except par value and share amounts)

                                                          (Unaudited)

                                                     June 30,     December 31,
                                                       2007           2006
    ASSETS

    Current assets
       Cash and cash equivalents                      $14,517         $16,062
       Accounts receivable, net                       124,652         107,340
       Inventories, net                                57,379          51,984
       Prepaid expenses and other current assets       13,204          10,855
          Total current assets                        209,752         186,241

    Property, plant and equipment, net                 60,890          60,927
    Goodwill                                           41,108          38,740
    Other intangible assets, net                        8,270           8,330
    Investments in associated companies                 6,786           7,044
    Deferred income taxes                              32,517          28,573
    Other assets                                       31,941          27,527
          Total assets                               $391,264        $357,382

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
       Short-term borrowings and current portion
        of long-term debt                              $2,147          $4,950
       Accounts and other payables                     64,159          56,345
       Accrued compensation                            11,661          15,225
       Other current liabilities                       15,212          13,659
          Total current liabilities                    93,179          90,179
    Long-term debt                                     96,247          85,237
    Deferred income taxes                               5,761           5,317
    Other non-current liabilities                      74,409          61,783
          Total liabilities                           269,596         242,516

    Minority interest in equity of subsidiaries         4,807           4,035

    Shareholders' equity
       Common stock, $1 par value; authorized
        30,000,000 shares; issued 10,106,214
        shares                                         10,106           9,926
       Capital in excess of par value                   8,452           5,466
       Retained earnings                              112,342         114,498
       Accumulated other comprehensive loss           (14,039)        (19,059)
          Total shareholders' equity                  116,861         110,831
             Total liabilities and shareholders'
              equity                                 $391,264        $357,382


                          Quaker Chemical Corporation
                 Condensed Consolidated Statement of Cash Flows
                        For the Six Months Ended June 30,
                             (Dollars in thousands)

                                                           (Unaudited)
                                                      2007            2006
    Cash flows from operating activities
      Net income                                       $7,688          $5,534
      Adjustments to reconcile net income to net
       cash used in operating activities:
         Depreciation                                   5,500           4,893
         Amortization                                     611             708
         Equity in net income of associated
          companies, net of dividends                     (26)            (33)
         Minority interest in earnings of
          subsidiaries                                    776             721
         Deferred income tax                              452             334
         Deferred compensation and other, net             824              61
         Stock-based compensation                         561             385
         (Gain) loss on disposal of property,
          plant and equipment                               6              (8)
         Insurance settlement realized                   (913)           (157)
         Pension and other postretirement benefits     (1,773)         (2,752)
      Increase (decrease) in cash from changes in
       current assets and current liabilities,
       net of acquisitions:
         Accounts receivable                          (14,785)         (8,746)
         Inventories                                   (3,921)         (2,011)
         Prepaid expenses and other current assets       (989)         (2,449)
         Accounts payable and accrued liabilities       3,123           1,475
         Change in restructuring liabilities              -            (3,411)
            Net cash used in operating activities      (2,866)         (5,456)

    Cash flows from investing activities
      Capital expenditures                             (4,180)         (4,863)
      Payments related to acquisitions                 (1,527)         (1,069)
      Proceeds from disposition of assets                 106              46
      Insurance settlement received and interest
       earned                                           5,326             154
      Change in restricted cash, net                   (4,413)              3
           Net cash used in investing activities       (4,688)         (5,729)

    Cash flows from financing activities
      Net decrease in short-term borrowings            (2,841)         (2,813)
      Proceeds from long-term debt                     10,921          14,340
      Repayments of long-term debt                       (448)           (474)
      Dividends paid                                   (4,304)         (4,199)
      Stock options exercised, other                    2,605             335
      Distributions to minority shareholders             (270)           (350)
           Net cash provided by financing activities    5,663           6,839

      Effect of exchange rate changes on cash             346             336
        Net decrease in cash and cash equivalents      (1,545)         (4,010)
        Cash and cash equivalents at the
         beginning of the period                       16,062          16,121
        Cash and cash equivalents at the end of
         the period                                   $14,517         $12,111
SOURCE  Quaker Chemical Corporation
    -0-                             08/01/2007
    /CONTACT:  Mark A. Featherstone, Vice President and Chief Financial
Officer of Quaker Chemical Corporation, +1-610-832-4160/
    /Web site:  http://www.quakerchem.com /
    (KWR)

CO:  Quaker Chemical Corporation
ST:  Pennsylvania
IN:  CHM FIN
SU:  ERN CCA

LL-CS
-- NEW075 --
4801 08/01/2007 17:00 EDT http://www.prnewswire.com