Print Page  Print Page | E-mail Alerts  E-mail Alerts | IR Contacts  IR Contact
<< Back

News Release


Quaker Chemical Announces Record Quarterly Sales and Higher Earnings

CONSHOHOCKEN, Pa., July 30 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR) today announced net sales for the second quarter 2008 of $158.2 million, a quarterly record, and net income of $4.3 million, increases of 15% and 4%, respectively, compared to the second quarter of 2007. Earnings per diluted share were $0.41 for the second quarter of 2008, the same as the second quarter of 2007. Included in second quarter 2008 results is a charge of approximately $1.9 million of incremental expense, or approximately $0.12 per diluted share, related to the upcoming retirement of the Company's chief executive officer.

"We had a fine second quarter in sales and profits, particularly in consideration of the much quickened escalation of raw material costs in the quarter and the CEO transition cost charged. Our raw material experience in the quarter dramatically outstripped even the unprecedented levels of the last couple of years," commented Ronald J. Naples, Chairman and Chief Executive Officer. "Our second quarter profit was helped by considerable leverage in SG&A expenses. And, beyond the P&L, the second quarter showed excellent cash flow improvement, leading to about a $14 million reduction in net debt, our lowest level since the end of 2005. We are certainly mindful of the challenges and limited visibility of the current economic environment, but we remain committed to investing in key growth initiatives and continuing to work with our customers to recognize the value we deliver and our cost realities. We're on our way to a solid growth year, even in the face of today's well-known negatives, and are confident of our long-term future and the prospects for continued growth."

Second Quarter Summary

Net sales for the second quarter were $158.2 million, up 15% compared to $137.6 million for the second quarter of 2007. The increase in net sales was primarily due to higher sales prices and foreign exchange rate translation. Volume growth in Asia/Pacific and South America, as well as higher revenue from Chemical Management Services ("CMS"), was largely offset by volume declines in the Company's other regions. Foreign exchange rate translation increased revenues by approximately 8%. Selling price increases were realized, in part, as a result of an ongoing effort to offset higher raw material costs. CMS revenue was higher due to the impact of additional CMS accounts gained in 2007, as well as the renewal and restructuring of several of the Company's CMS contracts.

Gross margin dollars were up by approximately $2.2 million, or 5% over the second quarter of 2007. However, the gross margin percentage was 28.3%, compared to 31.0% in the second quarter of 2007. The Company's larger mix of CMS contracts reported on a gross versus pass-through basis decreased the gross margin percentage by approximately 0.5 percentage points. The remaining decline in the gross margin percentage is due to increased raw material costs in excess of price increases, as well as product and regional sales mix. The Company has announced and implemented a number of further price increases to aid in offsetting the significant rise in the Company's key raw material costs.

Selling, general and administrative expenses ("SG&A") increased $1.7 million, compared to the second quarter of 2007. Foreign exchange rate translation increased SG&A by $2.5 million. Investments in higher growth areas, as well as inflationary increases, were more than offset by lower legal and environmental costs and lower incentive compensation expense. SG&A as a percent of sales was 23.5% versus 25.7% in last year's second quarter.

As previously announced on May 7, 2008, Ronald J. Naples, Chairman and Chief Executive Officer of Quaker Chemical Corporation, announced his plan to retire as Quaker's Chief Executive Officer, effective October 3, 2008. As further discussed in the Company's 8-K filed on May 13, 2008, the Company is recognizing certain accelerated and other costs, in accordance with Mr. Naples' Employment, Transition and Consulting Agreement, which are expected to total $5.8 million over the 2008-2010 period. Of the $3.5 million in incremental costs estimated to be incurred in 2008, approximately $1.9 million, or approximately $0.12 per diluted share, was recognized in the second quarter of 2008.

Other income includes a net arbitration award of approximately $1.0 million, or approximately $0.04 per diluted share, related to litigation with one of the former owners of the Company's Italian subsidiary. The decrease in interest expense is due to lower average debt balances and interest rates, as well as higher interest income.

Year-to-Date Summary

Net sales for the first half of 2008 were $305.9 million, up 16.5% from $262.5 million for the first half of 2007. The increase in net sales was attributable to volume growth, higher sales prices and foreign exchange rate translation. Volume growth was realized in virtually all the Company's regions, including higher revenue related to the Company's CMS channel. Foreign exchange rate translation increased revenues by approximately 8%. Selling price increases were realized, in part, as a result of an ongoing effort to offset higher raw material costs. CMS revenues were higher due to the impact of additional CMS accounts gained in 2007, as well as the renewal and restructuring of several of the Company's CMS contracts.

Gross margin dollars were up $7.3 million, or 9% for the first half of 2008, compared to the first half of 2007. However, gross margin percentage was 28.9% for the first half of 2008, compared to 30.9% in the first half of 2007. The Company's larger mix of CMS contracts reported on a gross versus pass-through basis decreased the gross margin percentage by approximately 0.5 percentage points. The remaining decline in the gross margin percentage is due to increased raw material costs in excess of price increases, as well as product and regional sales mix.

SG&A for the first half of 2008 increased $4.3 million, compared to the first half of 2007. Foreign exchange rate translation increased SG&A by $4.8 million. Investments in higher growth areas, as well as inflationary increases, were more than offset by lower legal and environmental costs and lower incentive compensation expense.

Other income includes the net arbitration award noted above. The decrease in interest expense is due to lower average debt balances and interest rates, as well as higher interest income.

Balance Sheet and Cash Flow Items

The Company's net debt-to-total-capital ratio has decreased to 28% from 32% at December 31, 2007, primarily on strong second quarter 2008 operating cash flow. Compared to the first quarter of 2008, operating cash flow improved $14.3 million.

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 July 31, 2008 at 3:30 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,
                                 2008        2007        2008        2007

    Net sales                   $158,188    $137,598    $305,906    $262,489

    Cost of goods sold           113,402      94,986     217,485     181,331

    Gross margin                  44,786      42,612      88,421      81,158
     %                             28.3%       31.0%       28.9%       30.9%

    Selling, general and
     administrative expenses      37,153      35,409      71,657      67,328

    CEO Transition Costs           1,880         -         1,880         -

    Operating income               5,753       7,203      14,884      13,830
     %                              3.6%        5.2%        4.9%        5.3%

    Other income, net              1,687         909       1,848       1,236
    Interest expense, net           (979)     (1,501)     (2,161)     (2,851)
    Income before taxes            6,461       6,611      14,571      12,215

    Taxes on income                2,116       2,298       4,881       4,142
                                   4,345       4,313       9,690       8,073

    Equity in net income of
     associated companies            187         266         299         391
    Minority interest in net
     income of subsidiaries         (211)       (428)       (575)       (776)

    Net income                    $4,321      $4,151      $9,414      $7,688
     %                              2.7%        3.0%        3.1%        2.9%

    Per share data:
      Net income - basic           $0.42       $0.42       $0.92       $0.77
      Net income - diluted         $0.41       $0.41       $0.91       $0.76

    Shares Outstanding:
      Basic                   10,285,121   9,983,535  10,185,490   9,945,819
      Diluted                 10,559,449  10,118,653  10,366,569  10,074,060



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

                                         (Unaudited)


                                     June 30,   December 31,
                                       2008        2007
    ASSETS

    Current assets
      Cash and cash equivalents      $22,170     $20,195
      Construction fund
       (restricted cash)               9,325      -
      Accounts receivable, net       121,599     118,135
      Inventories, net                66,560      60,738
      Prepaid expenses and other
       current assets                 14,516      14,433
        Total current assets         234,170     213,501

    Property, plant and equipment,
     net                              66,760      62,287
    Goodwill                          47,129      43,789
    Other intangible assets, net       7,480       7,873
    Investments in associated
     companies                         7,972       7,323
    Deferred income taxes             30,480      30,257
    Other assets                      40,315      34,019
        Total assets                $434,306    $399,049

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Short-term borrowings and
       current portion of long-
       term debt                      $2,818      $4,288
      Accounts and other payables     73,718      67,380
      Accrued compensation            11,403      17,287
      Other current liabilities       17,280      17,396
        Total current liabilities    105,219     106,351
    Long-term debt                    87,405      78,487
    Deferred income taxes              8,784       7,583
    Other non-current liabilities     75,118      71,722
        Total liabilities            276,526     264,143

    Minority interest in equity of
     subsidiaries                      4,883       4,513

    Shareholders' equity
      Common stock, $1 par value;
       authorized 30,000,000 shares;
       issued 10,612,269 shares       10,612      10,147
      Capital in excess of par value  19,029      10,104
      Retained earnings              120,375     115,767
      Accumulated other
       comprehensive income (loss)     2,881      (5,625)
        Total shareholders' equity   152,897     130,393
          Total liabilities and
           shareholders' equity     $434,306    $399,049



                         Quaker Chemical Corporation
   Condensed Consolidated Statement of Cash Flows For the six months ended
                                   June 30,
                            (Dollars in thousands)

                                                          (Unaudited)
                                                     2008              2007
    Cash flows from operating activities
      Net income                                    $9,414            $7,688
      Adjustments to reconcile net income
       to net cash provided by (used in)
       operating activities:
        Depreciation                                 5,457             5,500
        Amortization                                   606               611
        Equity in net income of associated companies,
         net of dividends                             (299)              (26)
        Minority interest in earnings of
         subsidiaries                                  575               776
        Deferred compensation and other, net         2,498             1,276
        Stock-based compensation                     1,762               561
        (Gain) loss on disposal of property,
         plant and equipment                           (76)                6
        Insurance settlement realized                 (685)             (913)
        Pension and other postretirement benefits   (3,311)           (1,773)
      Increase (decrease) in cash from changes in
       current assets and current liabilities, net
       of acquisitions:
        Accounts receivable                          1,013           (14,785)
        Inventories                                 (3,806)           (3,921)
        Prepaid expenses and other current assets     (885)             (989)
        Accounts payable and accrued liabilities    (4,146)            3,123
          Net cash provided by (used in)
           operating activities                      8,117            (2,866)

    Cash flows from investing activities
      Capital expenditures                          (7,038)           (4,180)
      Payments related to acquisitions              (1,000)           (1,527)
      Proceeds from disposition of assets              117               106
      Insurance settlement received and
       interest earned                               5,178             5,326
      Change in restricted cash, net               (13,818)           (4,413)
          Net cash used in investing activities    (16,561)           (4,688)

    Cash flows from financing activities
      Net decrease in short-term borrowings         (1,488)           (2,841)
      Proceeds from long-term debt                  10,000            10,921
      Repayments of long-term debt                  (2,120)             (448)
      Dividends paid                                (4,550)           (4,304)
      Stock options exercised, other                 7,628             2,605
      Distributions to minority shareholders           -                (270)
          Net cash provided by financing
           activities                                9,470             5,663

      Effect of exchange rate changes on cash          949               346
        Net increase (decrease) in cash and cash
         equivalents                                 1,975            (1,545)
        Cash and cash equivalents at the
         beginning of the period                    20,195            16,062
        Cash and cash equivalents at the
         end of the period                         $22,170           $14,517

SOURCE  Quaker Chemical Corporation
    -0-                             07/30/2008
    /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

RB-AB
-- NEW101A --
1874 07/30/2008 17:00 EDT http://www.prnewswire.com