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CONSHOHOCKEN, Pa., April 29 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR) today announced record quarterly sales of $98.1 million and net income growth of 7% for the first quarter ended March 31, 2004.
First Quarter 2004 Summary
Net income for the first quarter increased 7% to $3.3 million versus $3.1 million for the first quarter of 2003. Consistent with previous guidance, earnings per diluted share were $0.33 in the first quarters of both 2004 and 2003.
Net sales for the first quarter of 2004 were a record $98.1 million, up 34% from $73.3 million for the first quarter of 2003. Foreign exchange rate translation, the Company's 2003 acquisitions and the Company's recently awarded chemical management services (CMS) contracts favorably impacted net sales by $6.5 million, $5.5 million and $10.1 million, respectively. The remaining net sales increase of approximately 4% is primarily due to double- digit growth in the Asia/Pacific and South American regions.
Gross margin as a percentage of sales declined from 38.7% for the first quarter of 2003 to 33.1% for the first quarter of 2004. As previously disclosed, the Company's new CMS contracts have caused different relationships between margins and revenue than in the past. At the majority of current CMS sites, the Company effectively acts as an agent and records revenue and costs from these sales on a net sales or "pass-through" basis. The new CMS contracts have a different structure, which results in the Company recognizing in reported revenue the gross revenue received from the CMS site customer, and in cost of goods sold the third party product purchases. The negative impact to gross margin for the first quarter related to the new CMS contracts is approximately 5 percentage points. The remaining decline in gross margin as a percentage of sales is due to increased raw material costs, as well as product and regional sales mix.
Selling, general and administrative expenses for the quarter increased $3.9 million compared to the first quarter of 2003. Foreign exchange rate translation and the Company's 2003 acquisitions accounted for approximately 60% of the increase over the prior year. The majority of the remaining increase was primarily due to higher expenses associated with the Company's ERP implementation, Sarbanes-Oxley compliance, as well as inflationary increases.
The increase in other income reflects a priority-return distribution from the Company's real estate joint venture in the first quarter of 2004 and foreign exchange gains in the first quarter of 2004 versus losses in the first quarter of 2003. The increase in net interest expense is primarily due to higher debt balances outstanding during the first quarter of 2004 versus the prior year.
Balance Sheet and Cash Flow Items
The Company's debt-to-total capital ratio remains strong at 37% at the end of the first quarter of 2004 compared to 34% at the end of 2003. The higher accounts receivable and inventory at the end of the first quarter are primarily due to the Company's new CMS contracts and increased sales volume. In the first quarter of 2004, capital expenditures were $2.3 million, primarily related to the Company's U.S. lab renovation and global ERP implementation.
Ronald J. Naples, Chairman and Chief Executive Officer, commented, "The first quarter results were consistent with our expectations. We are seeing signs of an improving global economy with sequential quarterly growth in all four regions and especially high growth in the South American and Asia/Pacific markets. However, partially offsetting the positive impact of this growth is the continuation of high raw material costs as well as higher expenses that are primarily a result of higher pension, insurance, Sarbanes-Oxley compliance and ERP implementation expenses."
Mr. Naples continued, "Our view of the world really hasn't changed from our last guidance. We expect 2004 to be a strong revenue growth year in all business segments and in all regions due to our business initiatives as well as an improvement in the global economy. However, we also continue to expect to be negatively impacted by high crude oil prices as well as the higher SG&A costs related to the items above and the restoration of performance-based incentive compensation. Our 2004 outlook continues to be for a slight improvement in year-over-year earnings. For the second quarter, we expect earnings to be similar to 2003, and we are moving ahead with important business initiatives. The recent increase of our dividend, the 32nd consecutive year of annual dividend increases to shareholders, is a tangible sign of our confidence in the prospects of the Company and our commitment to delivering value for our shareholders."
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.
As previously announced, Quaker Chemical's investor conference call to discuss first quarter results is scheduled for April 30, 2004 at 2:30 p.m. (ET). Access the conference by calling 800-922-0755 or visit Quaker's Web site at 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 March 31, 2004 2003 Net sales $98,131 $73,337 Cost of goods sold 65,676 44,971 Gross margin 32,455 28,366 % 33.1% 38.7% Selling, general and administrative 26,598 22,685 Operating income 5,857 5,681 % 6.0% 7.7% Other income, net 559 88 Interest expense, net (315) (139) Income before taxes 6,101 5,630 Taxes on income 1,922 1,858 4,179 3,772 Equity in net income of associated companies 149 86 Minority interest in net income of subsidiaries (1,019) (751) Net income $3,309 $3,107 % 3.4% 4.2% Per share data: Net income - basic $0.35 $0.34 Net income - diluted $0.33 $0.33 Shares Outstanding: Basic 9,570,664 9,270,775 Diluted 9,977,713 9,508,593 Quaker Chemical Corporation Condensed Consolidated Balance Sheet (Dollars in thousands, except par value and share amounts) (Unaudited) March 31, December 31, 2004 2003 ASSETS Current assets Cash and cash equivalents $22,894 $21,915 Accounts receivable, net 82,063 78,121 Inventories, net 33,969 32,211 Prepaid expenses and other current assets 14,065 11,277 Total current assets 152,991 143,524 Property, plant, and equipment, net 137,402 136,448 Less accumulated depreciation 75,187 74,057 Net property, plant and equipment 62,215 62,391 Goodwill 33,309 33,301 Other intangible assets, net 9,299 9,616 Investments in associated companies 5,937 6,005 Deferred income taxes 12,875 12,846 Other assets 19,525 19,664 Total assets $296,151 $287,347 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term borrowings and current portion of long-term debt $50,614 $42,992 Accounts and other payables 41,439 41,259 Accrued compensation 6,385 6,816 Other current liabilities 14,942 14,738 Total current liabilities 113,380 105,805 Long-term debt 15,622 15,827 Deferred income taxes 2,749 2,688 Other non-current liabilities 41,278 40,967 Total liabilities 173,029 165,287 Minority interest in equity of subsidiaries 10,678 9,708 Shareholders' equity Common stock, $1 par value; authorized 30,000,000 shares; issued (including treasury shares) 9,664,009 shares 9,664 9,664 Capital in excess of par value 2,307 2,181 Retained earnings 118,546 117,308 Unearned compensation (554) (621) Accumulated other comprehensive loss (16,851) (15,406) 113,112 113,126 Treasury stock, shares held at cost; 2004 - 39,711, 2003 - 54,178 (668) (774) Total shareholders' equity 112,444 112,352 Total liabilities and shareholders' equity $296,151 $287,347 Quaker Chemical Corporation Condensed Consolidated Statement of Cash Flows For the three months ended March 31, (Dollars in thousands) (Unaudited) 2004 2003 Cash flows from operating activities Net income $3,309 $3,107 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 1,981 1,646 Amortization 284 215 Equity in net income of associated companies (149) (86) Minority interest in earnings of subsidiaries 1,019 751 Deferred compensation and other, net 208 241 Pension and other postretirement benefits 313 317 Increase (decrease) in cash from changes in current assets and current liabilities: Accounts receivable (4,316) (399) Inventories (1,867) (1,389) Prepaid expenses and other current assets (2,768) (1,342) Accounts payable and accrued liabilities 329 (5,927) Change in restructuring liabilities (290) (699) Net cash used in operating activities $(1,947) $(3,565) Cash flows from investing activities Capital expenditures (2,347) (2,113) Dividends and distributions from associated companies 233 1,800 Other, net (57) (40) Net cash used in investing activities (2,171) (353) Cash flows from financing activities Net increase in short-term borrowings 7,617 3,791 Repayment of long-term debt (160) (7) Dividends paid (2,020) (1,961) Treasury stock issued 232 86 Distributions to minority shareholders (245) (213) Net cash provided by financing activities 5,424 1,696 Effect of exchange rate changes on cash (327) 409 Net increase (decrease) in cash and cash equivalents 979 (1,813) Cash and cash equivalents at beginning of year 21,915 13,857 Cash and cash equivalents at the end of year $22,894 $12,044
SOURCE Quaker Chemical Corporation -0- 04/29/2004 /CONTACT: Michael F. Barry, Vice President and Chief Financial Officer, Quaker Chemical Corporation, +1-610-832-8500/ /Web site: http://www.quakerchem.com / (KWR) CO: Quaker Chemical Corporation ST: Pennsylvania IN: CHM SU: ERN ERP CCA MAV PD -- PHTH047 -- 0515 04/29/2004 18:12 EDT http://www.prnewswire.com