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CONSHOHOCKEN, Pa., May 1 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR) today announced record first quarter 2006 sales of $109.8 million and net income of $2.5 million, compared to first quarter 2005 sales of $104.2 million and net income of $3.1 million. Core earnings improved significantly, as the prior year quarter included a $4.2 million pre- tax gain from the sale of property by the Company's real estate joint venture, as well as $1.2 million of charges for restructuring and related activities, contributing $3.0 million pre-tax to the result in the first quarter, 2005. The first quarter of 2006 included a pension gain of $0.9 million. Diluted earnings per share for the first quarter were $0.26, as compared to $0.32 for the first quarter of last year with those aforementioned non-recurring items included.
First Quarter 2006 Summary
Net sales for the first quarter of 2006 were $109.8 million, up 5.4% from $104.2 million for the first quarter of 2005. The increase in net sales was attributable to higher sales prices and volume growth of 6.6% offset by foreign exchange rate translation, which negatively impacted net sales by approximately 1.2%. Volume growth was mainly attributable to market share growth and increased demand in China. Selling price increases were implemented across all regions and market segments to offset significantly higher raw material costs.
Gross margin as a percentage of sales was 29.6% for the first quarter of 2006, as compared to 29.7% for the first quarter of 2005, and 30.2% for the fourth 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, particularly crude oil derivatives.
Selling, general and administrative expenses for the quarter decreased $0.9 million. Cost savings from restructuring efforts completed in 2005 were partially offset by increased spending in higher growth areas, higher variable compensation, and inflationary and other increases. In addition, due to a legislative change, effective January 1, 2006, the Company recorded a pension gain of $0.9 million relating to one of its European pension plans.
The decrease in other income is largely due to $4.2 million of pre-tax gain in the first quarter of 2005 received from the Company's real estate joint venture. The remainder of the decrease was the result of foreign exchange losses in the first quarter of 2006 compared to gains in the first quarter of 2005.
The increase in net interest expense is attributable to higher average borrowings and higher interest rates. The decrease in minority interest expense from the first quarter of 2005 is primarily due to the acquisition of the remaining 40% interest in the Company's Brazilian affiliate in March of 2005.
Balance Sheet and Cash Flow Items
The Company's net debt has 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 40% at March 31, 2006, compared to 35% at December 31, 2005.
Ronald J. Naples, Chairman and Chief Executive Officer, commented, "We are pleased with continued solid revenue growth flowing from our pricing actions and business building initiatives. Our core earnings, before considering such prior year items as real estate gains and restructuring costs, show a marked improvement over our last several quarters. Our restructuring efforts of 2005 are positively impacting bottom line results in accordance with expectations. While we have achieved some gross margin improvement in dollar terms, our significant efforts to improve gross margin percentage have been mitigated by yet another spike in our raw material costs. With crude prices recently moving past $70 a barrel, we will necessarily continue the pricing dialog with our customers. We are shooting for gross margin percentage recovery upon a sustained period of stable or, better yet, declining raw material 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 to discuss first quarter results is scheduled for May 2, 2006 at 2:30 p.m. (EDT). Access the conference by calling 877-269-7756 (toll-free) 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 March 31, 2006 2005 Net sales $109,816 $104,161 Cost of goods sold 77,331 73,234 Gross margin 32,485 30,927 % 29.6% 29.7% Selling, general and administrative 27,362 28,217 Restructuring and related activities, net - 1,232 Operating income 5,123 1,478 % 4.7% 1.4% Other income, net 128 4,868 Interest expense, net (965) (434) Income before taxes 4,286 5,912 Taxes on income 1,553 1,921 2,733 3,991 Equity in net income of associated companies 113 53 Minority interest in net income of subsidiaries (304) (918) Net income $2,542 $3,126 % 2.3% 3.0% Per share data: Net income - basic $0.26 $0.32 Net income - diluted $0.26 $0.32 Shares Outstanding: Basic 9,723,432 9,643,681 Diluted 9,816,149 9,883,727 Quaker Chemical Corporation Condensed Consolidated Balance Sheet (Dollars in thousands, except par value and share amounts) (Unaudited) March 31, December 31, 2006 2005* ASSETS Current assets Cash and cash equivalents $9,605 $16,121 Accounts receivable, net 101,524 93,943 Inventories, net 50,185 45,818 Prepaid expenses and other current assets 12,541 10,111 Total current assets 173,855 165,993 Property, plant and equipment 144,367 140,903 Less accumulated depreciation 87,414 84,006 Net property, plant and equipment 56,953 56,897 Goodwill 37,237 35,418 Other intangible assets, net 8,494 8,703 Investments in associated companies 6,472 6,624 Deferred income taxes 24,856 24,385 Other assets 34,588 33,975 Total assets $342,455 $331,995 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term borrowings and current portion of long-term debt $2,643 $5,094 Accounts and other payables 53,546 52,923 Accrued compensation 9,068 9,818 Other current liabilities 17,332 19,053 Total current liabilities 82,589 86,888 Long-term debt 79,989 67,410 Deferred income taxes 4,792 4,608 Other non-current liabilities 58,740 60,573 Total liabilities 226,110 219,479 Minority interest in equity of subsidiaries 6,636 6,609 Shareholders' equity Common stock, $1 par value; authorized 30,000,000 shares; issued 2006 - 9,804,154, 2005 - 9,726,385 9,804 9,726 Capital in excess of par value 3,768 3,574 Retained earnings 111,752 111,317 Accumulated other comprehensive loss (15,615) (18,710) Total shareholders' equity 109,709 105,907 Total liabilities and shareholders' equity $342,455 $331,995 * Condensed from audited financial statements. Quaker Chemical Corporation Condensed Consolidated Statement of Cash Flows For the three months ended March 31, (Dollars in thousands) (Unaudited) 2006 2005 Cash flows from operating activities Net income $2,542 $3,126 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 2,495 2,268 Amortization 351 306 Equity in net income of associated companies (113) (53) Minority interest in earnings of subsidiaries 304 918 Deferred income taxes (361) - Deferred compensation and other, net (184) 388 Restructuring and related activities - 1,232 Gain on sale of partnership assets - (2,989) Insurance settlement realized (72) - Pension and other postretirement benefits (1,865) (207) Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions: Accounts receivable (6,425) (3,751) Inventories (3,696) 1,599 Prepaid expenses and other current assets (2,330) 391 Accounts payable and accrued liabilities 245 (5,395) Change in restructuring liabilities (2,912) (640) Net cash used in operating activities (12,021) (2,807) Cash flows from investing activities Capital expenditures (1,655) (1,628) Dividends and distributions from associated companies 205 - Payments related to acquisitions (1,000) (6,700) Proceeds from partnership disposition of assets - 2,989 Proceeds from disposition of assets - 647 Interest earned on insurance settlement 75 - Change in restricted cash, net (3) - Net cash used in investing activities (2,378) (4,692) Cash flows from financing activities Net (decrease) increase in short-term borrowings (2,504) 2,064 Long-term debt borrowings 12,340 - Repayments of long-term debt (233) (282) Dividends paid (2,090) (2,079) Stock options exercised, other 272 - Distributions to minority shareholders (350) (2,204) Other, net - (9) Net cash provided by (used in) financing activities 7,435 (2,510) Effect of exchange rate changes on cash 448 (971) Net decrease in cash and cash equivalents (6,516) (10,980) Cash and cash equivalents at the beginning of the period 16,121 29,078 Cash and cash equivalents at the end of the period $9,605 $18,098
SOURCE Quaker Chemical Corporation -0- 05/01/2006 /CONTACT: Neal E. Murphy, Vice President and Chief Financial Officer, Quaker Chemical Corporation, +1-610-832-4189/ /Web site: http://www.quakerchem.com / (KWR) CO: Quaker Chemical Corporation ST: Pennsylvania IN: CHM SU: ERN CCA MZ -- PHM064 -- 0413 05/01/2006 17:52 EDT http://www.prnewswire.com