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News Release


Quaker Chemical Announces Record Third Quarter Sales and a 42% Increase in Net Income

CONSHOHOCKEN, Pa., Oct. 31 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR) today announced record third quarter sales of $116.4 million and a 42% net income improvement to $3.1 million, compared to third quarter 2005 sales of $105.8 million and net income of $2.2 million. Diluted earnings per share increased to $0.32 for the third quarter of 2006 versus $0.23 in the third quarter of last year.

Third Quarter 2006 Summary

Net sales for the third quarter of 2006 were $116.4 million, up 10.1% from the third quarter of 2005 due to higher selling prices across all regions and volume growth in the U.S. and China.

Gross margin as a percentage of sales was 31.6% for the third quarter of 2006, as compared to 32.0% for the third quarter of 2005. Higher selling prices and stronger performance from the Company's CMS channel helped restore margins to prior year third quarter levels despite continued significant escalations in raw material costs. The third quarter 2006 gross margin percentage of 31.6% shows sequential improvement over the first two quarters of the year in which the Company reported gross margins of 29.6% and 30.4%, respectively.

Selling, general and administrative expenses for the quarter increased $1.5 million, but decreased as a percentage of sales to 27% from 28.3% in the prior year third quarter. Planned new spending in higher growth areas was funded by savings from the Company's restructuring program in the fourth quarter of 2005. Higher variable compensation in the third quarter of 2006 as compared to the prior year third quarter was the result of increased earnings.

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.

Year-to-Date Summary

Net sales for the first nine months of 2006 were $344.9 million, up 8.8% from $317.0 million for the first nine months of 2005. The increase in net sales was attributable to higher sales prices and volume growth. Volume growth was mainly attributable to market share growth and increased demand in 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.

Net income for the first nine months of 2006 was $8.7 million compared to $7.1 million for the first nine months 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 30.5% for the first nine months of 2006, as compared to 30.8% for the first nine months of 2005. Higher selling prices and a stronger performance from the Company's CMS channel helped maintain margins notwithstanding continued increases in raw material prices, particularly crude oil derivatives.

Selling, general and administrative expenses for the first nine months of 2006 increased $1.4 million compared to the first nine months of 2005. As was the case in the third quarter, cost savings from the Company's restructuring efforts in 2005 enabled increased spending in higher growth areas, restoration of variable compensation and higher professional fees with only minor cost increases. In addition, due to a legislative change, effective January 1, 2006, the Company recorded a pension gain in the first quarter of 2006 for $0.9 million relating to one of its European pension plans. As a percentage of sales, selling, general and administrative expenses were 25.7% for the first nine months of 2006, as compared to 27.5% in the first nine months of 2005.

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 nine months of 2006, compared to gains in the first nine months of 2005.

The increase in net interest expense is attributable to higher average borrowings and higher interest rates. The decrease 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 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 38% at September 30, 2006, compared to 39% at June 30, 2006, 40% at March 31, 2006 and 35% at December 31, 2005.

Ronald J. Naples, Chairman and Chief Executive Officer, commented, "We had a great third quarter that flowed from increasing contributions from strategic initiatives such as Asia/Pacific growth and CMS, persistent pricing attention, and the fourth quarter 2005 repositioning of our cost base. We have also benefited from strong global steel demand in 2006. We're pleased with our continued earnings progress and to have been able to generate sequential quarter-over-quarter improvement in gross margin percentage in the face of continued increases in raw material costs. The recent easing of crude oil prices may help mineral oil in the long term, but this year so far we're still facing increases in mineral oil prices. Further, we have observed that global steel and automotive production has been outpacing demand in some markets over the past few months. We've had a fine profit rebound this year, and this is one of the challenges we'll be dealing with in keeping up our sequential quarterly progress as the year comes to a close. Still, we're performing significantly better than prior year, and longer term, we have a number of initiatives underway in both new markets and new products that provide new promise for the future."

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 by the Private Securities Litigation Reform Act of 1995.

As previously announced, Quaker Chemical's investor conference call to discuss third quarter results is scheduled for November 1, 2006 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)                (Unaudited)

                              Three Months Ended         Nine Months Ended
                                September 30,              September 30,
                              2006         2005          2006         2005

    Net sales               $116,425     $105,751      $344,924    $316,954

    Cost of goods sold        79,650       71,874       239,599     219,441

    Gross margin              36,775       33,877       105,325      97,513
      %                        31.6%        32.0%         30.5%       30.8%

    Selling, general and
     administrative           31,485       29,937        88,636      87,274

    Restructuring and
     related activities,
     net                           -            -             -       1,232

    Operating income           5,290        3,940        16,689       9,007
      %                         4.5%         3.7%          4.8%        2.8%

    Other income, net            539          353         1,054       5,869
    Interest expense, net     (1,218)        (670)       (3,435)     (1,844)
    Income before taxes        4,611        3,623        14,308      13,032

    Taxes on income            1,378        1,178         5,058       4,235
                               3,233        2,445         9,250       8,797

    Equity in net income of
     associated companies        218          208           456         414
    Minority interest in net
     income of subsidiaries     (312)        (441)       (1,033)     (2,078)

    Net income                $3,139       $2,212        $8,673      $7,133
      %                         2.7%         2.1%          2.5%        2.3%

    Per share data:
      Net income - basic       $0.32        $0.23         $0.89       $0.74
      Net income - diluted     $0.32        $0.23         $0.88       $0.73

    Shares Outstanding:
      Basic                9,792,187    9,693,851     9,762,019   9,671,516
      Diluted              9,854,625    9,801,893     9,833,903   9,816,006



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

                                                         (Unaudited)

                                                 September 30,  December 31,
                                                      2006          2005*
    ASSETS

    Current assets
      Cash and cash equivalents                      $15,785        $16,121
      Accounts receivable, net                       106,657         93,943
      Inventories, net                                51,533         45,818
      Prepaid expenses and other current assets       13,324         10,111
        Total current assets                         187,299        165,993

    Property, plant and equipment                    153,591        140,903
      Less accumulated depreciation                   93,773         84,006
        Net property, plant and equipment             59,818         56,897
    Goodwill                                          37,966         35,418
    Other intangible assets, net                       7,839          8,703
    Investments in associated companies                6,780          6,624
    Deferred income taxes                             24,031         24,385
    Other assets                                      34,294         33,975
        Total assets                                $358,027       $331,995

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Short-term borrowings and current portion
       of long-term debt                              $2,862         $5,094
      Accounts and other payables                     58,314         52,923
      Accrued compensation                            12,642          9,818
      Other current liabilities                       17,481         19,053
        Total current liabilities                     91,299         86,888
    Long-term debt                                    83,550         67,410
    Deferred income taxes                              5,035          4,608
    Other non-current liabilities                     57,889         60,573
        Total liabilities                            237,773        219,479

    Minority interest in equity of subsidiaries        6,452          6,609

    Shareholders' equity
      Common stock, $1 par value; authorized
       30,000,000 shares; issued 2006 - 9,873,744,
       2005 - 9,726,385 shares                         9,874          9,726
      Capital in excess of par value                   4,456          3,574
      Retained earnings                              113,640        111,317
      Accumulated other comprehensive loss           (14,168)       (18,710)
        Total shareholders' equity                   113,802        105,907
          Total liabilities and shareholders'
           equity                                   $358,027       $331,995

    *  Condensed from audited financial statements.


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

                                                          (Unaudited)

                                                       2006          2005*
    Cash flows from operating activities
      Net income                                      $8,673         $7,133
      Adjustments to reconcile net income to net
       cash (used in) provided by operating activities:
        Depreciation                                   7,406          6,731
        Amortization                                   1,058          1,014
        Equity in undistributed earnings of
         associated companies, net of dividends         (251)          (180)
        Minority interest in earnings of subsidiaries  1,033          2,078
        Deferred income taxes                            834            419
        Deferred compensation and other, net             387            145
        Stock-based compensation                         601            563
        Restructuring and related activities, net          -          1,232
        Gain on sale of partnership assets                 -         (2,989)
        (Gain) Loss on disposal of property, plant
         and equipment                                    19              -
        Insurance settlement realized                   (252)             -
        Pension and other postretirement benefits     (3,108)        (3,905)
      Increase (decrease) in cash from changes in
       current assets and current liabilities,
       net of acquisitions:
        Accounts receivable                          (10,077)        (8,635)
        Inventories                                   (4,561)        (2,920)
        Prepaid expenses and other current assets     (3,022)        (2,063)
        Accounts payable and accrued liabilities       8,351          5,349
        Change in restructuring liabilities           (3,731)        (1,636)
          Net cash provided by operating activities    3,360          2,336

    Cash flows from investing activities
      Capital expenditures                            (8,513)        (5,142)
      Payments related to acquisitions                (1,069)        (6,700)
      Proceeds from partnership disposition
       of assets                                           -          2,989
      Proceeds from disposition of assets                 64          1,894
      Interest received on insurance settlement          240              -
      Change in restricted cash, net                      12              -
          Net cash used in investing activities       (9,266)        (6,959)

    Cash flows from financing activities
      Short-term debt borrowings                       1,873          7,815
      Repayments of short-term debt                   (4,519)             -
      Long-term debt borrowings                       15,680              -
      Repayments of long-term debt                      (704)        (9,328)
      Dividends paid                                  (6,320)        (6,251)
      Issuance of common stock                           429            256
      Distributions to minority shareholders          (1,464)        (3,163)
          Net cash provided by (used in) financing
           activities                                  4,975        (10,671)

      Effect of exchange rate changes on cash            595           (675)
        Net decrease in cash and cash equivalents       (336)       (15,969)
        Cash and cash equivalents at the beginning
         of the period                                16,121         29,078
        Cash and cash equivalents at the end of
         the period                                  $15,785        $13,109

    * Certain reclassifications of prior year data have been made to improve
      comparability.
SOURCE  Quaker Chemical Corporation
    -0-                             10/31/2006
    /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

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2871 10/31/2006 17:13 EST http://www.prnewswire.com