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News Release


Quaker Chemical Announces Second Quarter 2014 Results

  • 3.5% revenue growth on increased product volume levels
  • Strong operating income leads 11% increase in non-GAAP earnings per diluted share
  • Acquisition of remaining 49% interest in Australian affiliate

CONSHOHOCKEN, Pa., July 31, 2014 /PRNewswire/ -- Quaker Chemical Corporation (NYSE: KWR) today announced a 3.5% increase in net sales to $191.3 million for the second quarter of 2014 compared to the second quarter of 2013 net sales of $184.8 million.  Earnings per diluted share for the second quarter of 2014 were $1.16 compared to $1.22 for the second quarter of 2013, which included $0.14 of earnings per diluted share related to the prior year receipt of a mineral oil excise tax refund.  Non-GAAP earnings per diluted share increased 11% to $1.11 for the second quarter of 2014 compared to $1.00 for the second quarter of 2013. The Company's adjusted EBITDA increased 6% to approximately $25.8 million for the second quarter of 2014 compared to $24.5 million in the second quarter of 2013.  For the first six months of 2014, the Company's net sales increased 3% to $373.0 million from $361.0 million for the first six months of 2013, including a 1% negative impact due to foreign exchange rate translation.  Earnings per diluted share for the first six months of 2014 were $2.13 compared to $2.26 for the first six months of 2013, with non-GAAP earnings per diluted share increasing 6% to $2.07 for the first six months of 2014 from $1.96 for the first six months of 2013.  The Company's adjusted EBITDA increased 8% to $49.6 million for the first six months of 2014 from $45.8 million for the first six months of 2013. 

Michael F. Barry, Chairman, Chief Executive Officer and President commented, "We are pleased with our second quarter results especially in light of a continuing uneven global economic environment as well as negative impacts due to foreign exchange. Our 11% growth in non-GAAP earnings is an indication that our business model and competitive positioning continue to serve us well. We experienced good growth in North America and China, a continued modest recovery in Europe after the long economic downturn, and a significant decline in South America, primarily due to exchange rates and poor economic conditions."

Mr. Barry continued, "Looking forward, we expect to see modest growth in most of our major markets, although some countries such as India and Brazil could continue to be challenging.  We are also experiencing some increases in our raw material costs.  However, we do believe our track record of increasing our market share and leveraging our recent acquisitions will continue and help offset the market issues we may experience. Overall, I continue to remain confident in our future and expect 2014 to be another good year for Quaker as we strive to increase revenue and non-GAAP earnings for the fifth consecutive year."

Second Quarter of 2014 Summary

Net sales for the second quarter of 2014 of $191.3 million increased approximately 3.5% from net sales of $184.8 million for the second quarter of 2013.  The increase in net sales was primarily due to higher product volumes net of a decrease of approximately $0.5 million due to foreign exchange rate translation. 

Gross profit increased approximately $0.9 million, or approximately 1%, from the second quarter of 2013 on the increase in sales volumes, noted above.  The Company's gross margin decreased to 35.7% for the second quarter of 2014 from 36.4% for the second quarter of 2013, which was primarily driven by a change in price and product mix and additional expenses to finalize the manufacturing cost streamlining initiative that began in the prior year in our Europe, Middle East and Africa ("EMEA") segment.   

Selling, general and administrative expenses ("SG&A") decreased approximately $0.3 million from the second quarter of 2013.  The decrease in SG&A was driven by lower incentive compensation costs in the current quarter and additional costs in the prior year period related to a South American cost streamlining initiative, partially offset by higher labor-related and acquisition-related costs.

The Company had other income of $0.1 million in the second quarter of 2014 compared to $2.3 million in the second quarter of 2013, which primarily consisted of the prior year mineral oil excise tax refund net of expense related to a change in an acquisition-related earnout liability.

Interest expense was lower in the second quarter of 2014 compared to the second quarter of 2013, primarily due to decreases in average borrowings and interest rates.  Interest income was higher in the second quarter of 2014 compared to the second quarter of 2013, primarily due to interest received on several tax-related credits and an increase in the level of the Company's cash on hand in the current period.

The Company's effective tax rates for the second quarters of 2014 and 2013 were generally consistent at 30.6% and 31.7%, respectively, with certain timing items slightly decreasing the current quarter's effective tax rate.  

Equity in net income of associated companies ("equity income") decreased $0.8 million from the second quarter of 2013 to the second quarter of 2014.  The primary component of the Company's equity income is its interest in a captive insurance company, which was higher in the prior year period.  In addition, the Company's equity income for the second quarter of 2014 includes a currency charge related to the conversion of certain Venezuelan Bolivar Fuerte to U.S. dollars. 

Changes in foreign exchange rates, excluding the current quarter conversion of certain Venezuelan Bolivar Fuerte, negatively impacted the second quarter of 2014 net income by approximately $0.1 million, or $0.01 per diluted share.

Year-to-Date 2014 Summary

Net sales for the first six months of 2014 of $373.0 million increased 3% from $361.0 million for the first six months of 2013, primarily due to higher product volumes across most regions net of a decrease of approximately $3.2 million due to foreign exchange rate translation. 

Gross profit increased approximately $3.4 million, or approximately 3%, from the first six months of 2013, which was primarily driven by the increase in sales volumes, noted above, on stable gross margins of 35.7% and 36.0% for the first six months of 2014 and the first six months of 2013, respectively.

SG&A increased approximately $0.3 million from the first six months of 2013, primarily due to higher labor related costs, acquisition related costs and, also, additional costs related to an amendment to the Company's pension plan in the United Kingdom ("UK").  These increases to the first six months of 2014 SG&A were net of lower incentive compensation costs, decreases in foreign currency exchange rate translation and additional costs in the prior year related to a South American cost streamlining initiative.

The Company had other expense of $0.4 million in the first six months of 2014, which was primarily the result of foreign exchange losses net of third party license fee income.  Whereas, the Company had other income of $2.6 million in the first six months of 2013, which primarily consisted of the prior year mineral oil excise tax refund net of expense related to a change in an acquisition-related earnout liability.

Interest expense was lower in the first six months of 2014 compared to the first six months of 2013, primarily due to decreases in average borrowings and interest rates.  Interest income was higher in the first six months of 2014 compared to the first six months of 2013, primarily due to interest received on several tax-related credits and an increase in the level of the Company's cash on hand in the current period.

The Company's effective tax rates for the first six months of 2014 and 2013 were 32.5% and 28.3%, respectively.  The primary contributors to the increase in the Company's effective tax rate were lower changes in reserves related to uncertain tax positions and certain one-time items that increased the first six months of 2014 effective tax rate.  Although the tax rate remains inflated above our full year expectation, the Company estimates its full year 2014 effective tax rate to approximate 31%.

The decrease in the Company's equity income of $1.0 million from the first six months of 2013 to the first six months of 2014 was primarily caused by lower earnings related to the Company's equity interest in a captive insurance company.   In addition, the Company's equity income for both the first six months of 2014 and the first six months of 2013 include comparable currency charges related to the conversion of Venezuelan Bolivar Fuerte to the U.S. dollar. 

Changes in foreign exchange rates negatively impacted the first six months of 2014 net income by approximately $0.8 million, or $0.06 per diluted share.

Balance Sheet and Cash Flow Items

The Company's net operating cash flow of approximately $10.1 million for the second quarter of 2014 increased its year-to-date net operating cash flow to $8.3 million compared to $27.5 million for the first six months of 2013.  The Company's operating cash flow continued to be impacted by cash invested in working capital during the second quarter of 2014.  Specifically, the Company's accounts receivables increased primarily due to higher sales volumes at the end of the second quarter of 2014 and a further delay in timing of cash receipts, its inventory was slightly higher due to a further build of raw material stock levels, and its accounts payable were down due to timing of payments to third party suppliers.  Overall, the Company's liquidity remains strong, as its cash position continued to exceed its debt at June 30, 2014 and, also, the Company's consolidated leverage ratio continued to be less than one times EBITDA.  In June 2014, the Company acquired the remaining 49% ownership interest in its Australian affiliate, Quaker Chemical (Australasia) Pty. Limited for A$8 million from its joint venture partner, Nuplex Industries.

Non-GAAP Measures

Included in this public release are non-GAAP financial measures of non-GAAP earnings per diluted share and adjusted EBITDA.  The Company believes these non-GAAP financial measures provide meaningful supplemental information as they enhance a reader's understanding of the financial performance of the Company, are more indicative of future operating performance of the Company, and facilitate a better comparison among fiscal periods, as the non-GAAP financial measures exclude items that are not considered core to the Company's operations.  Non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP.  

The following are reconciliations between the non-GAAP (unaudited) financial measures of non-GAAP earnings per diluted share and adjusted EBITDA to their most directly comparable GAAP (unaudited) financial measures:




Three Months Ended

June 30,


Six Months Ended

June 30,



2014


2013


2014


2013

GAAP earnings per diluted share attributable to Quaker Chemical Corporation Common Shareholders


$   1.16


$   1.22


$   2.13


$   2.26










UK pension plan amendment per diluted share




0.05




















Mineral oil excise tax refund per diluted share



(0.14)



(0.14)










Change in acquisition-related earnout liability per diluted share



0.03



0.03










Cost streamlining initiatives per diluted share


0.02


0.02


0.02


0.02










Currency conversion impacts of the Venezuelan Bolivar Fuerte per diluted share


0.02



0.02


0.03










Equity income in a captive insurance company per diluted share


(0.09)


(0.13)


(0.15)


(0.24)










Non-GAAP earnings per diluted share


$   1.11


$   1.00


$   2.07


$   1.96





Three Months Ended

June 30,


Six Months Ended

June 30,



2014


2013


2014


2013

Net income attributable to Quaker Chemical Corporation


$   15,427


$   16,083


$   28,157


$   29,702










Depreciation and amortization


3,824


3,953


7,712


7,888










Interest expense


581


762


1,106


1,506










Taxes on income before equity in net income of associated companies


6,538


6,828


13,084


10,961










Equity income in a captive insurance company


(1,225)


(1,696)


(2,071)


(3,131)










Mineral oil excise tax refund



(2,540)



(2,540)










Change in acquisition-related earnout liability



675



675










Cost streamlining initiatives


348


402


348


402










Currency conversion impacts of the Venezuelan Bolivar Fuerte


321



321


357




























UK pension plan amendment




902











Adjusted EBITDA


$   25,814


$   24,467


$   49,559


$   45,820


Forward-Looking Statements

This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  These forward looking statements 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, future terrorist attacks and other acts of violence.  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. 

Conference Call

As previously announced, Quaker Chemical's investor conference call to discuss the second quarter of 2014 results is scheduled for August 1, 2014 at 8:30 a.m. (ET).  A live webcast of the conference call, together with supplemental information, can be accessed through the Company's Investor Relations website at http://www.quakerchem.com.  You can also access the conference call by dialing 877-269-7756. 

About Quaker

Quaker Chemical is a leading global provider of process fluids, chemical specialties, and technical expertise to a wide range of industries, including steel, aluminum, automotive, mining, aerospace, tube and pipe, cans, and others.  For nearly 100 years, Quaker has helped customers around the world achieve production efficiency, improve product quality, and lower costs through a combination of innovative technology, process knowledge, and customized services. Headquartered in Conshohocken, Pennsylvania USA, Quaker serves businesses worldwide with a network of dedicated and experienced professionals whose mission is to make a difference.

 

Quaker Chemical Corporation 

Condensed Consolidated Statement of Income

(Dollars in thousands, except per share data and share amounts)





















(Unaudited) 












Three Months Ended June 30, 


Six Months Ended June 30, 



2014


2013


2014


2013










Net sales 


$         191,286


$         184,846


$         372,960


$         361,039










Cost of goods sold 


123,070


117,532


239,630


231,117










Gross profit


68,216


67,314


133,330


129,922

%


35.7%


36.4%


35.7%


36.0%










Selling, general and administrative expenses


47,271


47,521


93,012


92,718










Operating income


20,945


19,793


40,318


37,204

%


10.9%


10.7%


10.8%


10.3%










Other income (expense), net 


117


2,301


(356)


2,647

Interest expense


(581)


(762)


(1,106)


(1,506)

Interest income


895


229


1,348


398

Income before taxes and equity in net income of associated companies


21,376


21,561


40,204


38,743










Taxes on income before equity in net income of associated companies


6,538


6,828


13,084


10,961

Income before equity in net income of associated companies


14,838


14,733


27,120


27,782










Equity in net income of associated companies


1,104


1,942


2,131


3,084










Net income


15,942


16,675


29,251


30,866










Less: Net income attributable to noncontrolling interest


515


592


1,094


1,164










Net income attributable to Quaker Chemical Corporation


$           15,427


$           16,083


$           28,157


$           29,702

%


8.1%


8.7%


7.5%


8.2%










Per share data:









Net income attributable to Quaker Chemical Corporation Common Shareholders - basic


$              1.17


$              1.22


$              2.13


$              2.26

Net income attributable to Quaker Chemical Corporation Common Shareholders - diluted


$              1.16


$              1.22


$              2.13


$              2.26

 

 

Quaker Chemical Corporation 

Condensed Consolidated Balance Sheet 

(Dollars in thousands, except par value and share amounts)








(Unaudited)








June 30,


December 31, 



2014


2013

ASSETS










Current assets 





Cash and cash equivalents 


$         60,232


$         68,492

Accounts receivable, net 


186,323


165,629

Inventories


79,272


71,557

Prepaid expenses and other current assets 


20,133


23,169

Total current assets 


345,960


328,847






Property, plant and equipment, net


83,342


85,488

Goodwill 


58,921


58,151

Other intangible assets, net 


29,657


31,272

Investments in associated companies 


21,416


19,397

Deferred income taxes 


22,158


24,724

Other assets 


35,183


36,267

Total assets 


$        596,637


$        584,146






LIABILITIES AND EQUITY










Current liabilities 





Short-term borrowings and current portion of long-term debt 


$           1,348


$           1,395

Accounts and other payables 


80,033


75,580

Accrued compensation 


12,516


20,801

Other current liabilities 


26,806


33,080

Total current liabilities 


120,703


130,856

Long-term debt 


24,611


17,321

Deferred income taxes 


6,500


6,729

Other non-current liabilities 


80,113


84,544

Total liabilities 


231,927


239,450






Equity





Common stock, $1 par value; authorized 30,000,000 shares; issued 13,242,167


13,242


13,196

Capital in excess of par value 


95,508


99,038

Retained earnings 


279,161


258,285

Accumulated other comprehensive loss 


(31,587)


(34,700)

Total Quaker shareholders' equity 


356,324


335,819

Noncontrolling interest


8,386


8,877

Total equity 


364,710


344,696

Total liabilities and equity 


$        596,637


$        584,146

 

 

Quaker Chemical Corporation 

Condensed Consolidated Statement of Cash Flows 

For the Six months ended June 30,

(Dollars in thousands)













(Unaudited)



2014


2013

Cash flows from operating activities 





Net income


$     29,251


$     30,866

Adjustments to reconcile net income to net cash provided by operating activities: 





Depreciation 


6,084


6,125

Amortization 


1,628


1,763

Equity in undistributed earnings of associated companies, net of dividends 


(1,931)


(1,021)

Deferred compensation and other, net 


3,340


(1,080)

Stock-based compensation 


2,732


2,152

Gain on disposal of property, plant and equipment


(97)


(224)

Insurance settlement realized 


(980)


(384)

Pension and other postretirement benefits


(926)


(1,884)

(Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions: 





Accounts receivable


(20,563)


(9,913)

Inventories 


(7,568)


(2,269)

Prepaid expenses and other current assets 


1,157


(286)

Accounts payable and accrued liabilities 


(3,873)


3,650

Net cash provided by operating activities 


8,254


27,495






Cash flows from investing activities 





Investments in property, plant and equipment


(5,521)


(5,202)

Payments related to acquisitions, net of cash acquired


-


(2,478)

Proceeds from disposition of assets


128


345

Interest earned on insurance settlements


23


28

Change in restricted cash, net 


957


356

Net cash used in investing activities 


(4,413)


(6,951)






Cash flows from financing activities 





Proceeds from long-term debt 


7,500


-

Repayment of long-term debt 


(248)


(7,563)

Dividends paid 


(6,607)


(6,428)

Stock options exercised, other


(33)


84

Excess tax benefit related to stock option exercises


267


452

Purchase of a noncontrolling interest in an affiliate


(7,532)


-

Payment of acquisition-related earnout liability


(4,709)


-

Distributions to noncontrolling affiliate shareholders


(657)


-

Net cash used in financing activities 


(12,019)


(13,455)






Effect of exchange rate changes on cash 


(82)


(1,090)

Net (decrease) increase in cash and cash equivalents 


(8,260)


5,999

Cash and cash equivalents at the beginning of the period 


68,492


32,547

Cash and cash equivalents at the end of the period


$     60,232


$     38,546

 

 

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SOURCE Quaker Chemical Corporation

Margaret M. Loebl, Vice President, Chief Financial Officer and Treasurer, loeblm@quakerchem.com, T. 610.832.4160