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News Release


Quaker Chemical Announces Third Quarter 2016 Results

- Strong operating income of $21.3 million drives 6% increase in adjusted EBITDA
- Volume growth drives an increase in net sales despite FX headwinds
- Year-to-date operating cash flow of $53.0 million increases 4% from the prior year

CONSHOHOCKEN, Pa., Oct. 26, 2016 /PRNewswire/ -- Quaker Chemical Corporation (NYSE: KWR) today announced net sales of $190.4 million in the third quarter of 2016, a 1% increase compared to $189.2 million in the third quarter of 2015, as a 2% growth from organic volume and a 2% increase from acquisitions outpaced a 2% negative impact from foreign currency translation and an approximate 1% decline in selling price and product mix.  While gross margins declined somewhat quarter-over-quarter, the Company was able to grow its operating income by 14% to $21.3 million in the third quarter of 2016 compared to $18.7 million in the third quarter of 2015.  The Company achieved this operating income growth due to continued discipline in managing labor-related costs in its selling, general and administrative expenses ("SG&A") and lower impacts from certain uncommon transaction-related expenses quarter-over-quarter.  Excluding these transaction-related costs, the Company's operating income drove a 6% increase in its adjusted EBITDA to $28.3 million in the third quarter of 2016 compared to $26.8 million in the prior year quarter.

The Company's earnings per diluted share increased 12% to $1.21 for the current quarter compared to $1.08 in the third quarter of 2015, with non-GAAP earnings per diluted share increasing 5% to $1.25 in the current quarter compared to $1.19 in the third quarter of 2015.  This growth in both reported and non-GAAP earnings per diluted share was achieved despite a negative impact from foreign exchange of approximately 3%, or $0.04 per diluted share, and a higher effective tax rate of 28.3% compared to 24.4% in the prior year quarter.  The increase in the Company's effective tax rate is due to the timing of the recertification of a concessionary tax rate in one of its subsidiaries, which was available to the Company throughout 2015 and which is expected to be received in the fourth quarter of 2016, resulting in a full year cumulative adjustment.  The Company's strong operating earnings drove net operating cash flow of $17.0 million in the third quarter of 2016 and $53.0 million year-to-date, a 4% increase compared to $50.8 million in the first nine months of 2015.

Michael F. Barry, Chairman, Chief Executive Officer and President commented, "We are pleased with our third  quarter results, despite a challenging environment and continued foreign exchange headwinds.  We were able to grow our revenue both organically by 2% and from acquisitions by 2%.  While our gross margins declined somewhat as raw material prices increased, we were more than able to offset the decline with savings realized from our previously announced restructuring and other cost streamlining initiatives which enabled our adjusted EBITDA margin to increase to nearly 15%.  This performance was achieved despite foreign exchange headwinds, which negatively impacted our top and bottom lines by 2% and 3%, respectively.  For the fourth quarter, we expect our gross margin to remain at a similar level as the third quarter and we believe our ability to take market share and leverage past acquisitions, as well as our cost saving efforts, will continue to help offset market and foreign exchange challenges.  In summary, our fourth quarter and full year 2016 forecast continues to indicate growth in both the top and bottom lines and we still expect to increase non-GAAP earnings and adjusted EBITDA for the seventh consecutive year."

Third Quarter of 2016 Summary

Net sales in the third quarter of 2016 were $190.4 million compared to $189.2 million in the third quarter of 2015.  The $1.2 million, or 1%, increase in net sales was primarily due to a 2% increase in organic volumes and a 2% increase from acquisitions, partially offset by the negative impact of foreign currency translation of $3.7 million, or 2% and an approximate 1% decline in selling price and product mix quarter-over-quarter. 

Gross profit in the third quarter of 2016 decreased approximately $0.6 million, or 1%, from the third quarter of 2015, primarily due to slightly lower gross margin of 37.2% in the third quarter of 2016 compared to 37.7% in the prior year quarter on changes in raw material costs and product mix, partially offset by the increase in sales volumes, noted above. 

SG&A decreased $3.2 million during the third quarter of 2016, primarily due to the impact of cost savings efforts, including the 2015 global restructuring program, and a decrease in transaction-related expenses.  During the third quarters of 2016 and 2015, the Company incurred $1.2 million and $2.8 million, respectively, for certain uncommon transaction-related costs in connection with the execution of, and diligence on, acquisition candidates.  In addition, overall labor–related costs were relatively flat quarter-over-quarter as annual compensation increases and incremental costs associated with the Company's July 2015 Verkol acquisition were offset by certain cost savings efforts, noted above.  Related to the restructuring program, the Company did not incur any additional restructuring expenses in the third quarter of 2016 and continues to execute the program as planned.  The Company continues to project pre-tax cost savings as a result of this program to approximate $3 million for 2016, realized mainly over the second half of the year, and $6 million annually in subsequent years.  In addition, the Company still expects to substantially complete this program during 2016.

Operating income in the third quarter of 2016 was $21.3 million, which increased 14% compared to $18.7 million in the third quarter of 2015.  The increase in operating income was primarily due to the increase in sales volumes and the decrease in SG&A quarter-over-quarter, partially offset by the decline in gross margin, noted above.

Other income was $0.5 million in the third quarter of 2016 compared to $0.2 million in the third quarter of 2015.  The increase in other income was primarily driven by foreign currency transaction gains realized in the third quarter of 2016 compared to foreign currency transaction losses in the third quarter of 2015.

Interest expense was relatively consistent on comparable average borrowings outstanding in the third quarter of 2016 compared to the third quarter of 2015.  Interest income was $0.1 million higher in the third quarter of 2016 compared to the third quarter of 2015, primarily due to an increase in the level of the Company's invested cash.

The Company's effective tax rates for the third quarters of 2016 and 2015 were 28.3% and 24.4%, respectively.  The increase in the third quarter of 2016 effective tax rate was primarily due to the Company recording earnings in one of its subsidiaries at a statutory tax rate of 25% while it awaits the recertification of a concessionary 15% tax rate, which was available to the Company during the third quarter of 2015.  The Company still expects to receive this recertification and to record the full year cumulative benefit of the reduced rate in the fourth quarter of 2016. 

Equity in net income of associated companies ("equity income") increased $0.1 million in the third quarter of 2016 compared to the third quarter of 2015, primarily due to higher earnings from the Company's interest in a captive insurance company in the third quarter of 2016 compared to the prior year quarter.

Net income attributable to noncontrolling interest decreased $0.1 million in the third quarter of 2016 compared to the prior year quarter, primarily due to lower earnings attributable to the Company's India affiliate. 

Changes in foreign exchange rates negatively impacted the Company's third quarter of 2016 net income by approximately 3%, or $0.04 per diluted share. 

Year-to-Date 2016 Summary

Net sales in the first nine months of 2016 were $555.4 million compared to $554.3 million in the first nine months of 2015.  The slight increase in net sales was primarily the result of a 5% increase in volumes, including acquisitions, largely offset by the negative impact of foreign currency translation of $17.0 million, or 3%, and declines in selling price and product mix of 1%.

Gross profit in the first nine months of 2016 increased $1.6 million, or 1%, from the first nine months of 2015, primarily driven by the increase in sales volumes, noted above, on relatively consistent gross margins of 37.8% in the first nine months of 2016 compared to 37.6% in the first nine months of 2015. 

SG&A decreased $3.0 million during the first nine months of 2016, primarily due to a decrease from foreign currency translation, lower uncommon transaction-related expenses and the cost savings efforts, noted above, which more than offset higher overall labor-related costs, including incremental costs associated with the Company's acquisition of Verkol. 

Operating income in the first nine months of 2016 was $62.7 million, which increased 8% compared to $58.0 million in the first nine months of 2015.  The increase in operating income during the first nine months of 2016 was primarily driven by higher sales volumes on consistent gross margin levels and the decrease in SG&A year-over-year, noted above.    

Other income was $1.5 million in the first nine months of 2016 compared to other expense of $0.1 million in the first nine months of 2015.  The increase in other income was primarily driven by foreign currency transaction gains realized in the first nine months of 2016 compared to foreign currency transaction losses in the first nine months of 2015.

Interest expense was $0.3 million higher in the first nine months of 2016 compared to the first nine months of 2015, primarily due to increased average borrowings outstanding during the first nine months of 2016 as a result of the Verkol acquisition.  Interest income was $0.3 million higher in the first nine months of 2016 compared to the first nine months of 2015, primarily due to an increase in the level of the Company's invested cash and increased interest received on certain tax-related credits during the first nine months of 2016.

The Company's effective tax rates for the first nine months of 2016 and 2015 were 31.0% and 27.3%, respectively.  The increase in the first nine months of 2016 effective tax rate was primarily due to the Company recording earnings in one of its subsidiaries at a statutory tax rate of 25% while it awaits the recertification of a concessionary 15% tax rate, which was available to the Company during the first nine months of 2015.  However, the Company still expects to receive its recertification during the fourth quarter of 2016, as noted above, and estimates its full year 2016 effective tax rate will decrease to approximately 28% to 30%. 

Equity income increased $2.1 million in the first nine months of 2016 compared to the first nine months of 2015.  The increase in equity income was primarily due to a smaller currency conversion charge recorded at the Company's Venezuela affiliate during the first nine months of 2016 compared to the first nine months of 2015, related to changes in Venezuela's foreign exchange markets and currency controls in both periods.  In addition, equity income includes earnings from the Company's interest in a captive insurance company, which was lower in the first nine months of 2016 compared to the first nine months of 2015.

The Company had a $0.1 million increase in net income attributable to noncontrolling interest in the first nine months of 2016 compared to the first nine months of 2015, primarily due to stronger performance at its India affiliate.

Changes in foreign exchange rates, excluding the currency conversion impacts of the Venezuelan bolivar fuerte, noted above, negatively impacted the Company's first nine months of 2016 net income by approximately 3%, or $0.11 per diluted share. 

Balance Sheet and Cash Flow Items

The Company's net operating cash flow of $17.0 million in the third quarter of 2016 increased its year-to-date net operating cash flow to $53.0 million, a 4% increase compared to $50.8 million in the first nine months of 2015.  The increase was driven by the Company's solid operating performance and lower cash invested in its working capital.  In addition, the Company paid approximately $4.6 million in cash dividends during the third quarter of 2016, increasing its total dividends paid to $13.1 million in the first nine months of 2016.  The Company also repurchased approximately 84,000 shares of its common stock for $5.9 million in the first nine months of 2016.  Overall, the Company's liquidity and balance sheet remain strong, as its cash position exceeded its debt at September 30, 2016 and the Company's consolidated leverage ratio continued to be less than one times EBITDA.

Non-GAAP Measures

Included in this public release are two non-GAAP (unaudited) financial measures: 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 tables reconcile non-GAAP earnings per diluted share (unaudited) and adjusted EBITDA (unaudited) to their most directly comparable GAAP (unaudited) financial measures:

 


Three Months Ended

September 30,


Nine Months Ended

September 30,



2016


2015


2016


2015

GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders

$   1.21


$   1.08


$   3.32


$   2.98

Equity income in a captive insurance company per diluted share

(0.04)


(0.04)


(0.07)


(0.09)

Certain uncommon transaction-related expenses per diluted share

0.08


0.15


0.08


0.15

U.S. customer bankruptcies per diluted share


0.00



0.01

Cost streamlining initiatives per diluted share




0.01

Currency conversion impact of the Venezuelan bolivar fuerte per diluted share



0.01


0.21

Non-GAAP earnings per diluted share

$   1.25


$   1.19


$   3.34


$   3.27












 


Three Months Ended

September 30,


Nine Months Ended

September 30,



2016


2015


2016


2015

Net income attributable to Quaker Chemical Corporation

$ 16,008


$ 14,371


$ 43,969


$ 39,787

Depreciation and amortization

4,868


4,863


14,788


14,227

Interest expense

758


697


2,226


1,891

Taxes on income before equity in net income of associated companies

6,121


4,541


19,664


15,624

Equity income in a captive insurance company

(597)


(526)


(952)


(1,221)

Certain uncommon transaction-related expenses

1,157


2,813


1,157


2,813

U.S. customer bankruptcies


68



179

Cost streamlining initiatives




173

Currency conversion impact of the Venezuelan bolivar fuerte



88


2,806

Adjusted EBITDA

$ 28,315


$ 26,827


$ 80,940


$ 76,279

Adjusted EBITDA margin (%)

14.9%


14.2%


14.6%


13.8%












 

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 demand for the Company's products and services is largely derived from the demand for its customers' products, which subjects the Company to uncertainties related 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, significant changes in applicable tax rates and regulations, 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 third quarter of 2016 results is scheduled for October 27, 2016 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 Statements of Income


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












(Unaudited)



Three Months Ended September 30


Nine Months Ended September 30



2016


2015


2016


2015











Net sales 

$            190,428


$            189,224


$            555,420


$            554,280











Cost of goods sold 

119,649


117,895


345,531


346,006











Gross profit

70,779


71,329


209,889


208,274


%

37.2%


37.7%


37.8%


37.6%











Selling, general and administrative expenses

49,440


52,601


147,223


150,237











Operating income

21,339


18,728


62,666


58,037


%

11.2%


9.9%


11.3%


10.5%











Other income (expense), net 

514


185


1,491


(97)


Interest expense

(758)


(697)


(2,226)


(1,891)


Interest income

551


422


1,444


1,117


Income before taxes and equity in net income of associated companies

21,646


18,638


63,375


57,166











Taxes on income before equity in net income of associated companies

6,121


4,541


19,664


15,624


Income before equity in net income of associated companies

15,525


14,097


43,711


41,542











Equity in net income (loss) of associated companies

826


738


1,389


(688)











Net income

16,351


14,835


45,100


40,854











Less: Net income attributable to noncontrolling interest

343


464


1,131


1,067











Net income attributable to Quaker Chemical Corporation

$              16,008


$              14,371


$              43,969


$              39,787


%

8.4%


7.6%


7.9%


7.2%











Share and per share data:









Basic weighted average common shares outstanding

13,143,884


13,209,119


13,128,996


13,206,122


Diluted weighted average common shares outstanding

13,173,844


13,222,452


13,147,825


13,222,303











Net income attributable to Quaker Chemical Corporation Common Shareholders - basic

$                   1.21


$                   1.08


$                   3.32


$                   2.99


Net income attributable to Quaker Chemical Corporation Common Shareholders - diluted

$                   1.21


$                   1.08


$                   3.32


$                   2.98


 

Quaker Chemical Corporation 

Condensed Consolidated Balance Sheets

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






(Unaudited)


September 30,


December 31,


2016


2015

ASSETS








Current assets 




Cash and cash equivalents 

$              99,024


$              81,053

Accounts receivable, net 

193,805


188,297

Inventories, net

79,660


75,099

Prepaid expenses and other current assets 

21,624


21,404

Total current assets 

394,113


365,853

Property, plant and equipment, net

83,865


87,619

Goodwill 

79,324


79,111

Other intangible assets, net 

69,789


73,287

Investments in associated companies 

23,448


20,354

Non-current deferred tax assets

17,621


23,468

Other assets 

29,311


32,218

Total assets 

$            697,471


$            681,910





LIABILITIES AND EQUITY








Current liabilities 




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

$                    730


$                    662

Accounts and other payables

78,579


71,543

Accrued compensation 

17,687


19,166

Accrued restructuring

2,233


6,303

Other current liabilities 

25,532


26,881

Total current liabilities 

124,761


124,555

Long-term debt 

75,607


81,439

Non-current deferred tax liabilities

11,776


11,400

Other non-current liabilities 

71,629


83,273

Total liabilities 

283,773


300,667





Equity




Common stock, $1 par value; authorized 30,000,000 shares; issued and outstanding 2016 - 13,257,066 shares; 2015 - 13,288,113 shares

13,257


13,288

Capital in excess of par value 

111,453


106,333

Retained earnings 

351,560


326,740

Accumulated other comprehensive loss 

(72,027)


(73,316)

Total Quaker shareholders' equity 

404,243


373,045

Noncontrolling interest

9,455


8,198

Total equity 

413,698


381,243

Total liabilities and equity 

$            697,471


$            681,910

 

Quaker Chemical Corporation 

Condensed Consolidated Statements of Cash Flows 

(Dollars in thousands)






(Unaudited)


Nine Months Ended September 30,


2016


2015

Cash flows from operating activities 




Net income

$              45,100


$              40,854

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




Depreciation 

9,469


9,229

Amortization 

5,319


4,998

Equity in undistributed (earnings) losses of associated companies, net of dividends 

(1,314)


1,362

Deferred compensation and other, net 

3,083


(551)

Stock-based compensation 

4,942


4,500

Loss (gain) on disposal of property, plant, equipment and other assets

44


(95)

Insurance settlement realized 

(809)


(549)

Pension and other postretirement benefits

(3,373)


2,204

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




Accounts receivable

(5,926)


(4,039)

Inventories 

(3,741)


(1,028)

Prepaid expenses and other current assets 

(868)


(3,545)

Accounts payable and accrued liabilities 

5,245


(2,521)

Change in restructuring liabilities 

(4,194)


-

Net cash provided by operating activities 

52,977


50,819





Cash flows from investing activities 




Investments in property, plant and equipment

(6,311)


(6,115)

Payments related to acquisitions, net of cash acquired

(3,244)


(23,990)

Proceeds from disposition of assets

54


130

Insurance settlement interest earned

24


28

Change in restricted cash, net 

785


521

Net cash used in investing activities 

(8,692)


(29,426)





Cash flows from financing activities 




Proceeds from long-term debt 

-


30,668

Repayments of long-term debt 

(6,842)


(304)

Dividends paid 

(13,052)


(12,257)

Stock options exercised, other

64


947

Payments for repurchase of common stock

(5,859)


(4,989)

Excess tax benefit related to stock option exercises

167


400

Net cash (used in) provided by financing activities 

(25,522)


14,465





Effect of foreign exchange rate changes on cash 

(792)


(4,434)

Net increase in cash and cash equivalents 

17,971


31,424

Cash and cash equivalents at the beginning of the period 

81,053


64,731

Cash and cash equivalents at the end of the period

$              99,024


$              96,155

 

Quaker Chemical logo. (PRNewsFoto/Quaker Chemical Corporation)

Logo - http://photos.prnewswire.com/prnh/20120910/PH70044LOGO

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/quaker-chemical-announces-third-quarter-2016-results-300351903.html

SOURCE Quaker Chemical Corporation

Mary Dean Hall, Vice President, Chief Financial Officer and Treasurer, Hallm@quakerchem.com, T. 610.832.4160