Press Releases
Quaker Chemical Announces Record Quarterly Sales and Increased Earnings
CONSHOHOCKEN, Pa., May 5 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR - News) today announced record quarterly sales of $73.3 million and net income growth of 32% for the first quarter ended March 31, 2003.
1st Quarter 2003 Summary
Net income for the first quarter was $3.1 million versus $2.4 million for the first quarter 2002. The earnings per diluted share of $0.33 was a 27% improvement over the first quarter 2002 result of $0.26 per diluted share.
Net sales for the first quarter were a record $73.3 million versus $59.9 million for the first quarter 2002. Foreign exchange rate translation and the timing of the Company's 2002 acquisitions favorably impacted net sales for the quarter by approximately $2.0 million and $5.6 million, respectively. Excluding the impact of foreign exchange rate translation and the timing of the Company's 2002 acquisitions, net sales would have been $65.7 million or 9.6% above the prior year. Net sales in all regions except Europe increased on a local currency basis, showing improvements in both volume and price/mix.
Gross margin as a percentage of sales declined from 40.6% for the first quarter 2002 to 38.7% for the first quarter 2003 primarily due to increased raw material costs and product mix. As previously disclosed, the Company expects raw material prices to be higher in 2003, especially in the first half, due to higher oil prices experienced earlier in the year.
Selling, general and administrative expenses increased $2.7 million over the first quarter 2002. Timing of the Company's 2002 acquisitions and foreign exchange rate translation accounted for approximately two-thirds of the increase. As previously disclosed, increased costs related to pension, insurance, and the Company's ERP implementation, accounted for the remaining increase.
Outlook
Ronald J. Naples, Chairman and Chief Executive Officer, commented, "This first quarter gets us off to a good start in 2003, a year that still looks to us as one that will be characterized by shifting and uncertain manufacturing demand. We have seen some recent softness in key markets that could negatively affect our volumes, and higher raw material costs will continue to be a factor. We expect the stronger euro will help us out, though, as will cost control. On balance, we continue to expect year-over-year earnings growth in 2003. We expect that the second quarter will contribute to this improvement over prior year, if only slightly given the CMS contract start-up costs expected in the quarter that are linked to our recently announced GM award."
New CMS Contracts
As previously announced in the Company's April 11, 2003 press release, Quaker has been awarded a series of multi-year contracts to provide chemical management services (CMS) for General Motors Powertrain manufacturing sites. These contracts will be implemented during the second quarter of 2003. In addition, DaimlerChrysler has also recently awarded the Company a CMS contract for its Trenton Engine plant.
Mr. Naples stated that, "This new business is an important step in building the Company's share and leadership position in the automotive process fluids market and will position the Company well for penetration of CMS opportunities in other metalworking manufacturing markets. Over the next few months, we may have to absorb the transition and start-up costs of these contracts, which will hurt a bit, but the long-term prospects of creating value for our customers and us is very real."
For 2003, the earnings impact due to the new CMS sites is expected to be immaterial due to transition and start-up costs, largely in the second quarter. Future profitability of the contracts will be based on Quaker's ability to identify and implement cost reduction programs and product conversions. In addition, the new contracts will result in an increased investment of working capital estimated to be $4 million, although this amount will be dependent on the final terms negotiated with suppliers.
These new contracts will cause future income statements to show different relationships between margins and revenue than in the past. At the majority of current CMS sites, the Company effectively acts as an agent for the customer whereby it purchases chemicals from other companies and resells the product to the customer at little or no margin. The revenue and costs from these sales are reported on a net sales or "pass-through" basis. The structure of the new GM Powertrain site contracts is different in that the Company's revenue received from the customer will be in the nature of a fee for products and services provided to the customer, which are indirectly related to the actual costs incurred. As a result, the Company will recognize in reported revenues the gross revenue received from the CMS site customer, and in cost of goods sold, the third party product purchases, which will substantially offset each other. This will result in a significant increase in the Company's reported revenue, estimated to be approximately $35-$40 million on an annualized basis, the profitability of which will be dependent upon Quaker's ability to identify and implement cost reduction programs and product conversions.
In addition, the Company is currently negotiating similar contract structures for some of its existing CMS sites. It is possible that this will also require the Company to recognize an additional $10-$15 million in annualized sales starting in the second quarter.
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. Such risks and uncertainties include, but are not limited to, further downturns in our customers' businesses, significant increases in raw material costs, worldwide economic and political conditions, the impact of SARS, foreign currency fluctuations, and future terrorist attacks such as those that occurred on September 11, 2001.
As previously announced, Quaker Chemical's investor conference to discuss first quarter earnings results is scheduled for May 6, 2003, 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
For the period ended March 31,
Unaudited
Dollars in thousands, except per share data
First Quarter
2003 2002
Net sales $73,337 $59,927
Cost of goods sold 44,971 35,570
Gross margin 28,366 24,357
% 38.7% 40.6%
Selling, general and administrative 22,685 20,024
Operating income 5,681 4,333
% 7.7% 7.2%
Other income, net 88 280
Interest expense, net (139) (166)
Income before taxes 5,630 4,447
Taxes on income 1,858 1,423
3,772 3,024
Equity in net income (loss) of
associated companies 86 (17)
Minority interest in net income of
subsidiaries (751) (649)
Net income $3,107 $2,358
% 4.2% 3.9%
Per share data:
Net income - basic $0.34 $0.26
Net income - diluted $0.33 $0.26
Shares Outstanding:
Basic 9,270,775 9,154,303
Diluted 9,508,593 9,212,700
Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
Unaudited
(Dollars in thousands)
March 31, December 31,
2003 2002
ASSETS
Current assets
Cash and cash equivalents $12,044 $13,857
Accounts receivable, net 54,911 53,353
Inventories
Raw materials and supplies 12,996 11,342
Work-in-process and finished goods 12,673 12,294
Prepaid expenses and other current assets 14,529 12,827
Total current assets 107,153 103,673
Property, plant and equipment, at cost 117,569 113,207
Less accumulated depreciation 67,594 64,695
Net property, plant and equipment 49,975 48,512
Goodwill 22,308 21,927
Other intangible assets 5,639 5,852
Investments in associated companies 7,247 9,060
Deferred income taxes 10,545 10,609
Other assets 14,457 14,225
Total assets $217,324 $213,858
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current portion
of long-term debt $16,015 $12,205
Accounts and other payables 29,340 29,423
Accrued compensation 6,283 10,254
Other current liabilities 12,711 14,262
Total current liabilities 64,349 66,144
Long-term debt 16,590 16,590
Deferred income taxes 1,529 1,518
Other noncurrent liabilities 34,145 33,889
Total liabilities 116,613 118,141
Minority interest in equity of subsidiaries 8,489 7,662
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 720 626
Retained earnings 111,591 110,448
Unearned compensation (1,087) (1,245)
Accumulated other comprehensive (loss) (24,483) (27,078)
96,405 92,415
Treasury stock, shares held at cost;
2003 - 310,720, 2002 - 324,109 (4,183) (4,360)
Total shareholders' equity 92,222 88,055
$217,324 $213,858
Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the Three Months ended March 31,
Unaudited
(Dollars in thousands)
2003 2002*
Cash flows from operating activities
Net income $3,107 $2,358
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,646 1,229
Amortization 215 82
Equity in net income of associated companies (86) 17
Minority interest in earnings of subsidiaries 751 649
Deferred compensation and other
postretirement benefits 77 (260)
Other, net 481 388
Increase (decrease) in cash from changes in
current assets and current liabilities:
Accounts receivable, net (399) (2,471)
Inventories (1,389) 981
Prepaid expenses and other current assets (1,342) (1,918)
Accounts payable and accrued liabilities (5,927) 391
Change in restructuring liabilities (699) (865)
Net cash (used in) provided by operating
activities (3,565) 581
Cash flows from investing activities
Investments in property, plant and equipment (2,113) (1,527)
Dividends and distributions from associated
companies 1,800 -
Payments related to acquisitions - (13,676)
Other, net (40) 66
Net cash (used in) investing activities (353) (15,137)
Cash flows from financing activities
Net increase in short-term borrowings 3,791 11,994
Repayment of long-term debt (7) (30)
Dividends paid (1,961) (1,872)
Treasury stock issued 86 442
Distributions to minority shareholders (213) (497)
Net cash provided by financing activities 1,696 10,037
Effect of exchange rate changes on cash 409 (112)
Net (decrease) in cash and cash equivalents (1,813) (4,631)
Cash and cash equivalents at beginning
of period 13,857 20,549
Cash and cash equivalents at end of period $12,044 $15,918
Certain reclassifications of prior year data have been made to improve comparability.
