KWR Quaker Houghton

CONSHOHOCKEN, Pa., July 28 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR) today announced second quarter 2010 net sales of $136.0 million and earnings per diluted share of $0.80, compared to net sales of $102.3 million and earnings per diluted share of $0.29 for the second quarter of 2009.  For the first half of 2010, the Company reported net sales of $264.3 million and earnings per diluted share of $1.64, compared to net sales of $200.8 million and earnings per diluted share of $0.29 for the first half of 2009.  

Michael F. Barry, Chairman, Chief Executive Officer and President, commented, "Our strong second quarter earnings and EBITDA generation were driven by high steel industry shipments in China, Brazil, India and Russia and continued recovery of industrial demand in North America and Europe.  Our balance sheet was also strengthened as we reduced our net debt-to-capital ratio to its lowest point since 2003."  

Mr. Barry added, "We are on track to generate record earnings for 2010.  Our expectations for the second half are that our earnings will continue to be strong but will be below the first half due to a softening in demand and the lag effect on margins as we recover higher raw material costs."

Mr. Barry continued, "We are pleased with our progress in 2010 in a number of ways.  Besides our strong results, we lowered our debt, raised our dividend, made a small, but strategic, acquisition, and amended our credit facility for lower interest costs, an extended maturity date and greater borrowing capacity.  Over the next few years, we believe Quaker is positioned well for solid growth.  Our strong positions in the fastest growing countries like China, Brazil and India, as well as the gradual rebound in the more mature markets such as the U.S. and Europe, is expected to provide us with broad-based organic growth in all regions and businesses.  In addition, our strong balance sheet will allow us to invest in our key growth initiatives and grow via acquisition for the right opportunities."

Second Quarter 2010 Summary

Net sales for the second quarter were $136.0 million, up 33% from $102.3 million for the second quarter of 2009.  The increase in net sales was a result of double-digit volume increases across the globe as the Company continues to recover from the economic downturn.  Product volumes increased 42%, partially offset by a 5% decline in selling price and mix, as well as lower automotive chemical management services ("CMS") revenue due to lower revenue reported on a gross basis.  On a sequential quarterly basis, product volumes increased by approximately 7%.  

Gross margin was up $12.5 million, or 35%, compared to the second quarter of 2009 as a result of increased volumes.  The gross margin percentage increased slightly compared to the second quarter of 2009, but decreased 1.2 percentage points from the first quarter of 2010.  The Company is implementing price increases to help offset higher raw material costs where necessary.  

Selling, general and administrative expenses ("SG&A") increased $6.1 million, or 21%, compared to the second quarter of 2009.  Higher selling costs with increased business activity, as well as increased incentive compensation and professional fees, were the primary drivers, representing 70% of the increase.  Inflationary and other costs accounted for the remainder of the increase.  

The Company incurred charges related to the former CEO's supplemental retirement plan of approximately $1.2 million in the second quarter of 2009 and expects to incur a final charge of $1.3 million later in 2010.  

The increase in other income is due to higher license fees from increased business activities, as well as foreign exchange rate gains in the second quarter of 2010 versus losses in the second quarter of 2009.  The decrease in net interest expense is due to lower average debt balances as well as higher interest income.  

Year-to-Date Summary

Net sales for the first half of 2010 were $264.3 million, up 32% from $200.8 million for the first half of 2009.  As with the quarterly comparison, the increase in net sales was a result of higher volumes across the globe as the Company continues to recover from the economic downturn.  Product volumes increased 39%, partially offset by a 5% decline in selling price and mix.  Foreign exchange rates increased revenues by approximately 4%, which were more than offset by lower automotive CMS revenue due to lower revenue reported on a gross basis.  

Gross margin increased $31.1 million, or 48%, compared to the first half of 2009 largely as a result of increased volumes.  The gross margin percentage of 36.3% represents considerable improvement over the first half of 2009 percentage of 32.2%.  The margin expansion was the result of cost reduction actions taken, a more favorable year-to-date raw material cost environment and reduced automotive CMS revenues reported on a gross basis.  

SG&A increased $13.0 million, or 23%, compared to the first half of 2009.  Higher selling costs with increased business activity, as well as increased incentive compensation and professional fees, were the primary drivers, representing 74% of the increase.  Inflationary and other costs as well as foreign exchange rates accounted for the remainder of the increase.  

In the first quarter of 2009, the Company implemented a restructuring program totaling $2.3 million or approximately $0.14 per diluted share.  The Company completed the initiatives under this program during 2009.  

Other income for the 2010 period includes higher license fees from increased business activities as well as foreign exchange rate gains versus losses in the 2009 period, which offset a gain related to the disposition of land in Europe of approximately $0.11 per diluted share in 2009.  The decrease in net interest expense is due to lower average debt balances as well as higher interest income.  

Equity in net income of associated companies includes a charge of approximately $0.03 per diluted share related to the first quarter 2010 devaluation of the Venezuelan Bolivar Fuerte.  

Balance Sheet and Cash Flow Items

The Company's net debt-to-total-capital ratio decreased to 19% as of June 30, 2010, compared to 24% at March 31, 2010.  Operating cash flow improved $15.1 million from the first quarter of 2010, as a result of strong earnings which in turn allowed the Company to reduce its debt levels during the second quarter.  

Forward-Looking Statements

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.  

Conference Call

As previously announced, Quaker Chemical's investor conference call to discuss second quarter results is scheduled for July 29, 2010 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 Web site at http://www.quakerchem.com.  You can also access the conference call by dialing 877-269-7756.  

About Quaker

Quaker Chemical Corporation is a leading global provider of process chemicals, chemical specialties, services, and technical expertise to a wide range of industries – including steel, automotive, mining, aerospace, tube and pipe, coatings and construction materials.  Our products, technical solutions and chemical management services enhance our customers' processes, improve their product quality and lower their costs.  Quaker's headquarters is located near Philadelphia in Conshohocken, Pennsylvania.  

SOURCE Quaker Chemical Corporation