CONSHOHOCKEN, Pa., May 1, 2017 /PRNewswire/ -- Quaker Chemical
Corporation (NYSE: KWR) today announced a net sales increase of 9%
to $194.9 million in the first
quarter of 2017 compared to $178.1
million in the first quarter of 2016, as its organic and
acquisition volume growth of 10% and 1%, respectively, overcame a
negative impact from foreign currency translation of 2%.
These strong volumes drove higher gross profit
quarter-over-quarter, despite lower gross margin in the first
quarter of 2017, primarily attributable to certain raw material
cost increases. In addition, the current quarter operating
margin benefited from the Company's ability to maintain a
consistent level of selling, general and administrative expenses
("SG&A") on strong volume growth.
The Company's first quarter of 2017 net income was $7.0 million and its earnings per diluted share
was $0.52, which includes
$9.1 million or $0.69 per diluted share of costs incurred with
the Company's previously announced combination with Houghton
International, Inc ("Houghton"). Excluding the current
quarter combination-related costs and other non-core items, the
Company's solid operating performance drove non-GAAP earnings per
diluted share to $1.18 in the first
quarter of 2017, a 20% increase compared to $0.98 in the prior year period. In
addition, the Company's adjusted EBITDA increased 13% to
$28.2 million in the first quarter of
2017 compared to $25.0 million in the
prior year period. The Company was able to achieve these
reported and non-GAAP results in the first quarter of 2017 despite
negative foreign exchange impacts of $0.04 per diluted share, or 3%.
Michael F. Barry, Chairman, Chief
Executive Officer and President, commented, "We are pleased with
our first quarter results, despite continued foreign exchange
headwinds. We were able to grow our organic volumes by 10% on
continued market share gains, as well as from increased production
in some of our end markets. While our gross margins declined
due to raw material price increases, we were able to partially
offset the decline with savings realized from our previously
announced restructuring program and other cost streamlining
initiatives. Overall, we achieved a 13% increase in adjusted
EBITDA and a 20% increase in non-GAAP earnings despite foreign
exchange negatively impacting earnings by 3%. "
Mr. Barry continued, "Looking forward, we expect foreign
exchange and raw materials to continue to be headwinds that may
ratably decline as the year progresses. We remain committed
to our strategy and believe our ability to take market share and
leverage our past acquisitions will continue to help offset market
challenges. Our 2017 plans continue to indicate growth in
both the top and bottom lines, despite expected currency headwinds,
with earnings growth in all regions. Overall, I continue to
remain confident in our future and expect 2017 to be another good
year for Quaker, as we expect to increase non-GAAP earnings and
adjusted EBITDA for the eighth consecutive year. In addition,
we believe our previously announced intention to combine with
Houghton will create long-term sustainable value for our customers
and shareholders, and we continue to expect closing by the end of
the year or in the first quarter of 2018."
First Quarter of 2017 Summary
Net sales in the first quarter of 2017 were $194.9 million compared to $178.1 million in the first quarter of
2016. The $16.8 million or 9%
increase in net sales was primarily due to a 10% increase in
organic volumes and a 1% increase from acquisitions, partially
offset by a negative impact from foreign currency translation of 2%
or $2.7 million.
Gross profit in the first quarter of 2017 increased $2.9 million or 4% from the first quarter of
2016, primarily due to the increase in sales volumes, noted above,
partially offset by a lower gross margin of 36.4% in the first
quarter of 2017 compared to 38.2% in the prior year quarter.
The decrease in the Company's first quarter of 2017 gross margin
was attributable to product mix and certain raw material cost
increases.
SG&A decreased $0.1 million
during the first quarter of 2017 due to the net impact of several
factors. Specifically, the Company's SG&A decreased as a
result of certain cost savings efforts, including the 2015 global
restructuring program, and decreases due to foreign currency
translation, partially offset by additional SG&A
quarter-over-quarter associated with the Company's prior year
Lubricor Inc. acquisition and an increase in labor-related costs
primarily due to annual compensation increases.
During the first quarter of 2017, the Company incurred
$9.1 million or $0.69 per diluted share of costs related to its
previously announced combination with Houghton, including certain
legal, regulatory, environmental, financial, and other advisory and
consultant expenses. There were no similar
combination-related costs incurred in the first quarter of
2016.
Operating income in the first quarter of 2017 was $13.8 million compared to $19.8 million in the first quarter of 2016.
The decrease in operating income was due to the Houghton
combination expenses, noted above, which offset strong volume and
gross profit increases on relatively consistent levels of SG&A
not related to the Houghton combination.
Other expense was $0.1 million in
the first quarter of 2017 compared to other income of $0.1 million in the first quarter of 2016.
The increase in other expense was primarily driven by foreign
currency transaction losses realized in the first quarter of 2017
compared to foreign currency transaction gains in the first quarter
of 2016, partially offset by higher receipts of local
municipality-related grants in one of the Company's regions in the
current quarter.
Interest expense was $0.1 million
lower in the first quarter of 2017 compared to the first quarter of
2016, primarily due to lower average borrowings outstanding in the
first quarter of 2017. Interest income was $0.2 million higher in the first quarter of 2017
compared to the first quarter of 2016, primarily due to an increase
in the level of the Company's invested cash in certain regions with
higher returns.
The Company's effective tax rates for the first quarters of 2017
and 2016 were 50.8% and 32.3%, respectively. The Company's
first quarter of 2017 effective tax rate includes the impact of the
Houghton combination-related expenses, noted above, which were
considered non-deductible for the purpose of determining the
Company's current quarter effective tax rate. Excluding these
non-deductible costs, the Company's current quarter effective tax
rate would have been approximately 30%. Comparatively, the
first quarter of 2016 effective tax rate was also elevated, as it
reflected earnings taxed at one of the Company's subsidiaries at a
statutory rate of 25% while awaiting recertification of a
concessionary 15% tax rate, which the Company received and recorded
the full year benefit of during the fourth quarter of
2016. This concessionary tax rate was available to the
Company during the first quarter of 2017. Currently, the
Company continues to estimate its full year 2017 effective tax rate
will approximate 28% to 30%, excluding the impact of non-deductible
Houghton combination-related expenses, noted above.
Equity in net income of associated companies ("equity income")
increased $0.9 million in the first
quarter of 2017 compared to the first quarter of 2016. The
increase was primarily due to higher earnings from the Company's
interest in a captive insurance company in the current quarter.
The Company had a $0.2 million
increase in net income attributable to noncontrolling interest in
the first quarter of 2017 compared to the first quarter of 2016,
primarily due to an increase in performance from certain
consolidated affiliates in the Company's Asia/Pacific region.
Changes in foreign exchange rates negatively impacted the
Company's first quarter of 2017 non-GAAP earnings per diluted share
by approximately 3%, or $0.04 per
diluted share.
Balance Sheet and Cash Flow Items
The Company's net operating cash flow was $8.3 million in the first quarter of 2017 as
compared to $10.9 million in the
first quarter of 2016. The decrease in net operating cash
flow was primarily due to higher cash invested in the Company's
working capital as a result of the Company's strong operating
performance and volume growth in the current quarter. In
addition, the Company paid a $4.6
million cash dividend during the first quarter of
2017. Overall, the Company's liquidity and balance sheet
remain strong, as its cash position exceeded its debt at
March 31, 2017 by $24.2 million and the Company's total debt
continued to be less than one times its trailing twelve month
adjusted EBITDA.
Subsequent Event
On April 4, 2017, Quaker entered
into a share purchase agreement with Gulf Houghton Lubricants, Ltd.
to purchase the entire issued and outstanding share capital of
Houghton ("the Combination"). The shares will be bought for
aggregate purchase consideration consisting of: (i) $172.5 million in cash; (ii) a number of shares
of common stock, $1.00 par value per
share, of the Company comprising 24.5% of the common stock
outstanding upon the closing of the Combination; and (iii) the
Company's assumption of Houghton's net indebtedness as of the
closing of the Combination, which is estimated to be approximately
$690 million. The total
purchase consideration reflects an enterprise value for Houghton of
approximately $1.42 billion.
The Company has secured approximately $1.15
billion in commitments from Bank of America Merrill Lynch
and Deutsche Bank to fund the Combination and provide additional
liquidity. The Company expects to replace these commitments
with a syndicated bank agreement with customary terms and
conditions during the second quarter of 2017. In addition,
the issuance of the Company's shares at closing of the Combination
is subject to approval by Quaker's shareholders under the rules of
the New York Stock Exchange. The Company expects to seek such
approval of the share issuance at a meeting of the Company's
shareholders in the near future. Also, the Combination is
subject to regulatory approval in the
United States, Europe and
certain countries in Asia/Pacific. Depending on shareholder
and regulatory approval noted above, as well as other customary
terms and conditions set forth in the share purchase agreement,
Quaker currently estimates closing of the Combination to occur
either in the fourth quarter of 2017 or the first quarter of 2018.
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
March
31,
|
|
2017
|
|
2016
|
GAAP earnings per
diluted share attributable to Quaker Chemical Corporation common
shareholders
|
$
0.52
|
|
$
0.98
|
Equity income in a
captive insurance company per diluted share
|
(0.04)
|
|
(0.01)
|
Houghton
combination-related expenses per diluted share
|
0.69
|
|
—
|
Cost streamlining
initiative per diluted share
|
0.01
|
|
—
|
Currency conversion
impact of the Venezuelan bolivar fuerte per diluted
share
|
—
|
|
0.01
|
Non-GAAP earnings per
diluted share
|
$
1.18
|
|
$
0.98
|
|
|
|
Three Months
Ended
March
31,
|
|
2017
|
|
2016
|
Net income
attributable to Quaker Chemical Corporation
|
$
6,992
|
|
$
12,946
|
Depreciation and
amortization
|
4,930
|
|
4,934
|
Interest
expense
|
656
|
|
741
|
Taxes on income
before equity in net income of associated companies
|
6,865
|
|
6,305
|
Equity income in a
captive insurance company
|
(592)
|
|
(52)
|
Houghton
combination-related expenses
|
9,075
|
|
—
|
Cost streamlining
initiative
|
286
|
|
—
|
Currency conversion
impact of the Venezuelan bolivar fuerte
|
—
|
|
88
|
Adjusted
EBITDA
|
$
28,212
|
|
$
24,962
|
Adjusted EBITDA
margin (%)
|
14.5%
|
|
14.0%
|
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, including those related to the
previously announced Houghton combination, could also adversely
affect us. For more information regarding these risks and
uncertainties as well as certain additional risks that we face, you
should refer to the Risk Factors detailed in Item 1A of our 2016
Form 10-K, and in our quarterly and other reports filed from time
to time with the Commission. 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 first quarter of 2017 results is scheduled for
May 2, 2017 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
https://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
March 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
Net
sales
|
$
194,909
|
|
$
178,077
|
|
|
|
|
|
|
Cost of goods
sold
|
124,022
|
|
110,096
|
|
|
|
|
|
|
Gross
profit
|
70,887
|
|
67,981
|
|
%
|
36.4%
|
|
38.2%
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
48,054
|
|
48,143
|
|
Combination-related
expenses
|
9,075
|
|
-
|
|
|
|
|
|
|
Operating
income
|
13,758
|
|
19,838
|
|
%
|
7.1%
|
|
11.1%
|
|
|
|
|
|
|
Other (expense)
income, net
|
(105)
|
|
102
|
|
Interest
expense
|
(656)
|
|
(741)
|
|
Interest
income
|
523
|
|
348
|
|
Income before taxes
and equity in net income of associated companies
|
13,520
|
|
19,547
|
|
|
|
|
|
|
Taxes on income
before equity in net income of associated companies
|
6,865
|
|
6,305
|
|
Income before equity
in net income of associated companies
|
6,655
|
|
13,242
|
|
|
|
|
|
|
Equity in net income
of associated companies
|
959
|
|
102
|
|
|
|
|
|
|
Net income
|
7,614
|
|
13,344
|
|
|
|
|
|
|
Less: Net income
attributable to noncontrolling interest
|
622
|
|
398
|
|
|
|
|
|
|
Net income
attributable to Quaker Chemical Corporation
|
$
6,992
|
|
$
12,946
|
|
%
|
3.6%
|
|
7.3%
|
|
|
|
|
|
|
Share and per
share data:
|
|
|
|
|
Basic weighted
average common shares outstanding
|
13,176,096
|
|
13,116,807
|
|
Diluted weighted
average common shares outstanding
|
13,221,061
|
|
13,129,394
|
|
|
|
|
|
|
Net income
attributable to Quaker Chemical Corporation Common Shareholders -
basic
|
$
0.53
|
|
$
0.98
|
|
Net income
attributable to Quaker Chemical Corporation Common Shareholders -
diluted
|
$
0.52
|
|
$
0.98
|
|
|
|
|
|
|
Quaker Chemical
Corporation
|
Condensed
Consolidated Balance Sheets
|
(Dollars in
thousands, except par value and share amounts)
|
|
|
|
|
|
(Unaudited)
|
|
March
31,
|
|
December
31,
|
|
2017
|
|
2016
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$
90,593
|
|
$
88,818
|
Accounts receivable,
net
|
201,929
|
|
195,225
|
Inventories,
net
|
87,117
|
|
77,082
|
Prepaid expenses and
other current assets
|
15,237
|
|
15,343
|
Total current
assets
|
394,876
|
|
376,468
|
|
|
|
|
Property, plant and
equipment, net
|
85,233
|
|
85,734
|
Goodwill
|
81,683
|
|
80,804
|
Other intangible
assets, net
|
71,850
|
|
73,071
|
Investments in
associated companies
|
24,063
|
|
22,817
|
Non-current deferred
tax assets
|
22,460
|
|
24,382
|
Other
assets
|
28,841
|
|
28,752
|
Total
assets
|
$
709,006
|
|
$
692,028
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
Short-term borrowings
and current portion of long-term debt
|
$
726
|
|
$
707
|
Accounts and other
payables
|
90,215
|
|
82,164
|
Accrued
compensation
|
13,754
|
|
19,356
|
Accrued
restructuring
|
530
|
|
670
|
Other current
liabilities
|
33,963
|
|
24,514
|
Total current
liabilities
|
139,188
|
|
127,411
|
Long-term
debt
|
65,649
|
|
65,769
|
Non-current deferred
tax liabilities
|
12,101
|
|
12,008
|
Other non-current
liabilities
|
70,093
|
|
74,234
|
Total
liabilities
|
287,031
|
|
279,422
|
|
|
|
|
Equity
|
|
|
|
Common stock, $1 par
value; authorized 30,000,000 shares; issued and
outstanding 2017- 13,290,807 shares; 2016 - 13,277,832
shares
|
13,291
|
|
13,278
|
Capital in excess of
par value
|
112,838
|
|
112,475
|
Retained
earnings
|
366,819
|
|
364,414
|
Accumulated other
comprehensive loss
|
(81,961)
|
|
(87,407)
|
Total Quaker
shareholders' equity
|
410,987
|
|
402,760
|
Noncontrolling
interest
|
10,988
|
|
9,846
|
Total
equity
|
421,975
|
|
412,606
|
Total liabilities and
equity
|
$
709,006
|
|
$
692,028
|
|
|
|
|
|
|
|
|
Quaker Chemical
Corporation
|
Condensed
Consolidated Statements of Cash Flows
|
(Dollars in
thousands)
|
|
|
|
|
|
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Cash flows from
operating activities
|
|
|
|
Net income
|
$
7,614
|
|
$
13,344
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation
|
3,157
|
|
3,157
|
Amortization
|
1,773
|
|
1,777
|
Equity in
undistributed earnings of associated companies, net of
dividends
|
(829)
|
|
(27)
|
Deferred compensation
and other, net
|
(696)
|
|
980
|
Stock-based
compensation
|
1,153
|
|
1,798
|
Gain on disposal of
property, plant and equipment and other assets
|
(15)
|
|
(20)
|
Insurance settlement
realized
|
(240)
|
|
(279)
|
Combination-related
expenses
|
9,075
|
|
-
|
Pension and other
postretirement benefits
|
(2,263)
|
|
(2,685)
|
(Decrease) increase
in cash from changes in current assets and current liabilities, net
of acquisitions:
|
|
|
|
Accounts
receivable
|
(3,813)
|
|
2,602
|
Inventories
|
(8,820)
|
|
(1,800)
|
Prepaid expenses and
other current assets
|
755
|
|
1,183
|
Accounts payable and
accrued liabilities
|
2,279
|
|
(8,647)
|
Change in
combination-related liabilities
|
(660)
|
|
-
|
Change in
restructuring liabilities
|
(148)
|
|
(509)
|
Net cash provided by
operating activities
|
8,322
|
|
10,874
|
|
|
|
|
Cash flows from
investing activities
|
|
|
|
Investments in
property, plant and equipment
|
(2,531)
|
|
(2,172)
|
Payments related to
acquisitions, net of cash acquired
|
-
|
|
(1,384)
|
Proceeds from
disposition of assets
|
15
|
|
26
|
Insurance settlement
interest earned
|
9
|
|
8
|
Change in restricted
cash, net
|
231
|
|
271
|
Net cash used in
investing activities
|
(2,276)
|
|
(3,251)
|
|
|
|
|
Cash flows from
financing activities
|
|
|
|
Proceeds from
long-term debt
|
-
|
|
14,687
|
Repayments of
long-term debt
|
(474)
|
|
(159)
|
Dividends
paid
|
(4,583)
|
|
(4,243)
|
Stock options
exercised, other
|
(777)
|
|
(253)
|
Payments for
repurchase of common stock
|
-
|
|
(5,859)
|
Excess tax benefit
related to stock option exercises
|
-
|
|
104
|
Net cash (used in)
provided by financing activities
|
(5,834)
|
|
4,277
|
|
|
|
|
Effect of exchange
rate changes on cash
|
1,563
|
|
1,421
|
Net increase in cash
and cash equivalents
|
1,775
|
|
13,321
|
Cash and cash
equivalents at the beginning of the period
|
88,818
|
|
81,053
|
Cash and cash
equivalents at the end of the period
|
$
90,593
|
|
$
94,374
|
|
|
|
|
|
|
|
|
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