CONSHOHOCKEN, Pa., April 30, 2018 /PRNewswire/ -- Quaker
Chemical Corporation (NYSE: KWR) today announced a net sales
increase of 9% to $212.1 million in
the first quarter of 2018 compared to $194.9
million in the first quarter of 2017 driven by increases in
selling price and product mix, volume and foreign exchange.
The increase in net sales drove higher gross profit
quarter-over-quarter, despite a lower gross margin in the first
quarter of 2018 which was primarily due to higher raw material
costs and changes in the mix of certain products sold. In
addition, the current quarter operating income benefited from the
Company's continued discipline in managing its selling, general and
administrative expenses ("SG&A").
The Company's first quarter of 2018 net income was $12.7 million or $0.95 per diluted share compared to the prior
year quarter's net income of $7.0
million or $0.52 per diluted
share, which included $6.1 million or
$0.38 per diluted share and
$9.1 million or $0.69 per diluted share, respectively, of costs
incurred with the Company's previously announced pending
combination with Houghton International, Inc. ("Houghton").
Excluding the combination-related expenses and other non-core
items, the Company's solid current quarter operating performance,
coupled with a lower effective tax rate due to U.S. Tax Reform,
drove non-GAAP earnings per diluted share to $1.38, a 17% increase compared to non-GAAP
earnings per diluted share of $1.18
in the prior year period. In addition, the Company's adjusted
EBITDA increased 9% to a record $30.8
million in the first quarter of 2018 compared to
$28.2 million in the prior year
period.
Michael F. Barry, Chairman, Chief
Executive Officer and President, commented, "We are pleased with
our first quarter results. Last quarter we expected our gross
margins to show sequential improvement due to previous price
increases, which we've delivered on despite higher raw material
costs in the quarter. In addition, our continued market share
gains were evident in our volumes globally although they were
somewhat masked by an atypical sales pattern in EMEA in the first
quarter of 2017. We also continued to show good cost control
and, overall, we achieved a 9% increase in adjusted EBITDA for the
first quarter as well as a 17% increase in non-GAAP earnings."
Mr. Barry continued, "Concerning the Houghton combination, we
are still awaiting regulatory approvals in the U.S. and
Europe. The good news is that we are in general agreement
with the regulatory authorities on what remedies have to be made
and these remedies are consistent with our original
expectations. We continue to progress through the regulatory
process and expect approval as well as closing to be over the next
few months. Overall, I continue to be confident in our future
given our modestly growing global end markets, U.S. Tax Reform, our
continued market share gains, and the benefits we will achieve
through the upcoming combination with Houghton."
First Quarter of 2018 Summary
Net sales grew approximately $17.2
million or 9% in the first quarter of 2018, increasing to
$212.1 million compared to
$194.9 million in the first quarter
of 2017. The Company's first quarter of 2018 net sales
benefited from increases in volume as well as selling price and
product mix of 1% and 2%, respectively, and a positive impact from
foreign currency translation of 6% or $11.0
million.
Gross profit in the first quarter of 2018 increased $4.6 million or 6% from the first quarter of
2017, primarily due to the increase in net sales, noted above,
partially offset by a lower gross margin of 35.6% in the first
quarter of 2018 compared to 36.4% in the prior year quarter.
The decrease in the Company's first quarter of 2018 gross margin
was primarily due to higher raw material costs quarter-over-quarter
and changes in the mix of certain products sold.
SG&A increased $2.0 million
during the first quarter of 2018 compared to the first quarter of
2017 primarily due to the impact of foreign currency
translation. In addition, SG&A increased slightly on
higher labor-related costs primarily due to annual merit increases,
which were offset by decreases due to the Company's continued
discipline in managing its SG&A.
The Company's combination-related expenses of $5.2 million in the first quarter of 2018
primarily consisted of legal, financial, and other advisory and
consultant expenses for integration planning and regulatory
approvals related to its previously announced pending combination
with Houghton. Comparatively, the Company incurred
$9.1 million of combination-related
expenses during the first quarter of 2017, primarily related to due
diligence costs and certain legal, regulatory, environmental and
other advisory and consultant expenses.
Operating income in the first quarter of 2018 was $20.2 million compared to $13.8 million in the first quarter of 2017.
The increase in operating income was due to solid net sales and
gross profit increases as well as lower Houghton
combination-related expenses, noted above, which offset a slight
increase in SG&A not related to the Houghton combination.
Other expense, net, was $0.4
million in the first quarter of 2018 compared to
$0.1 million in the first quarter of
2017. The increase in other expense, net, was primarily
driven by a change in the timing of local municipality-related
grants received in one of the Company's regions
quarter-over-quarter.
Interest expense increased $1.0
million during the first quarter of 2018 compared to the
first quarter of 2017, primarily due to current quarter costs
incurred to maintain the bank commitment for the pending Houghton
combination. Interest income was consistent at $0.5 million in both the first quarters of 2018
and 2017.
The Company's effective tax rates for the first quarters of 2018
and 2017 were 29.8% and 50.8%, respectively. Both the
Company's first quarters of 2018 and 2017 effective tax rates
include the impact of Houghton combination-related expenses, noted
above, certain of which were considered non-deductible for the
purpose of determining the Company's effective tax rate.
Excluding these non-deductible combination-related expenses, the
Company's first quarters of 2018 and 2017 effective tax rates would
have been approximately 26% and 28%, respectively. This
decrease quarter-over-quarter was primarily due to the decrease in
the U.S. statutory tax rate from 35% in the prior year quarter to
21% in the current quarter as a result of U.S. Tax Reform, which
was partially offset by a negative impact from changes in uncertain
tax positions quarter-over-quarter.
Equity in net (loss) income of associated companies decreased
$1.3 million in the first quarter of
2018 compared to the first quarter of 2017. The decrease was
primarily due to a loss from the Company's interest in a captive
insurance company in the current quarter compared to income in the
prior year, and a current quarter charge to write down the
Company's equity investment in a Venezuelan affiliate due to the
on-going devaluation of the Venezuelan bolivar fuerte.
The Company's net income attributable to noncontrolling interest
decreased $0.6 million in the first
quarter of 2018 compared to the first quarter of 2017, primarily
due to the purchase of the remaining interest in its India joint venture during December
2017.
Foreign currency translation positively impacted the Company's
first quarter of 2018 earnings by approximately 5% or $0.07 per diluted share.
Balance Sheet and Cash Flow Items
The Company's net operating cash flow was $2.7 million in the first quarter of 2018
compared to $8.3 million in the first
quarter of 2017. 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 increase in net sales and
changes in accounts payable and accrued liabilities during the
first quarter of 2018. Also, the Company had higher cash
outflows for Houghton combination-related payments in the current
quarter. In addition, the Company paid a $4.7 million cash dividend during the first
quarter of 2018, a 3% increase quarter-over-quarter. Overall,
the Company's liquidity and balance sheet remain strong, as its
cash position exceeded its debt at March 31,
2018 by $17.2 million and the
Company's total debt continued to be less than one times its
trailing twelve month adjusted EBITDA.
Houghton Combination
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 was approximately $690 million at signing. At closing, the
total aggregate purchase consideration is dependent on the
Company's stock price and the level of Houghton's
indebtedness. The Company secured $1.15 billion in commitments from Bank of America
Merrill Lynch and Deutsche Bank to fund the Combination and to
provide additional liquidity at closing, and has since replaced
these commitments with a syndicated bank agreement with customary
terms and conditions. Funding of the syndicated bank
agreement is contingent upon closing of the Combination and until
then the Company has and will only incur certain interest costs to
maintain the banks' capital commitment. During April 2018, the Company extended the bank
commitment through August 4,
2018. In addition, the issuance of the Company's shares at
closing of the Combination was subject to approval by Quaker's
shareholders under the rules of the New York Stock Exchange, and
approval was received at a meeting of the Company's shareholders
during the third quarter of 2017. Also, the Combination is
subject to regulatory approvals in the
United States, Europe,
China and Australia. The
Company received regulatory approval from China and Australia in 2017. Depending on the
timing of the remaining regulatory approvals noted above, as well
as other customary terms and conditions set forth in the share
purchase agreement, the Company currently estimates closing of the
Combination will occur in the next few months.
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,
|
|
2018
|
|
2017
|
GAAP earnings per
diluted share attributable to Quaker Chemical Corporation common
shareholders
|
$
0.95
|
|
$
0.52
|
Equity loss (income)
in a captive insurance company per diluted share
|
0.03
|
|
(0.04)
|
Houghton
combination-related expenses per diluted share (a)
|
0.38
|
|
0.69
|
Cost streamlining
initiative per diluted share
|
—
|
|
0.01
|
Currency conversion
impact of the Venezuelan bolivar fuerte per diluted
share
|
0.02
|
|
—
|
Non-GAAP earnings per
diluted share
|
$
1.38
|
|
$
1.18
|
|
|
Three Months
Ended
March
31,
|
|
2018
|
|
2017
|
Net income
attributable to Quaker Chemical Corporation
|
$
12,732
|
|
$
6,992
|
Depreciation and
amortization
|
5,047
|
|
4,930
|
Interest expense
(a)
|
1,692
|
|
656
|
Taxes on income
before equity in net income of associated companies
|
5,556
|
|
6,865
|
Equity loss (income)
in a captive insurance company
|
372
|
|
(592)
|
Houghton
combination-related expenses (a)
|
5,209
|
|
9,075
|
Cost streamlining
initiative
|
—
|
|
286
|
Currency conversion
impact of the Venezuelan bolivar fuerte
|
218
|
|
—
|
Adjusted
EBITDA
|
$
30,826
|
|
$
28,212
|
Adjusted EBITDA
margin (%)
|
14.5%
|
|
14.5%
|
|
|
(a)
|
During the three
months ended March 31, 2018, the Company incurred $0.9 million of
interest costs to maintain the bank commitment related to the
pending Combination. These interest costs are included within
the caption Houghton combination-related expenses in the
reconciliation of GAAP earnings per diluted share attributable to
Quaker Chemical Corporation common shareholders to Non-GAAP
earnings per diluted share. These interest costs are included
within the caption Interest expense in the reconciliation of Net
income attributable to Quaker Chemical Corporation to Adjusted
EBITDA.
|
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 pending 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 Form 10-K for the year ended December
31, 2017, the proxy statement the Company filed on
July 31, 2017 and in our quarterly
and other reports filed from time to time with the Securities and
Exchange 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 2018 results is scheduled for
May 1, 2018 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,
|
|
2018
|
|
2017
|
|
|
|
|
Net
sales
|
$
212,055
|
|
$
194,909
|
|
|
|
|
Cost of goods
sold
|
136,608
|
|
124,022
|
|
|
|
|
Gross
profit
|
75,447
|
|
70,887
|
%
|
35.6%
|
|
36.4%
|
|
|
|
|
Selling, general and
administrative expenses
|
50,007
|
|
48,054
|
Combination-related
expenses
|
5,209
|
|
9,075
|
|
|
|
|
Operating
income
|
20,231
|
|
13,758
|
%
|
9.5%
|
|
7.1%
|
|
|
|
|
Other expense,
net
|
(369)
|
|
(105)
|
Interest
expense
|
(1,692)
|
|
(656)
|
Interest
income
|
489
|
|
523
|
Income before taxes
and equity in net (loss) income of associated companies
|
18,659
|
|
13,520
|
|
|
|
|
Taxes on income
before equity in net (loss) income of associated
companies
|
5,556
|
|
6,865
|
Income before equity
in net (loss) income of associated companies
|
13,103
|
|
6,655
|
|
|
|
|
Equity in net (loss)
income of associated companies
|
(316)
|
|
959
|
|
|
|
|
Net income
|
12,787
|
|
7,614
|
|
|
|
|
Less: Net income
attributable to noncontrolling interest
|
55
|
|
622
|
|
|
|
|
Net income
attributable to Quaker Chemical Corporation
|
$
12,732
|
|
$
6,992
|
%
|
6.0%
|
|
3.6%
|
|
|
|
|
Share and per
share data:
|
|
|
|
Basic weighted
average common shares outstanding
|
13,245,026
|
|
13,176,096
|
Diluted weighted
average common shares outstanding
|
13,278,606
|
|
13,221,061
|
|
|
|
|
Net income
attributable to Quaker Chemical Corporation Common Shareholders -
basic
|
$
0.96
|
|
$
0.53
|
Net income
attributable to Quaker Chemical Corporation Common Shareholders -
diluted
|
$
0.95
|
|
$
0.52
|
Quaker Chemical
Corporation
|
Condensed
Consolidated Balance Sheets
|
(Dollars in
thousands, except par value and share amounts)
|
|
|
|
|
|
(Unaudited)
|
|
March
31,
|
|
December
31,
|
|
2018
|
|
2017
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$
92,581
|
|
$
89,879
|
Accounts receivable,
net
|
218,058
|
|
208,358
|
Inventories,
net
|
96,296
|
|
87,221
|
Prepaid expenses and
other current assets
|
22,365
|
|
21,128
|
Total current
assets
|
429,300
|
|
406,586
|
|
|
|
|
Property, plant and
equipment, net
|
87,832
|
|
86,704
|
Goodwill
|
86,708
|
|
86,034
|
Other intangible
assets, net
|
70,872
|
|
71,603
|
Investments in
associated companies
|
25,033
|
|
25,690
|
Non-current deferred
tax assets
|
13,103
|
|
15,661
|
Other
assets
|
31,617
|
|
30,049
|
Total
assets
|
$
744,465
|
|
$
722,327
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
Short-term borrowings
and current portion of long-term debt
|
$
5,707
|
|
$
5,736
|
Accounts and other
payables
|
103,525
|
|
97,732
|
Accrued
compensation
|
14,855
|
|
22,846
|
Other current
liabilities
|
33,350
|
|
29,384
|
Total current
liabilities
|
157,437
|
|
155,698
|
|
|
|
|
Long-term
debt
|
69,648
|
|
61,068
|
Non-current deferred
tax liabilities
|
9,037
|
|
9,653
|
Other non-current
liabilities
|
85,580
|
|
87,044
|
Total
liabilities
|
321,702
|
|
313,463
|
|
|
|
|
Equity
|
|
|
|
Common stock, $1 par
value; authorized 30,000,000 shares; issued and outstanding 2018 -
13,322,550 shares; 2017 - 13,307,976 shares
|
13,323
|
|
13,308
|
Capital in excess of
par value
|
93,731
|
|
93,528
|
Retained
earnings
|
373,185
|
|
365,182
|
Accumulated other
comprehensive loss
|
(58,738)
|
|
(65,100)
|
Total Quaker
shareholders' equity
|
421,501
|
|
406,918
|
Noncontrolling
interest
|
1,262
|
|
1,946
|
Total
equity
|
422,763
|
|
408,864
|
Total liabilities and
equity
|
$
744,465
|
|
$
722,327
|
Quaker Chemical
Corporation
|
Condensed
Consolidated Statements of Cash Flows
|
(Dollars in
thousands)
|
|
|
|
|
|
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
Cash flows from
operating activities
|
|
|
|
Net income
|
$
12,787
|
|
$
7,614
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation
|
3,194
|
|
3,157
|
Amortization
|
1,853
|
|
1,773
|
Equity in
undistributed loss (earnings) of associated companies, net of
dividends
|
511
|
|
(829)
|
Deferred compensation
and other, net
|
428
|
|
(696)
|
Share-based
compensation
|
1,083
|
|
1,153
|
Gain on disposal of
property, plant and equipment and other assets
|
(52)
|
|
(15)
|
Insurance settlement
realized
|
(85)
|
|
(240)
|
Combination-related
expenses, net of payments
|
2,161
|
|
8,415
|
Pension and other
postretirement benefits
|
(2,632)
|
|
(2,263)
|
(Decrease) increase
in cash from changes in current assets and current liabilities, net
of acquisitions:
|
|
|
|
Accounts
receivable
|
(5,827)
|
|
(3,813)
|
Inventories
|
(7,758)
|
|
(8,820)
|
Prepaid expenses and
other current assets
|
(1,055)
|
|
755
|
Accounts payable and
accrued liabilities
|
(1,862)
|
|
2,279
|
Restructuring
liabilities
|
-
|
|
(148)
|
Net cash provided by
operating activities
|
2,746
|
|
8,322
|
|
|
|
|
Cash flows from
investing activities
|
|
|
|
Investments in
property, plant and equipment
|
(3,449)
|
|
(2,531)
|
Payments related to
acquisitions, net of cash acquired
|
(500)
|
|
-
|
Proceeds from
disposition of assets
|
29
|
|
15
|
Insurance settlement
interest earned
|
19
|
|
9
|
Net cash used in
investing activities
|
(3,901)
|
|
(2,507)
|
|
|
|
|
Cash flows from
financing activities
|
|
|
|
Proceeds from
long-term debt
|
8,166
|
|
-
|
Repayments of
long-term debt
|
(197)
|
|
(474)
|
Dividends
paid
|
(4,724)
|
|
(4,583)
|
Stock options
exercised, other
|
(866)
|
|
(777)
|
Distributions to
noncontrolling affiliate shareholders
|
(834)
|
|
-
|
Net cash provided by
(used in) financing activities
|
1,545
|
|
(5,834)
|
|
|
|
|
Effect of exchange
rate changes on cash
|
2,246
|
|
1,563
|
|
|
|
|
Net increase in cash,
cash equivalents and restricted cash
|
2,636
|
|
1,544
|
Cash, cash
equivalents and restricted cash at the beginning of the
period
|
111,050
|
|
110,701
|
Cash, cash
equivalents and restricted cash at the end of the
period
|
$
113,686
|
|
$
112,245
|
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