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NEWS
Contact: Margaret M. Loebl Vice President, Chief Financial Officer and Treasurer loeblm@quakerchem.com T. 610.832.4160 |
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For Release: Immediate
QUAKER CHEMICAL ANNOUNCES SECOND QUARTER 2014 RESULTS
· 3.5% revenue growth on increased product volume levels
· Strong operating income leads 11% increase in non-GAAP earnings per diluted share
· Acquisition of remaining 49% interest in Australian affiliate
July 31, 2014
CONSHOHOCKEN, PA – Quaker Chemical Corporation (NYSE: KWR) today announced a 3.5% increase in net sales to $191.3 million for the second quarter of 2014 compared to the second quarter of 2013 net sales of $184.8 million. Earnings per diluted share for the second quarter of 2014 were $1.16 compared to $1.22 for the second quarter of 2013, which included $0.14 of earnings per diluted share related to the prior year receipt of a mineral oil excise tax refund. Non-GAAP earnings per diluted share increased 11% to $1.11 for the second quarter of 2014 compared to $1.00 for the second quarter of 2013. The Company’s adjusted EBITDA increased 6% to approximately $25.8 million for the second quarter of 2014 compared to $24.5 million in the second quarter of 2013. For the first six months of 2014, the Company’s net sales increased 3% to $373.0 million from $361.0 million for the first six months of 2013, including a 1% negative impact due to foreign exchange rate translation. Earnings per diluted share for the first six months of 2014 were $2.13 compared to $2.26 for the first six months of 2013, with non-GAAP earnings per diluted share increasing 6% to $2.07 for the first six months of 2014 from $1.96 for the first six months of 2013. The Company’s adjusted EBITDA increased 8% to $49.6 million for the first six months of 2014 from $45.8 million for the first six months of 2013.
Michael F. Barry, Chairman, Chief Executive Officer and President commented, “We are pleased with our second quarter results especially in light of a continuing uneven global economic environment as well as negative impacts due to foreign exchange. Our 11% growth in non-GAAP earnings is an indication that our business model and competitive positioning continue to serve us well. We experienced good growth in North America and China, a continued modest recovery in Europe after the long economic downturn, and a significant decline in South America, primarily due to exchange rates and poor economic conditions.”
Mr. Barry continued, “Looking forward, we expect to see modest growth in most of our major markets, although some countries such as India and Brazil could continue to be challenging. We are also experiencing some increases in our raw material costs. However, we do believe our track record of increasing our market share and leveraging our recent acquisitions will continue and help offset the market issues we may experience. Overall, I continue to remain confident in our future and expect 2014 to be another good year for Quaker as we strive to increase revenue and non-GAAP earnings for the fifth consecutive year.”
Quaker Chemical Corporation
One Quaker Park, 901 E. Hector Street, Conshohocken, PA 19428-2380 USA
P: 610.832.4000 F: 610.832.8682
quakerchem.com
Second Quarter of 2014 Summary
Net sales for the second quarter of 2014 of $191.3 million increased approximately 3.5% from net sales of $184.8 million for the second quarter of 2013. The increase in net sales was primarily due to higher product volumes net of a decrease of approximately $0.5 million due to foreign exchange rate translation.
Gross profit increased approximately $0.9 million, or approximately 1%, from the second quarter of 2013 on the increase in sales volumes, noted above. The Company’s gross margin decreased to 35.7% for the second quarter of 2014 from 36.4% for the second quarter of 2013, which was primarily driven by a change in price and product mix and additional expenses to finalize the manufacturing cost streamlining initiative that began in the prior year in our Europe, Middle East and Africa (“EMEA”) segment.
Selling, general and administrative expenses (“SG&A”) decreased approximately $0.3 million from the second quarter of 2013. The decrease in SG&A was driven by lower incentive compensation costs in the current quarter and additional costs in the prior year period related to a South American cost streamlining initiative, partially offset by higher labor-related and acquisition-related costs.
The Company had other income of $0.1 million in the second quarter of 2014 compared to $2.3 million in the second quarter of 2013, which primarily consisted of the prior year mineral oil excise tax refund net of expense related to a change in an acquisition-related earnout liability.
Interest expense was lower in the second quarter of 2014 compared to the second quarter of 2013, primarily due to decreases in average borrowings and interest rates. Interest income was higher in the second quarter of 2014 compared to the second quarter of 2013, primarily due to interest received on several tax-related credits and an increase in the level of the Company’s cash on hand in the current period.
The Company’s effective tax rates for the second quarters of 2014 and 2013 were generally consistent at 30.6% and 31.7%, respectively, with certain timing items slightly decreasing the current quarter’s effective tax rate.
Equity in net income of associated companies (“equity income”) decreased $0.8 million from the second quarter of 2013 to the second quarter of 2014. The primary component of the Company’s equity income is its interest in a captive insurance company, which was higher in the prior year period. In addition, the Company’s equity income for the second quarter of 2014 includes a currency charge related to the conversion of certain Venezuelan Bolivar Fuerte to U.S. dollars.
Changes in foreign exchange rates, excluding the current quarter conversion of certain Venezuelan Bolivar Fuerte, negatively impacted the second quarter of 2014 net income by approximately $0.1 million, or $0.01 per diluted share.
Year-to-Date 2014 Summary
Net sales for the first six months of 2014 of $373.0 million increased 3% from $361.0 million for the first six months of 2013, primarily due to higher product volumes across most regions net of a decrease of approximately $3.2 million due to foreign exchange rate translation.
Quaker Chemical Corporation
One Quaker Park, 901 E. Hector Street, Conshohocken, PA 19428-2380 USA
P: 610.832.4000 F: 610.832.8682
quakerchem.com
Gross profit increased approximately $3.4 million, or approximately 3%, from the first six months of 2013, which was primarily driven by the increase in sales volumes, noted above, on stable gross margins of 35.7% and 36.0% for the first six months of 2014 and the first six months of 2013, respectively.
SG&A increased approximately $0.3 million from the first six months of 2013, primarily due to higher labor related costs, acquisition related costs and, also, additional costs related to an amendment to the Company’s pension plan in the United Kingdom (“UK”). These increases to the first six months of 2014 SG&A were net of lower incentive compensation costs, decreases in foreign currency exchange rate translation and additional costs in the prior year related to a South American cost streamlining initiative.
The Company had other expense of $0.4 million in the first six months of 2014, which was primarily the result of foreign exchange losses net of third party license fee income. Whereas, the Company had other income of $2.6 million in the first six months of 2013, which primarily consisted of the prior year mineral oil excise tax refund net of expense related to a change in an acquisition-related earnout liability.
Interest expense was lower in the first six months of 2014 compared to the first six months of 2013, primarily due to decreases in average borrowings and interest rates. Interest income was higher in the first six months of 2014 compared to the first six months of 2013, primarily due to interest received on several tax-related credits and an increase in the level of the Company’s cash on hand in the current period.
The Company’s effective tax rates for the first six months of 2014 and 2013 were 32.5% and 28.3%, respectively. The primary contributors to the increase in the Company’s effective tax rate were lower changes in reserves related to uncertain tax positions and certain one-time items that increased the first six months of 2014 effective tax rate. Although the tax rate remains inflated above our full year expectation, the Company estimates its full year 2014 effective tax rate to approximate 31%.
The decrease in the Company’s equity income of $1.0 million from the first six months of 2013 to the first six months of 2014 was primarily caused by lower earnings related to the Company’s equity interest in a captive insurance company. In addition, the Company’s equity income for both the first six months of 2014 and the first six months of 2013 include comparable currency charges related to the conversion of Venezuelan Bolivar Fuerte to the U.S. dollar.
Changes in foreign exchange rates negatively impacted the first six months of 2014 net income by approximately $0.8 million, or $0.06 per diluted share.
Balance Sheet and Cash Flow Items
The Company’s net operating cash flow of approximately $10.1 million for the second quarter of 2014 increased its year-to-date net operating cash flow to $8.3 million compared to $27.5 million for the first six months of 2013. The Company’s operating cash flow continued to be impacted by cash invested in working capital during the second quarter of 2014. Specifically, the Company’s accounts receivables increased primarily due to higher sales volumes at the end of the second quarter of 2014 and a further delay in timing of cash receipts, its inventory was slightly higher due to a further build of raw material stock levels, and its accounts payable were down due to timing of payments to third party suppliers. Overall, the Company’s liquidity remains strong, as its cash position continued to exceed its debt at June 30, 2014 and, also, the Company’s consolidated leverage ratio continued to be less than one times EBITDA. In June 2014, the Company acquired the remaining 49% ownership interest in its Australian affiliate, Quaker Chemical (Australasia) Pty. Limited for A$8 million from its joint venture partner, Nuplex Industries.
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Non-GAAP Measures
Included in this public release are non-GAAP financial measures of 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 are reconciliations between the non-GAAP (unaudited) financial measures of non-GAAP earnings per diluted share and adjusted EBITDA to their most directly comparable GAAP (unaudited) financial measures:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| GAAP earnings per diluted share attributable to Quaker Chemical Corporation Common Shareholders | $ | 1.16 | $ | 1.22 | $ | 2.13 | $ | 2.26 | ||||||||
| UK pension plan amendment per diluted share | — | — | 0.05 | — | ||||||||||||
| Mineral oil excise tax refund per diluted share | — | (0.14 | ) | — | (0.14 | ) | ||||||||||
| Change in acquisition-related earnout liability per diluted share | — | 0.03 | — | 0.03 | ||||||||||||
| Cost streamlining initiatives per diluted share | 0.02 | 0.02 | 0.02 | 0.02 | ||||||||||||
| Currency conversion impacts of the Venezuelan Bolivar Fuerte per diluted share | 0.02 | — | 0.02 | 0.03 | ||||||||||||
| Equity income in a captive insurance company per diluted share | (0.09 | ) | (0.13 | ) | (0.15 | ) | (0.24 | ) | ||||||||
| Non-GAAP earnings per diluted share | $ | 1.11 | $ | 1.00 | $ | 2.07 | $ | 1.96 | ||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Net income attributable to Quaker Chemical Corporation | $ | 15,427 | $ | 16,083 | $ | 28,157 | $ | 29,702 | ||||||||
| Depreciation and amortization | 3,824 | 3,953 | 7,712 | 7,888 | ||||||||||||
| Interest expense | 581 | 762 | 1,106 | 1,506 | ||||||||||||
| Taxes on income before equity in net income of associated companies | 6,538 | 6,828 | 13,084 | 10,961 | ||||||||||||
| Equity income in a captive insurance company | (1,225 | ) | (1,696 | ) | (2,071 | ) | (3,131 | ) | ||||||||
| Mineral oil excise tax refund | — | (2,540 | ) | — | (2,540 | ) | ||||||||||
| Change in acquisition-related earnout liability | — | 675 | — | 675 | ||||||||||||
| Cost streamlining initiatives | 348 | 402 | 348 | 402 | ||||||||||||
| Currency conversion impacts of the Venezuelan Bolivar Fuerte | 321 | — | 321 | 357 | ||||||||||||
| UK pension plan amendment | — | — | 902 | — | ||||||||||||
| Adjusted EBITDA | $ | 25,814 | $ | 24,467 | $ | 49,559 | $ | 45,820 | ||||||||
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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 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, 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 second quarter of 2014 results is scheduled for August 1, 2014 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.
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Quaker Chemical Corporation
Condensed Consolidated Statement of Income
(Dollars in thousands, except per share data and share amounts)
| (Unaudited) | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Net sales | $ | 191,286 | $ | 184,846 | $ | 372,960 | $ | 361,039 | ||||||||
| Cost of goods sold | 123,070 | 117,532 | 239,630 | 231,117 | ||||||||||||
| Gross profit | 68,216 | 67,314 | 133,330 | 129,922 | ||||||||||||
| % | 35.7 | % | 36.4 | % | 35.7 | % | 36.0 | % | ||||||||
| Selling, general and administrative expenses | 47,271 | 47,521 | 93,012 | 92,718 | ||||||||||||
| Operating income | 20,945 | 19,793 | 40,318 | 37,204 | ||||||||||||
| % | 10.9 | % | 10.7 | % | 10.8 | % | 10.3 | % | ||||||||
| Other income (expense), net | 117 | 2,301 | (356 | ) | 2,647 | |||||||||||
| Interest expense | (581 | ) | (762 | ) | (1,106 | ) | (1,506 | ) | ||||||||
| Interest income | 895 | 229 | 1,348 | 398 | ||||||||||||
| Income before taxes and equity in net income of associated companies | 21,376 | 21,561 | 40,204 | 38,743 | ||||||||||||
| Taxes on income before equity in net income of associated companies | 6,538 | 6,828 | 13,084 | 10,961 | ||||||||||||
| Income before equity in net income of associated companies | 14,838 | 14,733 | 27,120 | 27,782 | ||||||||||||
| Equity in net income of associated companies | 1,104 | 1,942 | 2,131 | 3,084 | ||||||||||||
| Net income | 15,942 | 16,675 | 29,251 | 30,866 | ||||||||||||
| Less: Net income attributable to noncontrolling interest | 515 | 592 | 1,094 | 1,164 | ||||||||||||
| Net income attributable to Quaker Chemical Corporation | $ | 15,427 | $ | 16,083 | $ | 28,157 | $ | 29,702 | ||||||||
| % | 8.1 | % | 8.7 | % | 7.5 | % | 8.2 | % | ||||||||
| Per share data: | ||||||||||||||||
| Net income attributable to Quaker Chemical Corporation Common Shareholders - basic | $ | 1.17 | $ | 1.22 | $ | 2.13 | $ | 2.26 | ||||||||
| Net income attributable to Quaker Chemical Corporation Common Shareholders - diluted | $ | 1.16 | $ | 1.22 | $ | 2.13 | $ | 2.26 | ||||||||
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Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
(Dollars in thousands, except par value and share amounts)
| (Unaudited) | ||||||||
| June 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 60,232 | $ | 68,492 | ||||
| Accounts receivable, net | 186,323 | 165,629 | ||||||
| Inventories | 79,272 | 71,557 | ||||||
| Prepaid expenses and other current assets | 20,133 | 23,169 | ||||||
| Total current assets | 345,960 | 328,847 | ||||||
| Property, plant and equipment, net | 83,342 | 85,488 | ||||||
| Goodwill | 58,921 | 58,151 | ||||||
| Other intangible assets, net | 29,657 | 31,272 | ||||||
| Investments in associated companies | 21,416 | 19,397 | ||||||
| Deferred income taxes | 22,158 | 24,724 | ||||||
| Other assets | 35,183 | 36,267 | ||||||
| Total assets | $ | 596,637 | $ | 584,146 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities | ||||||||
| Short-term borrowings and current portion of long-term debt | $ | 1,348 | $ | 1,395 | ||||
| Accounts and other payables | 80,033 | 75,580 | ||||||
| Accrued compensation | 12,516 | 20,801 | ||||||
| Other current liabilities | 26,806 | 33,080 | ||||||
| Total current liabilities | 120,703 | 130,856 | ||||||
| Long-term debt | 24,611 | 17,321 | ||||||
| Deferred income taxes | 6,500 | 6,729 | ||||||
| Other non-current liabilities | 80,113 | 84,544 | ||||||
| Total liabilities | 231,927 | 239,450 | ||||||
| Equity | ||||||||
| Common stock, $1 par value; authorized 30,000,000 shares; issued 13,242,167 | 13,242 | 13,196 | ||||||
| Capital in excess of par value | 95,508 | 99,038 | ||||||
| Retained earnings | 279,161 | 258,285 | ||||||
| Accumulated other comprehensive loss | (31,587 | ) | (34,700 | ) | ||||
| Total Quaker shareholders' equity | 356,324 | 335,819 | ||||||
| Noncontrolling interest | 8,386 | 8,877 | ||||||
| Total equity | 364,710 | 344,696 | ||||||
| Total liabilities and equity | $ | 596,637 | $ | 584,146 | ||||
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Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the Six months ended June 30,
(Dollars in thousands)
| (Unaudited) | ||||||||
| 2014 | 2013 | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 29,251 | $ | 30,866 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | 6,084 | 6,125 | ||||||
| Amortization | 1,628 | 1,763 | ||||||
| Equity in undistributed earnings of associated companies, net of dividends | (1,931 | ) | (1,021 | ) | ||||
| Deferred compensation and other, net | 3,340 | (1,080 | ) | |||||
| Stock-based compensation | 2,732 | 2,152 | ||||||
| Gain on disposal of property, plant and equipment | (97 | ) | (224 | ) | ||||
| Insurance settlement realized | (980 | ) | (384 | ) | ||||
| Pension and other postretirement benefits | (926 | ) | (1,884 | ) | ||||
| (Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions: | ||||||||
| Accounts receivable | (20,563 | ) | (9,913 | ) | ||||
| Inventories | (7,568 | ) | (2,269 | ) | ||||
| Prepaid expenses and other current assets | 1,157 | (286 | ) | |||||
| Accounts payable and accrued liabilities | (3,873 | ) | 3,650 | |||||
| Net cash provided by operating activities | 8,254 | 27,495 | ||||||
| Cash flows from investing activities | ||||||||
| Investments in property, plant and equipment | (5,521 | ) | (5,202 | ) | ||||
| Payments related to acquisitions, net of cash acquired | - | (2,478 | ) | |||||
| Proceeds from disposition of assets | 128 | 345 | ||||||
| Interest earned on insurance settlements | 23 | 28 | ||||||
| Change in restricted cash, net | 957 | 356 | ||||||
| Net cash used in investing activities | (4,413 | ) | (6,951 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from long-term debt | 7,500 | - | ||||||
| Repayment of long-term debt | (248 | ) | (7,563 | ) | ||||
| Dividends paid | (6,607 | ) | (6,428 | ) | ||||
| Stock options exercised, other | (33 | ) | 84 | |||||
| Excess tax benefit related to stock option exercises | 267 | 452 | ||||||
| Purchase of a noncontrolling interest in an affiliate | (7,532 | ) | - | |||||
| Payment of acquisition-related earnout liability | (4,709 | ) | - | |||||
| Distributions to noncontrolling affiliate shareholders | (657 | ) | - | |||||
| Net cash used in financing activities | (12,019 | ) | (13,455 | ) | ||||
| Effect of exchange rate changes on cash | (82 | ) | (1,090 | ) | ||||
| Net (decrease) increase in cash and cash equivalents | (8,260 | ) | 5,999 | |||||
| Cash and cash equivalents at the beginning of the period | 68,492 | 32,547 | ||||||
| Cash and cash equivalents at the end of the period | $ | 60,232 | $ | 38,546 | ||||
