Quaker Chemical Corporation
Management’s Discussion and Analysis
2328
Overall,
results in the
firstCompany delivered another quarter of
2022 reflectedstrong net sales growth,driven by strong price realization, both sequentiallyand year-over-year.Coupled with an improvement in gross margin, these factors contributedto the Company’s current quarter earnings growth despite the ongoing inflationary pressures, unfavorableforeign currency translation, macroeconomic and geopolitical challenges and other disruptions that impacted the Company’s
ability to continue to navigate through persistent raw material cost pressures, supply chain challenges including those impactingcustomers and end markets. Looking at the remainder of 2022,
theCompany remains focused on semiconductors for the automotive end markets and the impacts
of certain global economic events including the Russia conflict with Ukraine.executing on items within its control
Increasesas it manages through a continued uneven end market environmentand softer market conditions, primarily in net sales in all segments were primarily
driven by an increase in selling price implemented to offset the ongoingEurope and Asia/Pacific.
andThe Company is encouraged by the resilience of its diversifiedportfolio despite significant escalation of raw material costs and a
favorable demand environment across most of the Company’suncertainty caused by several macroeconomic
markets.factors.
However, raw material cost increases continuedWe continue
to
outpaceexpect to deliver further sequentialthe Company’s broad-basedpricing initiativesgross margin improvement in the
fourth quarterof 2022, as well as higher earnings in the second half of 2022 as compared tothe first
quarterhalf of 2022 and
the Company’smargins and earnings reflect the significantly different cost environment in the firstquarter of 2022 compared to the first quartersecond half of 2021.
The Company continues toimplement further aggressive and strategic price increases and is activelymanaging its cost structure to mitigate the current andexpected inflationary pressures.While significant uncertainty exists, notably due to pandemic-relatedrestrictions in China and theongoing war in Ukraine, the Company remains committed to advancingits customer intimate strategy, recoveringits margins andinvesting in value enhancing initiatives to better position the Companyto continue to deliver on its growth potential.OngoingOn-going impact of COVID-19
The global outbreak of COVID-19
in March of 2020 has negatively impacted
all locations where
the Company does business.
Although the
Company has now operated in this COVID-19 environment
for
for more than two years, the full extent of the outbreak and
related business impacts
continue to remain uncertain and volatile, and
therefore the full extent
to which COVID-19 may impact the
Company’s
future results of operations
future resultsof operations or financial condition is uncertain.
This outbreak has significantly disrupted the operations of
the Company and those of
its suppliers and customers and, at times during
the pandemic, the Company
has experienced volume
declines and lower net sales as
compared to pre-COVID-19 levels.
Management continues to monitor the impact that the COVID-19 pandemic
is havingon the Company,
is having on the Company, the overall specialty
chemical industry and the economies and markets in which the Company
operates.
The
prolongedprolonged pandemic and resurgences of the outbreak including
as new variants continue to emerge, and continued restrictions on
day-to-dayday- to-day life
and business operations
such as continuing restrictions in China,as well as
increased border controls or closures and transportation
disruptions,
disruptions may result in volume declines
and lower net sales in future periods.
To the extent that the Company’s
customers and
suppliers continue to be significantly and
are adversely impacted by COVID-19, this could reduce the
availability,
availability, or result in delays,
of materials or supplies to or
from the
Company, which
in
in turn could significantly interrupt the Company’s
business operations.
Given this ongoing uncertainty,
thethe Company cautions that its future results of operations could be significantly
and adversely impacted by COVID-19.
While the
circumstances have presented and are expected to continue to present challenges
and have necessitated additional time and resources
to be deployed to sufficiently address the challenges
brought on by the pandemic at this time,
managementManagement does not believe that
COVID-19 has had a material impact on
its financial reporting processes, internal
controls over financial reporting, or disclosure
controlsThe Company’s top priority
especially during this pandemic, is to protect the health and safety of its employees and
customers,
while working to ensure business
continuity to meet customers’ needs.
TheDuring the pandemic, the Company has taken
incremental steps to protect
the health and
wellbeing of its people in affected areas through various actions, including
enabling work at home where needed and practicable, and
employing social distancing standards, implementing travel restrictions where
applicable, enhancing onsite hygiene practices, and
instituting visitation restrictions at the Company’s
facilities.
The Company has not and does not expect that it will incur material
expenses implementing these health and safety policies.
With the exception of its Shanghai-based operations,which have been andcontinue to be significantly impacted since late March 2022 due to government restrictionscurrently in place in that province ofChina, allAll of the Company’s more
than 30
other production
facilities worldwide are open
and operating
and are deemed as essential
businesses in the jurisdictions where
they are
operating and the Company believesthat to date it has been able to meet the needs of allits customers across the globe despite the current challenges.operating.
The Company continues to expect
that the impacts from COVID-19 will
gradually decline subject to the effective
containment
containment of the virus and its variants and successful
distribution and acceptance of the
available vaccines and treatments; however,
the incidence of reported cases of COVID-19 or a
variant in several geographies where
the Company has significant operations
remains
relatively high.
Differing government responses
to these reported cases continues to
evolve and
it therefore remains highly uncertain
as to how long the global pandemic
and related
economic challenges will last in each of the
jurisdictions where the Company
does conductsbusiness and when our customers’
businessesbusinesses will recover to pre-COVID-19 levels.
As a resultcontinue to evolve.