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| | NEWS | |
For Release: Immediate | Contact: Mark A. Featherstone Vice President and Chief Financial Officer 610-832-4160 |
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QUAKER CHEMICAL ANNOUNCES RECORD QUARTERLY SALES AND A
44% INCREASE IN FIRST QUARTER EARNINGS
April 29, 2008
CONSHOHOCKEN, PA - Quaker Chemical Corporation (NYSE:KWR) today announced sales for the first quarter 2008 of $147.7 million, a quarterly record, and net income of $5.1 million, increases of 18.3% and 44.0%, respectively, compared to the first quarter of 2007. Earnings per share increased to $0.50 per diluted share from $0.35 per diluted share for the first quarter of 2007.
“We’re very pleased with our start in 2008, particularly given today’s world,” commented Ronald J. Naples, Chairman and Chief Executive Officer. "We achieved improvement in operating income as a percentage of sales to over 6%, despite the headwinds of rapidly escalating raw material costs. We did see a decrease in our sequential gross margin percentage from the fourth quarter of 2007, but were able to maintain our margins in dollar terms, and continue to work with our customers to recognize the value we deliver and our cost realities. With our future in mind, we remain committed to invest in key growth initiatives, while at the same time being mindful of today’s challenges and limited visibility of the current economic environment and commodity price trends. As suggested by our recent dividend increase, we have confidence about our long-term future and the prospects of earnings improvement for 2008.”
First Quarter 2008 Summary
Net sales for the first quarter were $147.7 million, up 18.3% from $124.9 million for the first quarter 2007. The increase in net sales was attributable to volume growth, higher sales prices and foreign exchange rate translation. Volume growth was realized in virtually all the Company’s regions, including higher revenue related to the Company’s Chemical Management Services (“CMS”) channel. Foreign exchange rate translation increased revenues by approximately 8% for the first quarter of 2008, compared to the same period in 2007. Selling price increases were realized, in part, as a result of an ongoing effort to offset higher raw material costs. CMS revenues were higher due to the full year impact of additional CMS accounts gained in 2007, as well as the renewal and restructuring of several of the Company’s CMS contracts.
Gross margin dollars were up more than $5.0 million, or 13.2% for the first quarter of 2008, compared to the same period in 2007. However, the gross margin percentage was 29.5% for the first quarter of 2008, compared to 30.9% for the first quarter of 2007. The Company’s larger mix of CMS contracts reported on a gross versus pass-through basis decreased gross margin as a percentage of sales by approximately 0.5 percentage points. The remaining decline in gross margin as a percentage of sales is due to increased raw material costs in excess of price increases, as well as product and regional sales mix. The Company has announced and implemented a number of further price increases to aid in offsetting unprecedented levels in the Company’s key raw material costs.
Selling, general and administrative expenses for the quarter increased $2.6 million, compared to the first quarter of 2007. Foreign exchange rate translation accounted for the majority of the increase over the prior year period. Inflationary increases were largely offset by lower legal and environmental costs and lower incentive compensation expense.
The decrease in other income was primarily due to foreign exchange rate losses in 2008 compared to gains in 2007. Net interest expense was lower due to lower average borrowings as well as lower interest rates.
Balance Sheet and Cash Flow Items
The Company’s net debt increased from December 31, 2007, primarily to fund working capital needs driven by higher quarterly sales and scheduled first quarter payments, including the payment of incentive compensation. The Company’s net debt-to-total-capital ratio was 34% at March 31, 2008, compared to 43% at March 31, 2007 and 32% at December 31, 2007.
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.
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.
As previously announced, Quaker Chemical’s investor conference call to discuss first quarter results is scheduled for April 30, 2008 at 2:30 p.m. (ET). Access the conference by calling 877-269-7756 or visit Quaker’s Web site at www.quakerchem.com for a live webcast.
Quaker Chemical Corporation |
Condensed Consolidated Statement of Income |
(Dollars in thousands, except per share data and share amounts) |
| | | | | | |
| | | | | | |
| | | (Unaudited) | |
| | | | | | |
| | | Three Months Ended March 31, | |
| | | 2008 | | 2007 | |
| | | | | | |
| Net sales | | $ | 147,718 | | $ | 124,891 | |
| | | | | | | | |
| Cost of goods sold | | | 104,083 | | | 86,345 | |
| | | | | | | | |
| Gross margin | | | 43,635 | | | 38,546 | |
| % | | | 29.5 | % | | 30.9 | % |
| | | | | | | | |
| Selling, general and administrative expenses | | | 34,504 | | | 31,919 | |
| | | | | | | | |
| Operating income | | | 9,131 | | | 6,627 | |
| % | | | 6.2 | % | | 5.3 | % |
| | | | | | | | |
| Other income, net | | | 161 | | | 327 | |
| Interest expense, net | | | (1,182 | ) | | (1,350 | ) |
| Income before taxes | | | 8,110 | | | 5,604 | |
| | | | | | | | |
| Taxes on income | | | 2,765 | | | 1,844 | |
| | | | 5,345 | | | 3,760 | |
| | | | | | | | |
| Equity in net income of associated companies | | | 112 | | | 125 | |
| Minority interest in net income of subsidiaries | | | (364 | ) | | (348 | ) |
| | | | | | | | |
| Net income | | $ | 5,093 | | $ | 3,537 | |
| % | | | 3.4 | % | | 2.8 | % |
| | | | | | | | |
Per share data: | | | | | | | |
| Net income - basic | | $ | 0.50 | | $ | 0.36 | |
| Net income - diluted | | $ | 0.50 | | $ | 0.35 | |
| | | | | | | | |
Shares Outstanding: | | | | | | | |
| Basic | | | 10,085,859 | | | 9,907,683 | |
| Diluted | | | 10,179,539 | | | 10,024,905 | |
Quaker Chemical Corporation |
Condensed Consolidated Balance Sheet |
(Dollars in thousands, except par value and share amounts) |
| | | | | | |
| | | (Unaudited) | |
| | | | | | |
| | | March 31, | | December 31, | |
| | | 2008 | | 2007 | |
| ASSETS | | | | | |
| | | | | | |
| Current assets | | | | | |
| Cash and cash equivalents | | $ | 20,527 | | $ | 20,195 | |
| Accounts receivable, net | | | 120,273 | | | 118,135 | |
| Inventories, net | | | 64,559 | | | 60,738 | |
| Prepaid expenses and other current assets | | | 16,057 | | | 14,433 | |
| Total current assets | | | 221,416 | | | 213,501 | |
| | | | | | | | |
| Property, plant and equipment, net | | | 63,707 | | | 62,287 | |
| Goodwill | | | 45,799 | | | 43,789 | |
| Other intangible assets, net | | | 7,668 | | | 7,873 | |
| Investments in associated companies | | | 7,959 | | | 7,323 | |
| Deferred income taxes | | | 32,018 | | | 30,257 | |
| Other assets | | | 40,476 | | | 34,019 | |
| Total assets | | $ | 419,043 | | $ | 399,049 | |
| | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | |
| | | | | | | | |
| Current liabilities | | | | | | | |
| Short-term borrowings and current portion of long-term debt | | $ | 3,875 | | $ | 4,288 | |
| Accounts and other payables | | | 68,519 | | | 67,380 | |
| Accrued compensation | | | 9,730 | | | 17,287 | |
| Other current liabilities | | | 17,701 | | | 17,396 | |
| Total current liabilities | | | 99,825 | | | 106,351 | |
| Long-term debt | | | 89,235 | | | 78,487 | |
| Deferred income taxes | | | 8,209 | | | 7,583 | |
| Other non-current liabilities | | | 77,557 | | | 71,722 | |
| Total liabilities | | | 274,826 | | | 264,143 | |
| | | | | | | | |
| Minority interest in equity of subsidiaries | | | 4,750 | | | 4,513 | |
| | | | | | | | |
| Shareholders' equity | | | | | | | |
| Common stock, $1 par value; authorized 30,000,000 shares; issued 10,268,988 shares | | | 10,269 | | | 10,147 | |
| Capital in excess of par value | | | 11,844 | | | 10,104 | |
| Retained earnings | | | 118,506 | | | 115,767 | |
| Accumulated other comprehensive loss | | | (1,152 | ) | | (5,625 | ) |
| Total shareholders' equity | | | 139,467 | | | 130,393 | |
| Total liabilities and shareholders' equity | | $ | 419,043 | | $ | 399,049 | |
Quaker Chemical Corporation |
Condensed Consolidated Statement of Cash Flows |
For the Three months ended March 31, |
(Dollars in thousands) |
| | | | | | |
| | | | | | |
| | | (Unaudited) | |
| | | 2008 | | 2007 | |
| Cash flows from operating activities | | | | | |
| Net income | | $ | 5,093 | | $ | 3,537 | |
| Adjustments to reconcile net income to net cash used in operating activities: | | | | | | | |
| Depreciation | | | 2,680 | | | 2,719 | |
| Amortization | | | 300 | | | 339 | |
| Equity in net income of associated companies, net of dividends | | | (112 | ) | | 44 | |
| Minority interest in earnings of subsidiaries | | | 364 | | | 348 | |
| Deferred income tax | | | 1,246 | | | 361 | |
| Deferred compensation and other, net | | | 22 | | | 267 | |
| Stock-based compensation | | | 376 | | | 262 | |
| (Gain) Loss on disposal of property, plant and equipment | | | (35 | ) | | 5 | |
| Insurance settlement realized | | | (136 | ) | | (265 | ) |
| Pension and other postretirement benefits | | | (2,458 | ) | | (869 | ) |
| Increase (decrease) in cash from changes in current assets and current liabilities, net of acquisitions: | | | | | | | |
| Accounts receivable | | | 1,159 | | | (10,633 | ) |
| Inventories | | | (2,374 | ) | | (3,019 | ) |
| Prepaid expenses and other current assets | | | (3,037 | ) | | (873 | ) |
| Accounts payable and accrued liabilities | | | (9,280 | ) | | 2,749 | |
| Net cash used in operating activities | | | (6,192 | ) | | (5,028 | ) |
| | | | | | | | |
| Cash flows from investing activities | | | | | | | |
| Capital expenditures | | | (1,949 | ) | | (2,721 | ) |
| Payments related to acquisitions | | | (1,000 | ) | | (1,000 | ) |
| Proceeds from disposition of assets | | | 65 | | | - | |
| Insurance settlement received and interest earned | | | 5,112 | | | 143 | |
| Change in restricted cash, net | | | (4,976 | ) | | 122 | |
| Net cash used in investing activities | | | (2,748 | ) | | (3,456 | ) |
| | | | | | | | |
| Cash flows from financing activities | | | | | | | |
| Net decrease in short-term borrowings | | | (378 | ) | | (1,262 | ) |
| Proceeds from long-term debt | | | 9,844 | | | 5,277 | |
| Repayments of long-term debt | | | (251 | ) | | (225 | ) |
| Dividends paid | | | (2,181 | ) | | (2,137 | ) |
| Stock options exercised, other | | | 1,486 | | | 1,809 | |
| Distributions to minority shareholders | | | - | | | (270 | ) |
| Net cash provided by financing activities | | | 8,520 | | | 3,192 | |
| | | | | | | | |
| Effect of exchange rate changes on cash | | | 752 | | | 17 | |
| Net increase (decrease) in cash and cash equivalents | | | 332 | | | (5,275 | ) |
| Cash and cash equivalents at the beginning of the period | | | 20,195 | | | 16,062 | |
| Cash and cash equivalents at the end of the period | | $ | 20,527 | | $ | 10,787 | |
