KWR - Earnings call transcript Q3 2017 | Quaker Chemical Corporation

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Operator

Greetings, and welcome to the Quaker Chemical Corporation Third Quarter 2017 Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. and CEO Chairman, Barry, President. Michael Thank you.

begin. may You

Michael Barry

Thank you, Good morning, Dana. everyone.

the are today my CFO; provide you financials, may Mary questions and address me then comments, around we'll and Robert will have. After our that Counsel. Hall, Joining any the General Traub, Mary details our

We also have our for slides call. conference

we I’ll good third them with some now despite in find section quarter. can challenges. results off pleased Investor Relations The another factors. of were by about start the have our some market You largely the website quarter two I’m that at delivered www.quakerchem.com. quarter’s remarks major driven

First to the higher and second primarily costs. material margins due was strong raw lower sales gross

margins. start Let me with

And five For the quarters, raw there’s to with material in we materials, the the cost pricing. past adjustments and rising raw lag our in past our environment. product changes have effect we costs between a in discussed been a have raw material

of we start During costs to our would call, anticipated conference improve. margins and last a had raw third gross we material our quarter stabilization expected

news our do reasons, over margins. not our to the which However, of gradually a back when target. variety quarters, as regional heading we declined upwards mix saw stabilization to expect XX% some combined, our in for gross did see and good well, we the The product we is trend and that differences gross margins next few

in each respective So now our so let me sales, of do move on I'll to regions. and

partially a X%, prolonged primarily last as increases. summer year Our this declined Base price biggest showed acquisition year. due Lubricor last more segment, to well the increase to America, shutdowns sales somewhat due North automotive-related versus a as of volumes

our growth XX% quarter region, to and an due volumes primarily happy in One X% America in compare Asia-Pacific combination were of growth impact higher to growth good of revenue look market pricing see the row, report the X% XX%. volume our at volume gains our to to strong, overall The a quarter exchange model. in our and the organic which at underlying rates. in for a growth. is base and share region is XX% that approximately showed EMEA positive our way sales production due to growth. our showed share America We an fifth or increase foreign is was to sales grew of South European of markets, from volumes very this X%. driving Our that of to In approximately a growth spread in due a estimate we commitment And customer to indicative intimacy and our South we increase, gains our believe were X% X%

marketplace. first solutions. business customer them Specifically, the we to I with as differentiate our continues us put strong top in believe needs providing service approach this our and

existing continue many our extend we advantage to will In us our addition, growing in technologies globe. other includes and lines invest our competitive in initiatives our business gain each of share, in the which that further around recently-acquired help regions

to show to quarterly grow markets, with face is our initiatives a the In the earnings our mentioned the higher by in raw we growing base X%. this able multiple we in costs, conditions. nutshell, share singles, and marketplace market to the many leverage runs, were to baseball hit I've non-GAAP do our I adjusted our Despite and and by taking analogy, our able material see challenges to goal even EBITDA per As X% and continuous in these in using we singles past, growth SG&A. by as continuing challenging share thereby, produce were

despite to various continue the that bottom We happening to to earnings we our great is challenges. in line deal strong a confident believe grow market So cash continue our annual while there be us, flow I is around future. generate

been our We The earnings business will numerous and Since this global gives The we make by by one our our in would to our the adjusted EBITDA to path continued the close these growth as Houghton grow the marketplace. will leverage paths to will International. combination process. another with we Also, remarks acquisitions the our of the XXXX non-GAAP review confidence share eighth regulatory largely to of is vehicles the for consecutive headwinds. to continue our us about a the gains despite technologies close that in be year, material good which do April, basis. we on project like we timing combination now few the for I proceeding year expect past have strategies, down raw lead executing that selling determines deal. newly-acquired announcement a Quaker,

reviews. the far, To around to Federal will process in progressing the but expect and Trade revenue are So the is the all Commission from not XXXX. we world still in received reviews end and as the Overall, be divest We Commission closing products have expected. do their Australia. will of number U.S., the towards finalized date, China U.S. first quarter of the small of The a still the are in of of the approval occur or reviews and European significant. expect we impact remaining year

the special and deal. deal. the in shareholders is been we've meeting the meeting our to September, working That approved overwhelmingly was held that item approve Another shareholders on

for expanded us cash. we pay as the is of financing provides banks, debt to deal Our syndicate flexibility XX with completed and great generate down also that combination an includes with

major been activity have planning. other we with is involved the integration The

and plan for our the two hit to can running We a appropriately have we on hired day put ground and seamless synergies. event our together several before make customers, while close, achieve key the McKinsey EY it one consultants we us such companies expected as and that so help

create to combination shareholders are Quaker financials. and In the and team. for be have. our asset. of Mary? everything most these all-in-all, that to with of about the differentiate to organizations. I helps for value it excited marketplace. that we dedication And Houghton we with provide team happy continue with our you Once by will as customers on strong thoughtful whose I'll and business, to she more address People So now, our so details expertise far, are behind turn CFO, and has our Mary upcoming in disciplined want the can the and financials our the thank plan the in over I'm the her you we very two valuable being very International closing, Hall, Mary Quaker our completed combination all questions comments may associates, any and quarter,

Mary Hall

and Thank you, Mike, good morning, all.

to which this materially. estimates, expectations, forward-looking that cause and that on statements, to remember and current I differ risks during uncertainties, are Before based call begin, include actual please made projections assumptions may subject comments which results are

four Please with our These Charts a XXXX while gross included the from a share analyst of versus prior $X.XX. regarding consensus to the about positive discipline, filed review results exchange financial Form please in $X.XX Quaker on top cautionary our XX-K risk X in risks, impact performance. our continue in time SEC. And to to our For the strong non-GAAP pressure available X% are statements years, continuation earnings cost. statements now reported margin as forward-looking increase good quarter had foreign reflect X%. on Also, discussion benefited per cost I website. due raw quarters, refer two review for theme and line our of material some improved from the the a and earnings of factors increased X, a in and our to this volumes of these the the included first release

Other that X% QX year, factors and product of increase Lubricor last Our organic growth exchange net were appreciated price QX primary growth $XXX versus from just I about QX year. the foreign stronger of with about reflecting to driver; acquisition year. foreign which The last of key growth grew a acquisition last contributing benefit the strong of primarily impact was and from and mentioned. primarily QX positive and exchange X% volume has from over mix due euro, of X%, the X% sales million X%, XX% X% the for good

not we in gross had quarter we we the discussed, talked margin at the our Mike As expected end when QX. see did expand as of

is margin percentage When decline XX.X%, we points material and XX.X% cost spoke X just In XX.X%. year's expected down quarter, last would basis last in fact, over a from from on down bit QX's gross sequential raw a our QX. of we

fact, continue margin overall material gross to in In cost raw rise QX, the in compression. resulting

rate look ratio QX our $X.X operating of infrastructure we margin at decline. operating income ratio the timing rate Please due line leverage million QX several at line As Mike to mentioned, gross XX% to offset helping QX over XX.X%, as margin strong cost inflated the concessionary we favorably of XX% one SG&A our continue growth, the XX.X% top to area. the effective that the the in show the beginning the GAAP that from reflect also was our compares sales to margin expenses. QX subsidiaries. our year. to Houghton-related Note of quarters trending good of which to Chart in combination year's rate and support XX.X% is of tax last gradual down gross last Quaker tax of note the to X, and If we to next continued the discipline of non-U.S. expect up on improvement

compensation year an expenses. low timing combination the to accounting relatively of Houghton-related adoption and current regarding the addition, In due QX standard equity-related is rate the of the

continue the be to expect XX% XX% effective We range. tax in year rate to the to full

balance hand As $XX exceeding up operating was Quaker's result liquidity and cash to continued debt a our EBITDA adjusted strong with X%, strengthen performance, by on of million. our and sheet

to Chart X. Turning

began overall you in XXXX. to trend X, material cost gross quarter. of of pressure we the Here Chart the margin volume, reflected the see rise which continuing continue as QX increasing In see raw in

debt will earlier. next months cash adjusted quarters. area cash the gradual our discussed, consistently million, position deliver XX% flow, the depicts shows believe As continued in million over is our QX to growth we our and in our date. despite challenges. net adjusted the various market In XX Quaker mentioned summary, X return EBITDA Chart as trailing highest earnings of $XX to continues and balances Chart see EBITDA with improvement cash we and to good $XXX.X a of and X several I

I want that expect now, And non-GAAP Mike. I’ll consecutive be adjusted to year it you, to all thank interest of EBITDA. for over and our And continue We Quaker. growth in back positive in you turn will to your earnings eighth XXXX

Michael Barry

any Mary. conference Thanks, any to we’d of address this from on the like participants the stage, questions At call.

Operator

Thank floor question Our coming Sidoti [Operator open now & is Marshall first Please of go Company. you. from is Instructions] ahead. for The questions. Edward

Edward Marshall

morning. good Hey guys,

Michael Barry

Good morning, Ed.

Edward Marshall

gross ask I about targets. So to margin wanted

now. job First, the suggests between good XX%, that the spread typically I like doing model, think, it looks historically in and looking which a you’re is back XX% pretty

the XX% a where allows target? changed of we longer of think that you you’re had that couple or over that business tail natural maintain gave a materials margin gross raw to that I the within last years, that XX% decent kind XX%, kind over something Or and on of you you XX% kind basis. to spread XX% to pretty expect headed? should strategically higher be Has

Michael Barry

the a range as the think when I the major when at XX.X% was were XX% – in we of much crude of target higher to level. was a driver type

– more It range, XX% which temporarily, XX% gross $XX, – than we nothing at XX.X%, over margins XX% So lag it’s more And higher while. math came crude a is, was be when we XX%, it’s levels, XX% of to you in gross crude math, of while effect. this that then – our And crude for puts higher. the say, doing, a And comparing we new so $XXX margin when at a the profit – is would was of the back kind crude lot it equivalent a number because said, evaluated down a today just $XX-type that dollars everything was let’s when a barrel. the and versus the for as as gave really type you’re expect we’re percentage. towards

more So there's nothing really it's that. than –

Edward Marshall

consolidation spending you're you do an curious, the for bit – and you that. then consolidation kind from on I'm the consulting about talk it. fees I can of two appreciate a expected businesses? number year-to-date Got of And Got the it. consolidation, from the that all-in have

Mary Hall

expenses, million year, shown year-to-date, year. we or the of spent And to we $XX this Q million in we that this said additional disclosed in the quarter. QX in the have in So we of half – and $X.X what through have year-to-date the $XX.X of expect is have $XX what reported we first million expenses we had what then $X million an that, million so or

Edward Marshall

appreciate Got it. Thank you very much. time. I your

Michael Barry

Ed. Thanks,

Operator

you. Thank

Securities. question Please Jon Tanwanteng from CJS is of ahead. go Our coming next

Pete Lukas

on quarter. for Pete Congratulations, Hi, good another guys, morning. actually Jon. Lukas It’s great

to insights merger. little potential like a on there cross Houghton ask, are expand to the could Just And share the synergies selling? if on you from for any new

Michael Barry

because and anyway, synergies, So them achieved in hard planning effort of teams. while in share, of we're we lot especially to we is and those of of side, timing was because get how We nothing on are the that a people around, to share discount give purpose. lot integration that's It's definitely a kind in there synergies definitely of really range. to putting have on uncertainty, the but finite the it a chosen cross-selling something feel real, not cross-selling our

– guidance side, haven't Obviously, And our far disclosed disclose million the work that's the million around still a I to synergies. that announcement [indiscernible] on to we're over that of anything synergy lot $XX So as that doing a to synergies at seen around now of that we date by to still on – time planning would exiting achieved work suggest That the of the the the believe have $XX cost integration good nothing achieve it's we're second we're we've X the right – doing And is number. not real, is that. year. the the but as going synergies.

of analysis probably very the we the million. updated first can expected $XX and So quarter through thorough we at we more end be again, that, our would we anticipate confident some or to the around feel where point. we’ll the year And as I get that close, guidance in give that

Pete Lukas

to back range customers? pricing regards XX% And your then you passing push of in you back any spoke about, gross with margin the to sorry, getting expect to through – terms do that

Michael Barry

increases. have There is – price love to no customers

down. I we do very to on it’s historical go And been able tried a we’ve on think based customers to way we’ve just done we’ve treat the what process way to our fairly through – up and have historically, it.

going a XXXX frame. when of So we’re not. the And $XX not increases. there’s going to $XXX XXXX from this level a barrel, we’re it from is relatively back believe and of like uptime to doing to lot no minor reason It’s crude’s we’re forward, time in maybe going did a

a to still So going yes, confidence there. matter we’re get time. have of we that continue to It’s just

Pete Lukas

That’s from it Great. Thanks guys. me.

Michael Barry

Pete. you, Thank

Operator

next question is from Our Instructions] Capital go Burke ahead. Liam FBR of coming Please [Operator Markets.

Liam Burke

Thank you. Good morning, Mike good morning, Mary.

Michael Barry

Hi, Liam.

Liam Burke

the Asia-Pacific Mike, you regions that opposed as where the world had to of margin two what difference? improvement in – created other

Michael Barry

really just in There’s dramatic nothing There’s quarters. lot on a – It’s mix no effect. mix especially too going there. sequential of effect

going lot of product lines. can a You things have in on different

change fundamentally happening nothing So – there.

Liam Burke

the – to the revenue growth. acquisitions, And which of acquired mix higher in The mean, mix driving I the Okay. I is that that mix? gross overall Generally, cost. product up in you be would the from concept? think I Did of more for mentioned some in what’s as negative the quarter addition margins, margin, would raw effects that materials the generated

Michael Barry

mix, margin to around from and product Sure. more – has is It higher as being with hit up, of versus be third unusual year. products timing and a there than margin. the can more issue. It a things was particular We the ticked would. things more over Yes, lower That's lower in point spread in Europe like sales and quarter a like ago is year China some out we had well. in it more mining specifically those the Asia-Pacific product

– then other that, one talking North regions is grew – And [Audio Dip] margins about. our our it's of the they for also it – highest be can America. we're there's have like that So And highest things faster. regions

kind mix you that get as of So a way can well.

Liam Burke

Great. Thank Mike. you,

Operator

Thank you.

Laurence from coming Please of is question go next ahead. Our Alexander Jefferies.

Nick Cecero

This is Laurence. are How you? Nick on Cecero for

Michael Barry

Good. How do you do?

Nick Cecero

Good.

just I So quick question. had a

demand auto for the If the markets. you little color could and for steel a regional on bit maybe just provide end breakdown trends

Michael Barry

The more has first steel pretty And guess auto. been Sure. the year. trends have year we strong of do part anticipated so much of with general I the been the We steel. had then – – in have first in than strong half same been Yes.

down. auto world, is that's globally how around we we industry because again, tend to So kind shares concerned as globally. think more globally centric and of equal I that might good And things about U.S. we're the say think auto being or you versus the think

doing of So both well. them been have

to tends markets those read everything project down, still we've forward. think will that going but be growing I is slowing

said, report in looking overall people after the Association some at year came on adjust numbers." of to that next Steel are that a the had X.X% – X% to comparison project I anybody closer for China World steel they about World this going be year, try and they that X.X% make Association was demand is Steel true So going project I they basis, and call from it And that's things If "There be apples-to-apples follow and growth to that and to some. mid-October, an some the more our growth. to this out with on growth, the when the year know and be they

range. seen of of part kind then going higher I've the the year some towards and being in – and auto, things more down first auto the more X% around So

Nick Cecero

Okay. very Thank you much.

Operator

ahead. Seaport Our Instructions] [Operator from coming Mike Global question Securities. is next Harrison go Please of

Mike Harrison

Hi, good morning.

Michael Barry

Good Mike. morning,

Mike Harrison

sold seem Asia lower dynamics us margins due than opposite. as but have there, lot competitors you as other the well maybe Mike, guys competitive a companies business can higher a of are end as to why And some to has regional is structurally products in margin and Asia your remind regions? region that you lower a

Michael Barry

product say think when North I the of business, margins similar I but cost as think structure America level, the margin of – they is lower. type product have on a

So perspective. cost of so manufacturing lower, more cost that it's of highly and their from is their SG&A profitable

Mike Harrison

All in the And disaggregate We're regard serve that was right. Asia, volume contributor mining guys the has you was strength weak to on that that? has other to better. we saw business. How steel wondering of some very the from the producers industry industry was can then a little ago China if bit And also gotten you year a that with there. serve wondering you obviously, efficient much steel how steel if know I And actually a less just started the there. of of comment are companies efficient much benefiting some capacity. its you close can from the most hearing and

Michael Barry

mill. It's it's to benefiting And be – hard a more we're exact Yes. answer. at a our because to products – really that from on that really get get to tend Products efficient end. higher that's we newer it's hard hard do to that question. great feel at more valued that But are

So have of think thing, that's we mining And that definitely, not hard. I the thing. some had mean, just I Asia-Pacific, would markets. all our well wasn't those driver. was but me, but growth as a on right in marketplace right business the as numbers I of in hit from in good of front it's the major benefit, pretty whole of everything really say here I kind both though, general in in those perspective the line don't

good quarter a a quarter-to-quarter to to And things on let's So and month of something. say of that look can another I and at positive would it the good be it's really you're next you storm of can always lot because one happening. been too, a really things a was before really it's things one say hard bad a – is, see in month has things month or that basis, way kind perfect some

type of that's You're effects those always have going why. to

the think of year-to-date truer look you I and stuff, picture. the you attend at better if spread get a more

Mike Harrison

is it we like sounds forward. shouldn't of kind growth So going that, what number a in bake you're saying XX%

be Just anything everything to once? unusual question kind Asia product of, unusual? there timing it to any Any up wrap was at stronger? or – volumes. just curious I hitting led guess, on as this you just sales it Or that Was

Michael Barry

to this that’s be not effect first But but is over-year which of have – this the it’s Golden – year. – to a relatively always got prepare and October, Week seemed year- third tend effect quarter, and China, should But for tell. you the wither September it – in to we really in that always really Well, that. like it’s you they more have a consistent, lot hard week in

things – as Some there seasonality some with well. customers of as always kind some is well and

So true and the yes, or wouldn’t that’s very long quarter we believe at I about anything picture think year-to-date, look But growth happen you say period there, I gains, take, strong do good true Asia-Pacific. every But like feel it going it’s over share that. to have at market time. for even again, I But XX% it of when got still to a you look very us. over a

Mike Harrison

is, mentioned All of to SG&A the right. me, sales is down then percent you And last one Mary, from XX%. as a

talk key pretty a a there though you about bit there your some gross within Houghton guys like margin incentive similar stand-alone structure Or could number you lower what much can differences? go? On And that what press are noted the SG&A release have? that in look to in how XX% the even that and compensation were basis, increases business? You and accruals. some Is the little maybe in

Mary Dean

line, have footprint benefit of we company can’t our mentioned. of really and the infrastructure being Houghton one SG&A top double latter stories the and to positive notes we Mike, just the line it’s that global support existing on and to tell of that is, combination And place of to to size the able can’t size address When not you scale well, as increased really we we top that. grow in with is that. and your about the question, that of talk can having level the specificity. on our or that I line, that but – that leverage that top use are with that seeing respect your I that. Certainly, infrastructure to continue Yes. as part I to leverage What

SG&A, that’ll as strong company margin the on we continue focus a to So in improvement in the company. be focus well. operating And without combination

Michael Barry

one And really or combination other going on announced these to that the companies of I we say that in April back think I just the is, I here, the two – comment it’s acquisition – the look of around are we full of that margins get combined the it where go when the be – eventually, EBITDA range. today, EBITDA at you And around company the synergies would amount that think will XX%. when XX% will we new

kind leveraging of impact together. see these you two So that of and companies putting

Mary Dean

And prepared on tax I’m kind topic, a but about I talk a in bit did remarks. segueing I my of that and here, range, Houghton-related When why made that in I range to I we’re clear expenses. I little XX%, that want wasn’t wanted know comment I clarify of rate the I excluding the to that make XX% And is to impact that. sure the that, on effective tax reiterated

Mike Harrison

you. Thank that’s color. that good appreciate I

Operator

floor closing At you. management to or any the like back this I’d over time, comments. turn Thank additional for

Michael Barry

there your Given we’ll And questions, to going all you for other I’m no are now. conference call interest today. thank of end our

pleased and of Quaker in with in be the continue have third results Chemical. our We quarter future we confident the to

Chemical. please fourth the questions or for contact you in the March. next in any in Quaker Mary free again quarter your interest Our time, mean early Thanks myself. results late conference to And or be will call if February feel for have

Operator

your concludes conference. for participation. you thank gentlemen, today’s This and Ladies

day. have your wonderful disconnect time. this a lines may You at And

Quaker Chemical (KWR) 27 Oct 172017 Q3 Earnings call transcript