KWR - Earnings call transcript Q4 2018 | Quaker Chemical Corporation

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Operator

Greetings, and welcome to the Quaker Chemical Corporation Fourth Quarter and Full-Year 2018 Results Conference Call. A brief 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, Michael Barry, Chairman, Chief Executive Officer and President for Quaker Chemical Corporation. Thank you. Mr. begin. may you Barry,

Michael Barry

morning, Good everyone. Melissa. Thanks,

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

The challenges. in the have market with the challenges some now conference with and Relations despite our in Investor can quarter, good them call, exchange off that slides for also I'll of normal slowdown start another the were gross faced a China, than foreign impacted you fourth automotive primary greater some costs section higher delivered we Europe the pleased which manufacturing website We quarter. margins. we’ve and about I’m find headwinds, some remarks at www.quakerchem.com. in

expand these me areas. on Let of each now

X%, improvement impacted Foreign flat and for the exchange, negatively of X%. despite revenues of price sales our X% led our growth volume quarter, mix to which by

overall sales, were While our underlying by in and especially lower markets China. impacted negatively Europe volumes grew, our automotive

gains margins was car and we fourth the the story. fourth the of quarter which global X% market in Gross positive down versus Specifically, of our share through a quarter. sizable XXXX -- overcame are highlights challenge both quarter approximately in negative production

around we While XX%. being to below were XX.X% quarter expectation the current our XX.X% in in of up compared to were XXXX, we

costs and stable costs higher mentioned, from material sequentially. driven being shortfall our expectations variances the I manufacturing normal, largely As relatively higher rather was than were which raw than by

in quarter. margin these our in is to We the the be manufacturing expect first gross normalize next will range XX% and that expected costs quarter

additional our performance Let regions me for the on quarter. color give some now you

due America impact strong of a price showed negative had by X% to North sales X% increases due volume X% quarter segment, exchange. to increase and growth mix, and offset very and biggest partially Our X% with a a foreign

of impact due decrease, EMEA exchange negative of X%. volumes showed to a foreign X% or region and X% European primarily lower Our

decline. business that nonstrategic X% we middle primarily This to may volume of due was and of this a to as continue increased foreign partially about good exchange offset in volume we X%. see piece to growth our region, of profitability. X% it a Asia-Pacific sales growth In therefore You impacts was negative mix customer, and of XXXX, of half by EMEAs volume X%. of low recall our But by price the impacted X% stopped selling its

organic pretty China's our results So in Asia-Pacific good continue the for slowdown show automotive to market. strong growth and even with region us

a growth showed X% decline and revenue in positive price we America, improvement despite South volume X%. a of For mix of of X%

underlying lion quarter this end is One the to market our that see share at the growth. the a market sales compare foreign the negative growth decline in and to was in to overall gains share our impact volume markets. to volume way growth our us to organic production of continues and to for large all increases XX%. the in be So of driver a year-over-year Overall, theme consistent industrial due exchange be and base market growth growth continues look

our automotive gains was growth is with Our X% to indicative growth and as approximately which spread as flat is estimate markets, of compared X% our intimacy volume in customer to model. due up commitment our at in the to base quarter our steel underlying we and of this We share the best believe down.

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

foreign Europe, by production and non-GAAP exchange able challenges in earnings the So, XX%. faced in summary, and automotive China our to despite in the were including we we grow lower quarter

would a In X% to leverage XXXX, and our by continuing our by grew nutshell, we and do taking margins we our be like progress productive share our to FTC, I full-year make by . on increasing now combination we the somewhat EBITDA adjusted in down. our Xsince update government was International. gross to non-GAAP the able to in marketplace, by continue X, the discussions January were SG&A with a about although shut For XX%. our this the with Houghton few earnings the delayed remarks

continues will Overall, and approval we receive next the that divested months. magnitude companies. product is regulatory about expectation to of of of the X% the few within combined the lines Our be to close be the revenue able

of market will said provide I company, million it As through the least above the at enable cross-selling this size the as synergies. combination and $XX good in double growth past, in continued about cost we're excited opportunities

call the intent view after expected an investor where to updated is our have provide will company we of including closing the an synergies. new Our

market low Quaker forward, current Quaker. and strong us expect XXXX continue conditions year-over-year markets good expect we very had [technical with Looking and growth EBITDA earnings growth pleased another I’m future we automotive outlook to currency challenging in and our business the base despite in year for for our very as a We be headwinds non-GAAP difficulty]. to despite XXXX adjusted of

And this to grow expect to above the our of realizing course, benefits with Houghton. by continuing the for historically do combining market initiatives market growth have and done will begin we share as We we from gains. also

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

Mary Hall

Thank and Mike, you, morning, good all.

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

For the a statements website. cautionary statements in regarding our XXXX risks, the the review Form these please earnings forward-looking of discussion on included with and available included our in factors are XX-K risk filed our SEC. These release

do the per also that challenges note in to challenges, improvement from excluding review core resilience mix in Reconciliations as XX shareholders was volume more over consistency diluted headwinds XX Net SEC. filing a X% translation XX production, please certain operation. up $XXX.X were price to full-year our including that certain in QX we’ve of reflect core largely our please in with full-year operations non-GAAP of and refer $X.XX by in performance they're particularly and QX, and to demonstrate we of a XXXX volatile And better chart currency to several addition, our and believe FX this In added with are items $XX.X Chart QX, as negative and including stronger investor the these Please deck that XX-K foreign effort in share we to continued Quaker's Also full-year detail. earnings as Despite an provides segment as Form generally QX Charts markets. one-time and XX% QX. EBITDA across release surfaced financial XX% as the in and adjusted adjusted our increased weaker diluted EBITDA provided million with note impact industrial over in well record. Quaker's face to the dollar visibility the and saw Quaker In in were information to of share through QX appendix of increasing non-GAAP globe. offset continued to provide not I now that we QX yesterday's QX earnings market growth sales earnings X% performance. summarize performance faced QX slightly X per million $X.XX. of automotive X% X

due increases For X% volume positive to up X% foreign slight sales and a of price the net with impact from improvement mix exchange. full-year, X% of were

was to a tax gross On in of reform estimated and U.S combination EBITDA rate full-year is and related we to respect drove our XXXX continued U.S to to margin a as for that improved we effective costs tax XX.X%, improved moving Quaker margin last of with In accounting XX.X%, related allowed over combination lot XX% XXXX, performance and QX as our QX our manufacturing XX% for improvement and improved the impact over compared delivered took through adjusted tax of adjusted repeat. operating finalized to approximately operating X-year solid expenses, When million. exclude be but we to full-year QXs of rate. the by accordance from have QX, margins margin largely The sequentially near taxes, of for the gross that full-year QX related XX.X% in of experienced basis, SEC earlier. discipline in charge the QX, gross $X to the full-year. of and XXXX. to range mentioned In the record reflect This led look measurement noise we its With gross cost margin QX XX% in impacted elevated fully Our an I gross our to QX negatively XX% certain estimates reform down the reform. nondeductible parts tax we the expect XX.X% we period and we impacts to of quarter from not do margin XX%. expect certain

XXXX, rate tax For expect full-year XX% we XX%. to an effective of

three tax process However, for concluded subsidiaries. of in will until and for in the reapplying year occurs concessionary non-U.S our be its one XXXX later we please rate that of note not application. every This a usually years

low will of combination adjust result, expect rate of these XX%. QX solid record tax up QX effective net that of performance cash Please remember and XX% a of be expect be expected approximately in exclude tax QX will drove the through Overall, year. As flow $XX from QX XX% our rate the full-year rate the XX% to rate numbers operating currently will be to impact the million, our that expected elevated range tax we to prior to effective We our XX%. our nondeductible expenses.

a despite the year, $XXX million, of a significant Our cash about million debt on pay of of dividends hand $XX paid over in X% down increase XX% increased year-over-year. prior and about

deliver the continues can of you As strong Quaker flow and prudent cash and to management balance sheet. consistent see,

which is X% X that which growth, volume Turning our volume you up next ninth On see charts, can here Chart our XXXX. trends was and X, trends. history you and to few more metrics. key contacts of XXXX Chart year the gross to certain will can consecutive give see margin shows in

mentioned I adjusted QX, in shows and XX%.As QX our full-year from decline Mike sequential the decline continued X margin to in see a near gross Chart expect record EBITDA XX%. earlier QX we can up for you will XXXX. the Here we indicated, from XXXX be ended with as X% million, the currently improvement to $XXX.X our

is new $XX.X Our various X in shareholders a XX.X% solid Quaker high. managing summary, steady balance for with despite continued adjusted significantly sheet also XXXX. continues and to its performance $XX.X our with challenges. cash discipline year-end operating year-end improving EBITDA deliver market Chart position the compared margin million net at In of reflects to million our

market volatility XXXX, as growth markets and our expect mentioned. in low continued steel base into we Mike automotive of Looking and

above of our drive we However, to leveraging acquisitions past market continue and growth. to expect gains market share

In the addition, size months, combination next of close Houghton few we with company. the doubling the expect within to the

and As our all interest continue you joining in Mike. your Thank to to Quaker. for of now to us for deliver expect shareholders good performance always, back Quaker. primary focus morning our is you this And the

Michael Barry

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

Operator

line first with question the of Company. Edward your Marshall Thank you. Sidoti & with Instructions] Our Please [Operator from proceed question. comes

Edward Marshall

you? Hi, morning. Mike, Mary. How are Good

Michael Barry

Good morning, Ed.

Edward Marshall

manufacturing reference am maybe in how made curious you it you could several quarter. So that about did occurred, you talk costs issue? results where the the I resolve to what slow the occurred,

Mary Hall

North we as severances some those time, EMEA. largely due America including than costs, largely maintenance. and to over labor manufacturing cost the were and third-party expected And contractor costs also some said elevated The affected Sure. related, primarily higher numbers, in

Edward Marshall

Got it.

we that margin about And historically conversation like a been we’ve because quarter to shift it I’m gross then and back or seems is business, and to curious, the the has XX% XX% the are just XX% Okay. talking that changed that it structurally temporary kind something below shifted range a in you getting is in reference use point. of or that trending fourth as

longer the be? Just is get as to trying where to sense in tail a going the to gross margin

Michael Barry

that XX% from think position, timing expect don’t It a I changed be issue. more Yes, anything to of longer-term is really. about we is our

get think quarter, we expected to concentrating because expect are more in in we I be comments where we below here we really to of area material on to to the range expected depends of we upon timing that quarter. But XX% forth. this kind where back exact low so just XX%, but are that were longer-term we to raw our in be strive and changes continue will to the first in be and fourth now the

Edward Marshall

is, quarter. as start automotive also can OEMs, and curious And slow you of Mike, saw rate wanted getting OEMs. really lot you the we across I combination I’m auto comment you. XXXX? even you -- suppliers. it price to in success will of sense at said finally or if think just I am there's end fourth that what then price it. from you are in industry, of of that OEMs they what sense just be been maybe Got move on slightly with what we’ve the the environment think you seeing as -- a get the the to your a a maybe my Houghton's suppliers? you how into the pushing and curious seen And some pressure lot back. Thank you’re

Michael Barry

would able to in Yes, be we’ve that And been as go we thing materials and to expect statement general historically o to margin, expect up, I raw that. we capture able back. a be think able that continue maintenances prices for do to we as to

don't of really I I the guess markets I see the changes, impacting volumes more So really side any automotive see of most than in softness our margin the things.

Edward Marshall

very appreciate Thanks it. it. I Got much.

Michael Barry

Ed. Thanks,

Operator

Thank you.

with with next Seaport proceed from your the Securities. Please Mike question of Harrison comes Our line Global question.

Mike Harrison

Hi. morning. Good

Michael Barry

Mike. morning, Good

Mike Harrison

gross may seeing be more detail at tailwind when on could XXXX? discussion, of I material the even margin on you some you're sense in comment become was a us if margin continuing give Just what neutral materials point can wondering a raw trends maybe and little bit a raw -- or during in potentially

Michael Barry

for increases materials in happen in EMEA has in relatively There quarter, Yes, specific us But, what’s a fourth to medium year But we in saw more know sort longer-term. stable were as go Asia-Pacific exactly up quarter, area. since relatively certainly perspective, I the materials, as in when longer-term -- short-term relatively we to [indiscernible] although to stable going mean, the from the they bit. quarter and were again, the overall, the raw beginning into a stable. with first were little of been it's fourth early some that well, trending they raw days the

if raw there anything any so we'll far so major in And what see there the happens, discontinuities happens market. hasn’t but been material

Mike Harrison

raw some despite area Okay,. And of very is increases as where volume Asia-Pacific you as overrun in some well margin performance some and the in an was you was cost good manufacturing yet materials, good, very challenges. Asia-Pacific this mentioned then saw the

just can might than go business were maybe in seeing have the quarter? you going much to that into make you what So stronger thought it people through

Michael Barry

Sure.

and still of even all, and kind First automotive in story despite to see right, really impacted, continues saw thing. good in that the of growth It be manufacturing for being automotive. in the pretty than things very was was good North broad-based was side But negatively other Asia-Pacific on us of a America you’re mainly Asia-Pacific. growth China we EMEA --

whether business. saw we example, good growth area, in we India, its good -- or saw our for volume in metals and China in very primary saw we So our growth

just broad-based just we've up pieces to pretty continue just marketplace, continue doing be automotive in we new of kind pick business. take sector. saw in of things overall, the share what and of So, offset to pretty It's been growth, -- kind the happened to the consistently

Mike Harrison

domestic or in to in you less than are auto you positioned that you’re to Asia-Pacific. to other also your automotive questions Western just of producing European a And better couple positioned and makers Chinese -- the the are China? related U.S are exposure -- with are with And of players in countries? Is kind better exposed you wondering, maybe automotive auto relatively

Michael Barry

Both.

Our in exposure both. is

both our automotive production what have significant ones. primary on a have China. splits a it's in also is there but metals too we have as of China. more greater suppliers business exposure, far I size but, piece And and places exact but our the local the I in that international have don’t We exact obviously other steel business we -- still thing, because is the do as that, around good significant automotive world. China don’t have than It's we do in a

Mike Harrison

All gained the that you then market right. Chinese Do And last me. from one share you and feel automotive outperformed the QX? in

Michael Barry

Yes.

Mike Harrison

much. very Thanks Okay.

Michael Barry

welcome. Thanks, You're Mike.

Operator

Thank you.

of Our line next Please Alexander your question. the Laurence with question with comes from Jefferies. proceed

Dan Rizzo

Good morning, you? Dan How for Laurence. Rizzo guys. It's on are

Michael Barry

you. Dan. you? Good, are How Thank

Dan Rizzo

tax Just to for a for the you the referring clarification XXXX. or -- tax on are results code

I I'm think probably lower. maybe hundred related one-time the basis but a And was wrong. tax to -- the it I maybe you XX actually the indicated code that change I doing couple -- -- this looking XX%. it's points at to wrong, in that of But U.S I'm it was charges it me it's wondering exclusion if with seems

Mary Hall

out the U.S to expenses Well, that rate as we more exclude tax a combination both Houghton reform. excludes you and called normalized XX% have the

Dan Rizzo

about sure to want that Okay. thinking I I was make just correctly.

Mary Hall

Yes.

Dan Rizzo

adjusted the results? And to expect charges XXXX, the excluded that would that then, be similar so for I XX% there would like mean from you with forward XX% be going that

Mary Hall

The expenses. combination Houghton

Dan Rizzo

you of they And to at was trends, the and Is expect Okay. do then kind weak them expecting that XXXX we now stay where I regional we and are kind of what anywhere? should anything are the in look And rebound? mean acceleration clarification. deceleration surprising or then, expecting as mean right there I that's thanks for

Michael Barry

new IHS Well, of for to. maybe all growth. well auto The slight those tied over automotive are kind production. two we in is that’s in a some steel, maybe as growth what global our for for and production picture auto see things can little big predicting steel order talking ways relatively as maybe probably growth we go are on LMC we are are of what experts is modest global is to major flat, -- production predicting in global that expect maybe and a we of with services X% Same steel X%, still production,

are to be growth in we So automotive mainly seen lower businesses. the sector. definitely going in trends The I’ve

in Of higher course, second was first automotive year half was much last of versus 'XX the the -- half.

we I’ve people and of go half production the half in around comparisons the that production seen second So, for the the the half in year, negative first turn expecting that higher the see of 'XX. half to that projecting expect versus the year then of in year, comparisons are as be auto but the we second second into are of

Dan Rizzo

Thank much. Okay. very you

Michael Barry

Dan. Thanks,

Operator

Thank you.

of Our line Tanwanteng the with proceed CJS your next Please Securities. Jon from with question comes question.

Jon Tanwanteng

Good morning, questions. Mary. taking for Mike and you my Thank

Michael Barry

Good morning, Jon.

Jon Tanwanteng

sooner it Houghton Mike, Is was did think that? months. spoke within pick back I few a the To and -- smack middle that any the any from up time is than you shutdown. last government when regarding it where it in you there the thought the end, anticipated change last would? of commentary the close that about

Michael Barry

would government we expected. or the anything. would so, yes, end than had where shutdown kind But, exactly know it say longer that but progressed didn't I of We

last. long So didn’t would know how we that

took up to into they -- because any majority [technical make takes the the really to a we little we be. while shutdown. so, government but Once back of picked difficulty] up, get and we need where couldn't where And discussions it started -- the progress was

We are productive discussions having with the FTC.

next and -- But still we’re within have I get since made the close feel last I let's difficulty] months. regulatory [technical few and on January X. think progress So approval we announcement --

Jon Tanwanteng

expenses quarter, you. give you Thank helpful Houghton then, combination planning maybe great. are be the you by that Okay, XXXX? And what will in it are And could total for too. Mary if

Mary Hall

we exactly Really depends close, on Jon. when

beginning close, expenses million I to area. think XXXX is, through in we'd expect in what $XX the $XX the total say from we to million

Jon Tanwanteng

What about in there Is a And great. finally, strategy? you India, your are a had there? investment then investment Is to Mike, capital any release a that investment? major press an new your significant facility. Okay, expectations change

Michael Barry

relatively probably that’s a past lower it the to we touched of part maybe facility. little world build a capital built But been and discussions. on in couple expenditure a our bit over of No, the years cost it's

very Coast should facility really are an we part that's happy India, of or I So the West say. on now, that West additional we’ve

very was other that India said, seeing in the in The automotive production over markets in and of difficulty] we of [technical [technical that of -- [technical we we we to of facility that was especially growth I XXX% 'XX I difficulty] a comments that forth that have is that India so like why the are very will well think [technical part steel, that it difficulty]. are in, area more and everything a grow difficulty] to be now continued kind that’s a we’ve and good Western year-ago, will -- continue volume happy when December think

Jon Tanwanteng

lot, Great. Thanks a guys.

Michael Barry

you, Jon. Thank

Operator

you. Thank

Palisade your question. comes proceed Our Garo Management. from next of with Norian line question Capital with Please the

Garo Norian

Good morning, guys.

cost the Just customers that was manufacturing make there any the through wanted circle to back impact just sure, and had? to you wanted challenges to to

Mary Hall

no, No, Garo.

Garo Norian

non-operating Okay, and good increase then, year-over-year that drivers I like XX-K, the in a in segment of looks great. information charges the increase it looking what was the And through pretty there wondering was were? primary

Mary Hall

is that related. of compensation incentive compensation related, Most

Garo Norian

Got it. you. Great. Thank

Michael Barry

Garo. Thanks,

Operator

you. from of Morbelli proceed question with the Our question. Please your next Rosemarie comes Thank line with G. Research. [Operator Instructions]

Rosemarie Morbelli

Good you. everyone. Thank morning,

Mary Hall

morning. Good

Rosemarie Morbelli

production aspects half half the second production of comparisons first in or just second do expect seeing versus of [ph]? you you stronger to easier what Are the some the you than the data or production, increasing half because be first half? Regarding expecting demand automotive are increases rather terms --

Michael Barry

right have don’t really I front in information of me. that

data, exact production to more point difficulty] stuff. at can be to is look if the you is, tell relatively really which [technical all point can't to the and information. All it's that just the consistent IHS going I LMC you is I we to So, give

Rosemarie Morbelli

since new thanks. suppose is you is Is I’m Houghton, story, it I ability gain -- excluding to your is to give can me competing for with is that somewhat behind it happening I you're a And then the small the mean, what your service, there? Okay, share? companies, feel what better technology, it

Michael Barry

we’ve Yes, that a X, X% track our XX solutions growing heavy now, oriented growing above to had markets. the over consistently our look the record customers. and X, I base service if long this markets gives pretty think you for past over pretty to continually at back and our And years kind now, we’ve provide business been a of X% model to

So solve get really and trial that problems, keep get be and to have get current to they them could that solve size issues that we opportunity generally any piece and to will generally help when with the a business. opportunity supplier problems. have them, of solutions, their an help And they supplier we once we their

So, I our customer solve our issues. think model and to it just our service business customer intimacy orientation ability and to heavy goes back

Rosemarie Morbelli

you Okay. the estimate Thank for do you -- you. Mary, XXXX? CapEx have And if

Mary Hall

this runs anything not year what range is say a our we expect $XX in and in different that consistently $XX to we'd million generally -- CapEx million What year. pretty

Rosemarie Morbelli

Thank Okay. you.

Michael Barry

you. Thank

Mary Hall

Thank you.

Operator

final Thank gentlemen, comments. will back turn you. session. for the I our any to this question-and-answer Barry and Ladies concludes Mr. floor

Michael Barry

Okay.

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

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

contact May. the again have please in feel call for the questions Our Chemical. Quaker your for or quarter you late if or Thanks myself. in next first be conference meantime, And will to any free in early April interest Mary

Operator

concludes Thank today’s This you. teleconference.

You participation. may for time. at your disconnect your this lines you Thank

Quaker Chemical (KWR) 1 Mar 192018 Q4 Earnings call transcript