Quaker Chemical Corporation Announces Third Quarter 2012 Results
· Acquisitions and business strategies drive Company to record product volumes
· Revenue down slightly due to foreign exchange impacts
· Strong balance sheet and net operating cash flow
· Solid earnings despite challenging environment
CONSHOHOCKEN, Pa. - Quaker Chemical Corporation (NYSE: KWR) today announced net sales of $180.9 million for the third quarter of 2012, compared to third quarter 2011 net sales of $182.3 million. Earnings per diluted share were $0.80 for the third quarter of 2012, compared to earnings per diluted share of $1.03 for the third quarter of 2011 or $0.81 excluding a non-cash gain on the revaluation of a previously held ownership interest in a Mexican affiliate of $0.22 per diluted share. The third quarter of 2012 includes certain uncommon expenses totaling $0.05 per diluted share largely consisting of severance and Brand launch costs. In addition, changes in foreign exchange rates negatively impacted the third quarter net sales by $10.6 million, or 6%, and net income by $0.04 per diluted share.
Michael F. Barry, Chairman, Chief Executive Officer and President, commented, "We are very pleased to announce record product volumes, solid earnings and strong cash flow again this quarter. The global markets remain challenging for us and we are being negatively impacted by a stronger dollar and weaker demand in several geographical areas such as Europe, China, Brazil and India. Despite these headwinds, we delivered record product volumes this quarter by continuing to grow through additional new business and our recent acquisitions."
Mr. Barry continued, "As we look to the fourth quarter, we expect the challenging global economic environment to continue as well as some negative seasonality impacts around the holidays at year end. However, we remain committed to delivering good results through the execution of our business strategies. Overall, our expectations and guidance have not changed for our full year results and we expect 2012 to be another good year for Quaker."
Mr. Barry also noted, "With our strong balance sheet, we are able to continue actively pursuing acquisitions consistent with our third quarter acquisition of NP Coil Dexter, closed in July. This is the fifth acquisition we have made during the past two years as we continue to add new adjacent product lines which we can leverage on our global platform. In addition, we launched a revised Brand for Quaker. Building on our 94-year history, we are committed to take the Company to the next level. Our revitalized Brand highlights this commitment by more clearly communicating our competitive advantage: formulating products and service solutions for our customers through the innovation, expertise and experience of our people."
Third Quarter 2012 Summary
Net sales for the third quarter of 2012 were $180.9 million, a decrease of less than 1% from $182.3 million in the third quarter of 2011. Foreign exchange rate translation decreased revenues by approximately 6%, which more than offset increases due to product volumes of approximately 5%, including acquisitions.
Gross profit decreased by approximately $0.4 million, or less than 1%, from the third quarter of 2011. The third quarter of 2012 gross margin increased slightly to 32.7% from 32.6% for the third quarter of 2011. The decrease in gross profit is consistent with the decrease in net sales noted above.
Selling, general and administrative expenses ("SG&A") increased approximately $1.3 million compared to the third quarter of 2011, primarily related to acquisitions and higher selling, inflationary and other labor related costs which were partially offset by decreases due to foreign exchange rate translation. SG&A for the third quarter of 2012 includes certain uncommon charges totaling $0.05 per diluted share largely consisting of severance and related items and costs related to the Company's new Brand launch. As a result, the third quarter of 2012 SG&A, as a percentage of sales, increased to 23.9% compared to 23.0% for the third quarter of 2011.
The decrease in interest expense was due to lower average borrowings, partially offset by increases related to the accretion of certain acquisition-related liabilities.
The decrease in other income in the third quarter of 2012 was primarily due to a $2.7 million, or $0.22 per diluted share, non-cash gain recorded in the third quarter of 2011 due to the revaluation of the Company's previously held ownership interest in its Mexican equity affiliate to its fair value, which was related to the Company's third quarter of 2011 purchase of the remaining ownership interest in this entity.
Year-to-Date Summary
Net sales for the first nine months of 2012 were $535.4 million, an increase of 5% from $510.0 million for the first nine months of 2011. Product volumes, including acquisitions, were higher by approximately 6%, and selling price and mix increased revenues by 4%, while foreign exchange rate translation decreased revenues by approximately 5%.
Gross profit increased by approximately $13.6 million, or 8%, from the first nine months of 2011, with gross margin increasing to 33.5% from 32.5%, for the first nine months of 2011, reflecting the Company's initiative to restore margins to more acceptable levels through price increases and the mix effects noted above.
SG&A increased by approximately $10.6 million compared to the first nine months of 2011, primarily related to acquisitions and higher selling, inflationary and other costs on increased business activity, which were partially offset by decreases due to foreign exchange rate translation. The first nine months of 2012 SG&A includes charges of $0.06 per diluted share for certain customer bankruptcies in the U.S., $0.03 per diluted share related to CFO transition costs and other certain charges of $0.05 per diluted share, noted above. SG&A, as a percentage of sales, increased to 24.3% from 23.4% for the first nine months of 2011.
The decrease in interest expense was due to lower average borrowings, partially offset by increases related to the accretion of certain acquisition-related liabilities.
Other income decreased in the first nine months of 2012 primarily due to the non-cash gain recorded in the first nine months of 2011 related to the revaluation of the Company's previously held ownership interest in its Mexican affiliate to its fair value, as discussed above. In addition, the Company experienced higher foreign exchange losses in the first nine months of 2012 and, also, received lower third party license fees in the first nine months of 2012, primarily as a result of the prior year purchase of the remaining ownership interest in the Company's Mexican affiliate, as discussed above.
The Company's year-to-date 2012 and 2011 effective tax rates of 26.9% and 27.1%, respectively, reflect decreases in reserves for uncertain tax positions due to the expiration of applicable statutes of limitations for certain tax years of approximately $0.15 and $0.14 per diluted share, respectively. The Company has experienced and expects to further experience volatility in its effective tax rates due to the varying timing of tax audits and the expiration of applicable statutes of limitations as they relate to uncertain tax positions, among other factors.
The first nine months of 2012 earnings per diluted share of $2.52 reflect an approximate $0.11 per share dilutive effect as a result of the Company's equity offering in May of 2011.
Balance Sheet and Cash Flow Items
In the first nine months of 2012, the Company's net cash provided by operating activities was $41.8 million, which surpasses any previous full year result. Net operating cash flow of $19.8 million was generated in the third quarter of 2012, primarily led by the Company's third quarter net income and an improved working capital position. The Company's consolidated leverage ratio remains strong at less than one times EBITDA. In July 2012, the Company acquired NP Coil Dexter Industries, S.r.l. for net cash consideration of approximately $2.7 million.
Non-GAAP Measures
Included in this public release is a non-GAAP financial measure of earnings per diluted share excluding a non-cash gain on the revaluation of a previously held ownership interest in a Mexican affiliate. The Company believes this non-GAAP measure enhances a reader's understanding of the financial performance of the Company, is more indicative of the future performance of the Company and facilitates a better comparison among fiscal periods. 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 is a reconciliation between the non-GAAP (unaudited) financial measure of earnings per diluted share excluding a non-cash gain on the revaluation of a previously held ownership interest in a Mexican affiliate to its most comparable GAAP measure (in thousands):
Conference Call
As previously announced, Quaker Chemical's investor conference call to discuss third quarter results is scheduled for October 31, 2012 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 Web site at www.quakerchem.com. You can also access the conference call by dialing 877-270-2148.
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.
SOURCE Quaker Chemical Corporation
Margaret M. Loebl, Vice President, Chief Financial Officer & Treasurer, loeblm@quakerchem.com, +1-610-832-4160
