Quaker Chemical (KWR) 2 Nov 182018 Q3 Earnings call transcript

Greetings, and welcome to the Quaker Chemical Corporation Third Quarter 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,

morning, Good everyone. you. Thank

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

The for start slides call, conference some third about off in now have find our website quarter. and section the Investor quarter with I'm being Relations were quarter's pleased also second challenges. of have improvement. some can at we them the We major you sales the first margin www.quakerchem.com. the results I'll remarks strong driven the despite X another and by was largely gross market delivered themes: increases

environment. with mid-XXXX, between in margins. Since discussed material start raw a the our we've past, me adjustments with generally in pricing. there changes our cost effect as material lag And and is a to the we've in Let raw cost our materials, the been rising raw product

conference cost in was mid-XX% range. last our of new initiatives to to that report continue recent the expectation pleased our the material low to gross came high as it that margin be raw the end the I'm increases. call, pricing On at will in expectation offset our

still where quarter cost the gross to increases our our How be However, fourth in in the once range. material are increases to predict continuing to third forward, exactly with And mid-XX% best target is quarter, will addressing out expect increases we into margins hard subside. this raw plays precise fourth margins which raw low in necessary. also estimate quarter our experienced a material cost back price XX% manner, we that get but to additional the gross the going all in and they is we are

now me to sales. on move Let

increased of price from and versus increase and mix. year growth with volume X% sales good of Our prior X% an X%

sales and how the quarter mix. sales they by impacting and X% headwind of volume let a North to you biggest and increases around had year. And quarter, America, a now X% XX%, give showed versus growth it turned me regions exchange very with strong prior this color The Foreign price increase the our segment, negatively X% performed. to more a due some and

primarily Our increased X%. a European timing region In customer, or were to lesser to primarily region, X%, our selling we piece volumes showed growth was our of foreign to quarter, Europe to a lower by decrease, stopped X% The the this profitability. EMEA of due at see patterns exchange continue primarily customer in good of extent, Pacific of volumes. nonstrategic order we to end its low volume of business due and but Asia offset a due sales a X% the partially as lower to

our Pacific strong region results continues So show produce Asia organic us. good to for and volume growth

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

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

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

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

by growing the adjusted markets, growth in share July earnings XX, of our an like the exchange marketplace, International. exceeding faced with a now growth XX. despite a EBITDA with to summary, share and we're press to taking end we in margins U.S. we reform, including gross impacts by about approval to regulatory or I'd product in Trade the presented a earnings due quarter, process for our XX%. combination on in few to tax primary earnings expect Federal nutshell, on and XX%, the XX%. make our last Commission. of able European able foreign challenges lines And do also favorable leverage on our December non-GAAP remedy our a the seeing and was about per by We be both the XX% increasing chosen divested continuing to Houghton have higher costs, EBITDA the and which European Since we to grow we and In So to this adjusted October driver non-GAAP XX, buyer Commission and in base their were filed of release increase we for our raw our were SG&A. the to Commission our our our for remarks material

the to and magnitude can December which the regulatory is or continues in that the the X% finalize expectations. the to approval lines Overall, buyer our combined divested by close from be of consistent we of agreements authorities approximately either transaction original mid-December, companies, of product so is goal revenue both January. Our with receive with the

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

call the investor to of as synergies. view intent expected and provide Our new our have after is updated as well an an closing company the

future am the forward, Quaker. outlook Looking I for pleased with

our year-over-year strong and currency growth, potential materials. another higher non-GAAP continue such expect to fourth good earnings the EBITDA we some having headwinds, quarter to and we are a raw as adjusted We us as XXXX, expect quarter for and despite be

to And to automotive. our realizing begin above largest, growth we Looking our modest we including expect to as from in expect grow ahead also market we XXXX, markets, our done and initiatives through to steel the We'll combining Houghton. gains. have benefits the share do historically also end and growth see global market two continue with

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

you, morning all. Mike, and Thank good

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

Form included to performance QX. For our forward-looking available a These financial X cautionary statements now XX-K factors I with release on discussion our refer as similar statements our and review regarding are X earnings SEC. these performance. of filed in please the Please our website. review included risk the QX the risks, our to Charts XXXX in was and strong

increase $X.XX share increase a QX, non-GAAP Quaker reported which to adjusted in $XX performance, operating strong per a to in XX% XX% million. as drove earnings EBITDA result of For a also

Our on strong despite exchange. earnings from good cost of operating negative performance impact growth, year-over-year and improved good gross X% from benefited continued We discipline. a sales delivered earnings margins foreign

sales Chinese of X%. of year-over-year, down improvement last with net is million our X% the a of about dollar to of from X%, real Our the negative year about exchange despite Euro, stronger flat footprint costs. by rising and X% the We of margin sequentially, material $XXX about raw Brazilian offset X%, with mix down QX versus the negative up the main the of XX.X% X% Gross impact partially across about foreign growth being and the XX%, were U.S. XX.X% last saw volume of year, X%. drivers QX down Indian and down up peso and Mexican the QX about in about rupee for RMB impact price each

from expenses QX. cost and operating SG&A of ratio to XX% In income XX.X% X, Please on addition, show note current the is Houghton-related $X.X the to quarter. year-over-year of million discipline. in that Quaker ratio down continued of look the QX If flat at operating good combination margin in GAAP sequentially Chart our include we sales and

Houghton-related gross to compared significantly of Our and quarter expenses operating cost both a improved year up discipline. operating lower as and our result were margin continued prior income the margin,

quarter quarter, our Recall rate the strong this $X.X a As impact up last similar flow year contributed we QX million. to effective tax year of In A result had adjustment current tax performance. lower current that XX% U.S. of tax year-over-year, tax adjusted the significantly. also recorded a $X.X cash net to a performance, we earnings the adjustment net reduce reform. and of our this quarter improved operating versus in XX.X% EBITDA of strong XX.X% operating was current of estimated million the the about in

rate and the to of year. impacts to due nondeductible Excluding a in improved quarter cost, XX% to this the U.S. these tax XX% to compared the tax related XX% reform from adjustments U.S. current our lower tax year prior in rate Houghton

tax Company adjustments its previous which the to nondeductible slightly the better reform and excluding cost. For the effective estimate full XX%, will between year, XX%, expects impact of Houghton be XX% of rate tax than is and XX% our

net sheet cash Chart And September please with of remain Our attention now million strong and of X. turn liquidity XX. your as a to $XX.X balance position

volumes, mentioned, to year-over-year see markets Chart Mike the in X, pickup continued see can gross margin base our nice sequentially. growth. the which, trend Here in you our as flat you outpace and In can the margin upward continue

gross in price with margin rise a year-over-year. our flow up In XXX.X material costs. months EBITDA trend Looking earlier. strong in XX% trailing summary, continue our X X EBITDA to and to our in debt earnings continued of continues good area net cash the growth of as cash and good increases XX.X raw market offset sheet consistently XX is Chart as cash to liquidity strong adjusted shows low shows adjusted be mid-XX% record highlights mentioned balances to to I Chart QX, and the we despite and position various consistent we our Quaker and to implement deliver million, challenges. balance expect which million,

Thank combination. good to to your mentioned, we back quarter We adjusted closing EBITDA and earnings expect to you non-GAAP And remain in our for as Mike grow delivering all QX As shareholders you, Quaker. now be and to we Houghton value year-over-year. on another continue Mike. focused interest

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

[Operator Our Mike comes the proceed line with of Harrison question Seaport first question. Global your from Securities. with Instructions] Please

on if trends. material wondering raw in bit you little was I give more what you're seeing us could a detail

we've increases. mentioned and And But any years specific magnitude inflationary been maybe on detail environment higher what You or right to a seem mentioned and things tick -- obviously, in you that of move now raws QX. for during you're now. seeing QX those that of baskets the couple an into

as -- driver oils. at raw oils of our we're that range been some that additives like lately that or increasing The, mineral in other are seeing mix. maybe other time also to overall material has that say, things put our poly we main get X% is buy of increasing point X% I into would general The in well. this There's

pricing quarter. that QX? is necessary, additional mix to higher in the compared guess next just probably assumption couple good the And in much Should and you we that terms is the to into number price quarters? a for QX third how expect I of in X% of tick reported Or

want what mix guidance to hard price put say number. place. is precisely timing we our not that. the specific commit in price around that kind It's increases kind All of exactly give increases price rather our We do to of are. I'd

and material will raw well the that these set get eventually So increases.

pretty Or where pricing feel you in your you need ability confident capture to it?

Yes.

X% Just tariff, type benefits manufacturers that at in get a then impressive. rate, of Is tariffs? that steel the to was related sustainability terms that North growth of or pretty makers to And number. of of the to volume because of the maybe sense trying America all some of number

States, that's increased But the steel Certainly, of it. I part driver. would not production in it's the and say, really, United major then

our as is pipe major our use them driver primary U.S. of of saw for in business, AC them grease and business, -- business broad-based, and a And -- pretty We analogy, our So it's it, the it in grow saw us it's our really are tariffs was broad-based and automotive and market I but business, in certainly we marketplace. gains. a to, really metals our the number it's part tube said, continue baseball to products. hit continued in take singles just very share our share

for question Houghton. And me kind everybody update and on for on now if sales made focused us then could give earnings. the on on I update last Obviously, is timing. just their is the they've what was wondering you any of progress an

provide EBITDA million numbers? also on number the and a that think was number last net Can of million of you that any of revenue of $XXX XXXX those million I $XXX we $XXX have updates of and debt.

a and the at is do kind of once we'll combination. company Houghton that that private can't. We've we said sorry, this close chosen point. we I'm

only in relative what their pretty It's performance think given over borderline that been not we proxy is close. what's is our we've the time guidance happening. I inconsistent to of put

surprises So end. it's on -- no our

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

-- expect How in your more your that do than going bit do currency little to going this earnings? It looks a same it earnings little is, you one first it magnitude you the of My revenue Is that like situation? your hit it forward hit quarter. see a onetime forward? see impact was

to see be to from hit. magnitude something this pretty be perspective, the think bottom as so. a twice -- going The a top continue line the hopefully, was or good I It's we're Yes, line much will that what of top to going time. line

losses. due a to was to That flip year-over-year gains transaction from

to that magnitude, believe that we that, So repeat Jon. won't

in just pockets market or are earlier. would autos, or you addressed then that worldwide any and steel aerospace, be America any appreciated. slowdowns terms you end of seeing North of And commentary What on demand? resistance? on And any I details strength think

Sure.

I I of the first the the half into There's I, As demand, think year. year, year the kind overall about and about parts. second and our of, put think the year two of half the

markets And we've consider, half seen those X%. automotive starting the that's strong. say, more our markets of we a modest the or kind steel X% the to then were I And the step be and growing of saw First X%. of, year, range in end of what of I -- on very end second down, of of half more year, would change growth

So the concerned what auto relative our that's our kind estimate publications the actually even for what everywhere is We main are of be we And quarter. these kind view services to because generally and the about to close markets like going is quarter. we course, markets, in that relatively world. steel third we we markets next That's is in that of year, around markets of right low tend in it's expected were to these things global or And that's have going to globally. equal so auto market globally estimate now. fourth in or growth range of into modest that steel of get type that the shares how the some -- growth that growing what kind we in read X% modest or of we

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

increases, what's has shortened the a cycle cost the I this in more all? wondering from lag just at seems changed? lot it It that the Has Laurence. past, was for than are on been Rizzo Dan price, just manageable like, things

changed. hasn't really It

the up quarter quarter year. is happens started some between then increases relatively quarter larger, And then these the what and catching the of third the it second magnitude magnitude catching the and were of of in the of and the we second think when earlier I modest. increases were

starting still going coming some have So because kind crude see of place in we in -- we're with see increases. increases in things we But offset X-month we'll and material I oils more to mineral modest another general, to is and up see expect then was the But price said our to there raw forth, earlier, to X- -- be raw to now, we capturing going and a our increases. put those lag so don't increases. we're of as starting able to out materials see

weakness there catch -- you then some And the to catch a timing I partial up of some quarter some was made that's mentioned fourth or imply Okay. you it quarter? in going was would just if be due up that wondering to the in or -- issues that sort

end some more that It that we'll yes, beginning just than that how would we whole expect early in of at on. the the seen orders see for have hit these plays of the out least at that the But we the quarter quarter. -- we Yes, expect quarter.

comes next question from Gyure the with Our Mike Janney. Instructions] line [Operator of

market market capturing. I you're a Has for the You share Or at touched little how bit of the share associate the grown benefits? year? those think capture base? talk really guess, that to situation, looking labor on guys guess your I your rest Can labor you gains you about, are you

Well, sure.

We people in have grown number years. the over of

initiatives. the place of we at the out and different -- This in of to X,XXX drive A ago, now they them, -- drive spread technologies from X,XXX try hire I like the want help we But Company number in where we've things so those we this were but to we that to relatively that are have think XXXX, nothing of flat. little resources We years current people that acquisitions go expertise to we made well. in world, some point. through our brought year as about and parts and and feel We new people, growth place has a we're over we a manpower of been perspective. in to lot were had globally. out

So it's for a us now. right relatively steady environment labor

or you're to And talk the that your your I or integration. personnel, thinking close guess, Can next or sort from assuming how maybe a you then it's going current your of at perspective? Houghton the year little integration infrastructure of about Houghton you or Okay. on getting, site this least end about, guys guess, the are early I year maybe preparing the bit

headquarters that given one also thing least period effectively, prolonged Sure. regulatory two approval the has companies' ability Yes, to helped miles and XX the at far. plan this it's us are

we with the McKenzie We do planning. were us integration hired to to able a help lot. So

a have We lot of flog.

lot once the a that our in have place hit very talent thoughtfully the time running can organization. a the We now, organization, of kind of of so ground playbooks From organization assess of and right closed, we the perspective the us we it's given design in here. to lot of

And normally would acquisition further we're so than ahead I we be a think under much normal perspective.

get that relatively we started we once I'm optimistic can here. So very least quickly at close,

Our the Sidoti next line question comes & of Marshall with Company. from Edward

ask, of wanted talk if the I to about X%. we growth market

think for raw higher of strong if time. offset enough I price? have for some some to X% could your guys we do inflation, perspective, XXXX, the uncertainties curious view some just maybe to kind those? you volume think I'm Maybe slowdowns materials, related a geopolitically. on two, to been And accept maybe of at price think to look that are share these more currency, do markets X% as you saying you what's

things Ed, year. the And of that in was for like this the X%, and said modest third together, when never think, slowdown X% I you we we heads both was future that. expect for things that that or on X%. more have We of to range I see same steel automotive put read really it's impacts that And mean, type We foreseeable the hanging people's quarter. to thought to seen kind you that expect markets. growth X% drop relative or these tariff, the I to of it hear, for of for X% it did we thought kind level China of the X% that over first all the the like Yes, see But or automotive. whether we've in half earlier, we but it the a things somewhat Sure. based reasons of in in of

discussions. mean, How I on And price markets... the -- the

really be don't connect I Yes, them honest. to

the are a down when up I on negotiated and we based rest think or prices of go and up contracts negotiate more that indices are go of we things, have number on or raw can that customers materials. down then

we've keep done I would be to to and able the in right expect what So the past margins continue to us in to our try place. achieve

global in think necessary? extended I letter that reason would extended. think the I'm that -- so just how of to the commitments sense curious increase is shares based you I to And to further about it gears a of [Technical And -- that Houghton, be trying kind the the might there over switching or I'm number I'm that? commitment get and on Difficulty] when the that's assuming acquisition second, if a been could as can of first, to equity. is shareholders about as be you actually thinking about in foreseeable of

let to me won't with that With clearly that be do respect extend commitment, problem. there that, Ed. financing a need we that, expect if to we take So

the with fully situation the We bank aware time and They're of the discussions line. have group.

basically good the formula Hindujas close of So part consideration number get have the of to of a shares the of stake will NewCo. to to be that time are off Quaker outstanding the of close. transaction, we or shares had expect the and And that whatever there. XX.X% Chemical the support -- have for With purchase are respect in

at that point renegotiate intention formula is It that. embedded time. a and this we no that's the plans in to really have to contract don't any in So change

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

more understanding American a just strength. North get around to bit want volume the better I little

from this to X% last owing shutdowns. if year's year? see I I beneficial that was comp the back quarter to in on notes, volumes the some think the little for was my wanted weaker in I somewhat go if third auto a

really market it But be just also we've in well. that of area part can Sure, gains seen share as that. good

on just that XXth The original of and December of you European then what it to any November out there? went then date have Commission. And XXth. understanding was Do changed the they put

number you there something in, it pushes few make XX it to filing Commission. days a additional where filings day. put that subsequent a first days There's European days. kind XX of was that have goes And kind the Sure. of is when that, first that after And business when with you and then you filing a the of out automatically in

day we in So head. have always this our had frame time XX-business

but So we what we December XXth submission -- out, always in around I would or know once put be October put somewhere they we've the it expected that there. XXth

the a is Our Harrison Global Securities. Mike Seaport with of question next follow-up from line

a of additional Just couple questions.

heard slowing that companies in China. of First auto from mentioned that a all, you number there of sales was in other we've

seem about as potential in but production little a don't quarter, impact to into can You have get some auto bit seeing just from shown your the you QX? much we for in impact talk the slowing numbers

Yes. that to there in third I some mean, slowdown expect again, in We've will be the actually experience started that quarter. we China. would

-- -- going So like it's growth much automotive any see not in quarter. our when of from for the together, we global continue fourth it's additional to in again, relatively don't but part our modest in to one we everything what it's we on automotive. put see And to expect soft, perspective see -- be but of it's going base, and customer way to our too we so

Can are with you that financing you rate there? when obviously than on where for interest And your pay maybe were view deal. expect regard to then the financing Houghton, you the rates first the to announced the on they higher update

the in Mike, I believe think it's there. we queue

X.XX% to to We rates. our based X.X% on current holding are

We in in U.S., have But from the lower debt, rates tranche remember in have in anticipated Europe. the for that LIBOR X Europe X upward the tranches seen will benefit there. movement. movement X we Obviously, rates the U.S.

that So expect. at the rates that's saying X, still range the we're when current you that would the comfortable we blend

question last for me then the Europe. And is

Can any what a product You probability maybe that detail selling on customer was? a that you large is, that mentioned had product give and to. line how or line stopped there low you it

-- was customer really was say X% that thing profitability of low in a to would is of line and Europe just had it. it and It sales I probably, it the more on that it whole some very product wasn't was a Yes, a quarter just really we in nonstrategic. close of exited,

does our bottom that So impact it was of it line much, actually not impact towards more but an that.

there Barry, questions. time, comments. further no At for I'll you to floor Mr. this back are final any the turn

thank Okay, you.

other thank all we'll our and call I Given end interest now, there's no your conference to questions, you want for today.

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

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

Thank This you. concludes teleconference. today's

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