Quaker Chemical (KWR) 10 Aug 202020 Q2 Earnings call transcript

Greetings, and welcome to the Quaker Houghton Second Quarter 2020 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 Houghton. Thank you Mr. begin. may you Barry,

everyone. morning, Good

of me in working Robert are currently our as our Accounting virtually home are today Head Hostetter, from Shane CFO; Counsel; we and Mary Chief General Officer. all and Joining Finance Hall, Traub, our

slides call. for conference our have We

at the find the world with COVID-XX pandemic. website in can great deal section of Investor XXXX You A Relations has them our in www.quakerhoughton.com. changed in the

our safety top requirements. our protect is while of continuity our business priority and customers' and us, For the to employees to customers, our our ensuring health meet

of world beat. of we continuing with All customers our am the operating a XX effort, needs. done integration customer our team the plants very all our has are to satisfying Houghton well of not servicing missed what around Quaker as are as I which proud and our has continue

with quarter XX% down second from the was second sales forma our and The year pro were consistent quarter. expectations. XX% the a first basis last our quarter Overall, on from down

XX%, expensive in shorter The Asia-Pacific I to the declines Americas were well a from had in the most Americas. businesses. a and declined shutdowns all understand sales you XX% could our impact in largest as the came decline shutdowns regions. quarter driven lasted Americas slowdown first see primarily geographically, were and large production was significant slowdowns customer EMEA The the into three than that these the customers' there was first as And as helpful it was The less and declined basis. between our COVID-XX by or do and XX% many a on this I'll next the duration is geographic impacted declined May. of customers difference where on of X%. the think regions EMEA in from impact

give the as the XX% of an first during to the talk May quarter. increase most you returned normal out net In extended we and see production X% to China did quickly. May's higher the a a also relatively industrial saw China little the customers in quarter as a to Asia. our versus improvement Again, only significant quarter sector of our sales a sales period played with increased was sequential this have during sales in levels. sequential significantly sales. we as or is continue net next June, month better India how like many monthly to sense over declined the in much Asia-Pacific improvement shutdowns months, from second of this of the due actually of several April lowest this were reduced quarter the which we was X%, I'd expect timing-wise declines more more and I'll Southeast later. And about time. conditions

prolonged the Another most way OEM customer what look sequentially at production the quarter. or primarily XX% happened in related is from with decreased the to declined and having due major significantly indicate the sequential and three shutdowns groups. to Metalworking quarterly industry first automotive sales suppliers to our quarter, trend reduced

our that other our showed these share of the declines customer were help in difficulties I or Our the despite of take specialty we global and quarter. to insight continued did in also markets. into XX%, the happening metals respectively. want market continue was what out cuts industry provide I businesses less to end point impacted current XX% different groups and of decline and sequential hope sales XX%

the in As second of to gains our had 'XX organic 'XX. share total we to of X% quarter the versus analysis sales quarter show, continues due net growth second of

gross to Turning margins.

on raw due to is the was that XXXX. fixed What The its impact of Our manufacturing apparent portion decline quarter second from volumes the margin primarily gross our our be of down is may has second the and costs. late what with quarter went margins not lower many from year last similar synergies XXXX. material ways and X% being impacts been its in approximately vast we actually in increase. through majority increased to product our This of pandemic the

Just this expenses like announced some synergy plans other were and then, been we executive Essentially, action And save last accelerated XX%. and cut well reviewed over have We on eliminated. And took actions our as costs our by importantly, were where increased in been synergy ways. we stopped expenditures pay numerous fast furloughed, we of capital we quarter, cuts situation additional all achievement. hires, guidance to planned took discretionary in implemented, very integration have as synergies our light as new possible. positions

that synergy really is negatively work impacted implementations is capture current integration answer our the XXXX, synergies impacted earlier whether synergies do credit we and other this of various our being sequential been site tremendous achieved estimate achieved this million. our our of have asked part it changes million for improvement estimate $XX our to of versus I able shutdowns, ERP environment. pandemic One amount transfers, question cost million plant is during the and we quarters. expect during this For plan. strategic integration our manufacturing In quarter, of and challenging $XX we of people hasn't future give product $XX

volume integration above in of future, strategic our with that Even and are investors and cost have positive discussed less Our have customers past something to by cut two we the the business our the our positive are further Overall, impede now in to and from platform. any planning execute including or times done years but nearly with seeing off grow in these now are service million. additional Also, tough a us have this and it in of was help experiencing. synergies, $XX was a again continue first paying the some exited have still our our not this nature develop times. we of will ongoing strategic during fortunate to tough impact, is market to execution we initiatives, are debt these offset half and integration and during better second our period we anything the execution we quarter well, good net place. we generated cash cash measure, impacts flow severe flow The while quarter, business one EBITDA in we the by ability

the we improvement. the ahead, do Looking see gradual anticipate that second of half sequential throughout we year, will

than better June than than For the our improvement April, that third. second quarter coming example, stronger we performance, the and better quarter than expect make May June continued and July better we fourth lows; saw was should gradual the third the quarter

our to to to quarter, levels our the this forecasting, on the pre-COVID-XX we to Based experienced return more we by $XXX million. do our expect be not the scenarios we in have the case. end expect business that we full-year we the of multiple than EBITDA be said to expect continue simulated adjusted However, year. Last we

it and want our to to pre-COVID nothing any significant optimistic XXXX, be our during to continue integration share about when I in our and will have our very combination improvement far are and and future changed expertise mentioned of some closing, markets critical our increases expected and with this of top forward. dedication and in volumes I is I value Overall, will going this our cash synergies, and our of I'm what to down in our complete a we our People and anniversary continuing in or as financials time forward so levels. And accomplish management higher so continue for So EBITDA ensuring still benefit Also, to is expect able versus for last liquidity key us achieve the be customers if thank to difficult differentiate us period business our team at bank has And execution, to our and in she well-being gradual just happy additional with integration colleagues create do I full cost the now us continue expect I covenant one-year safety you whose the servicing our to proud really asset from now shareholders has help quarter. us. for issues. am our valuable and to their we look end most and concludes this review and margins that for rebound the customers, and actions, projected needs, and their how are our and team have period. the be over priority for Mary We marketplace, our flow XXXX Quaker successfully our adjusted we our year. investors synergies, take from of saving everything can help and both marketplace. performed to celebrated of Quaker both and are our a In in prepared remarks, I'll to meeting all we Houghton of that my in what customers demand by continue hand not in Houghton, product and quarter about year. which our cost over proud and us for expected

Mike good you, and morning Thank all.

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

Houghton visibility pro deck this followed deck. XX-Q earnings and pro our release in and core regarding review press discussion reflect with QX presentation, in factors combination updated as a income, COVID-XX-related our certain similar and included We with the as review the our Please performance. into adjusted Form non-GAAP forma XXXX our should EBITDA in the provided certain filed we to please and our issues diluted couple provide the Form items, in better certain be been results risk our as used as including provided not XXXX core as the do of per For presented. in the statements well one believe sales address format we this calls share, with forward-looking items and factors comparison our along we of pro website. post with Form are In XX-K. Reconciliations last in that our these we excluding forma SEC. statements for adjusted operations, earnings company's of this non-GAAP information, had cautionary a effort update note operating appendix throughout which forma are our if these XX-K risk and release our periods our to also show combined operating evolving as periods an available during EBITDA the on non-GAAP in These reviewed actual those we where following well shareholders investor risks,

X So highlights. please now X some slides see review I through while

latter the in the noted, into of began half in Mike As precipitous see volumes decline March we continued to April.

We performance in it expected Mike better trough was the with meaningful and in and volumes volumes, be in slightly as performance mentioned. saw and June, April we in improvement to May, more

sales are the of in So, the in and this by Brazilian Houghton while COVID-XX peso to impact compared up forma primarily dollar. significantly of RMB QX X%, we offset impact the Norman the the our and the net saw year, is These Hay. Houghton negative decline exchange to On a Mexican pro million Norman to million of But of the actual to sales this real, prior basis, the year, Hay. last $XXX were top a negative declined significant including about line on in inclusion the $XXX Most of inclusion due on due to also partially about was of QX the XX%. impacts versus foreign volumes. due weakening

quarter, to for from which was manufacturing Our XX% down in prior on fixed gross decline we the primarily volumes the QX year in and XX.X% attribute impact of margin costs. steep the related

was Mike As approximately quarter fixed margins and synergies by on of impact realized significantly product in up which the procurement were masked meaningful manufacturing lower we costs volumes. the our mentioned, X%, our

'XX $XX.X EPS $X.XX non-GAAP to Similarly, of drag fall in the in evident the and XXXX. benefits of QX non-GAAP is compared up, million As year be and our million from our gross our of QX also line. bottom volumes last QX pick to in down The operating more from we to $XX.X $XX and sequentially. in of COVID million $X.XX $X.XX was expect visible income of margin to

current year. XX.X% of last tax rate quarter compared XX.X% in the in to was Our QX effective

credits we This quarter's an to reserves foreign Houghton elevated and adjustment primarily relating driven by adjustment related tax tax to tax with to certain audits. to an was certain rate acquired also

range XXXX all in the XX% of our the items, effective rate Excluding unusual to XX%. we tax for full expect will be year

EBITDA will adjusted $XX.X half EBITDA more roughly continue our of QX million. QX adjusted EBITDA million mentioned in our we our And Mike at As full-year our $XX.X $XXX than guidance earlier, is million. to expect line adjusted with be of

stress in decline X.X below and times our times reported picked times remaining bank bank still we We comfortably about and a EBITDA, our our basis, which the has our to With in year for as up multiple times. in Mike basis net tested on bank X.X times. leverage uncertain X.XX liquidity scenarios And calculated adjusted this mentioned is of these problem covenant covenants. support expect have no X.X with a under to strong compliance on projections

to quarter is X.X% half million. benefiting was $XX.X that In environment doubled year-to-date rate current flow at last our year the we're from flow. report first cash as XX. bright We're interest on our pleased about as compared interest March A addition, operating rate of the average spot to debt low versus $XX.X to the million cash of in our now X.X%

In the working $XX.X This cash million quarter addition, positive to our million. capital. flow due of QX is prior $XX.X primarily improved operating flow exceeded trend of cash

discussed the in where sales, crisis, model not capital in deployed stress equipment. release seeing economic majority business are in the we we've through we capital occur working plant this now. a XXXX-XXXX crisis and working capital. general cash of We is in and and very and generate property, the the it saw When As industry company the or asset-light past, has of

us reduce flexibility by we're spending combined last our mentioned about company from estimates capital low capex capex and to XX% our addition, quarter. pace initial In on as we our allows intensity in

cash As Mike realized performance synergies well quarter. mentioned, quarter. But I business was encouraged flow we're $XX as cost mentioned, tough it some of in just trends this the as the positive a in by increase and million

we million generating impact and the year, In gaining expect business of In synergies weather $XX weathering all and will is realize us economic through up cash during confidence share, summary, mitigate our ability the cost to this flow which good taken million economic help difficult in $XX the total track in our to environments storm. addition, reduction we've record the increase environment. from reductions, and downturn, tough disciplined to actions major give this cost

in you Houghton. More to in need we've you, occurs. to leverage your for importantly, activity the now, our upswing And it all positioned future Thank over business interest company when Quaker back Mike.

Mary. Thank you,

questions. open now will up We it for

from Thank Instructions] Please Jon Tanwanteng proceed Our CJS you. [Operator question. from with Securities. comes question first your

Good for morning. Thank you my taking my questions.

Good morning, Jon.

cost Mary, that have to temporary could X, the can made and of one number of you number cost and is one first maybe any making, My maybe quantify some what permanent you've be been in synergy improve, announced. if cuts savings back you those layers volumes the that incremental thus as

certainly increased a T&E include all that some we specifically did few, mentioned I to cost in COVID -- the actions but the much shut deferrals, have pay think merit off. Mike we pretty cuts, So took response situation to executive and was

we've business through this in integration the synergies changes Jon, plan in to or coming will those are view that would more and that of cost we obviously articulated. and made actions those Those as are levels that were that major those expect, costs structural are the structural We separate So type we've permanent. from resumes up our more pick as continues contributors. normal to back. come those But the

Got it.

temporary cost is So, cuts no permanent I reductions think. real from the is which

that there sure of had light of got Yes. $XX also this in we $XX increase integration between, was situation But due a this [ph], take we most as stuff and we for at Jon, million expected. let's in on to it things year is -- we more light or are were going between year harder things. and say two, of of number how next also look I million into that to the -- the most say, would look that like the of increase did than synergy for

increase that is volume into and structure. our [indiscernible] of of because some COVID So really

Got it.

just million it maybe $XXX sense. reach, next bogey changes a perspective, makes ability two, had the Any and outlook timing synergies. your just XXXX that's and results environment? just from to in in in that a plus the the -- Okay, any to call your ability given EBITDA you using And year the longer-term simply that that achieve expected current or in to level changes the

won't point, base give hard margin a in should at fully not 'XX It's 'XX. baked even we least that couple nice the this our to of probably as and -- EBITDA for next steady timing And demand point, Yes. still to will expect year come a -- growth but and The a years, at doesn't that it increase it kind increased that to end of is think to should big we level all to nice get -- predict lead we gradual synergies to exact our above-market on be then, expect demand exactly in timing improvement our popping we hard few of this with cost but at see over and a back lower increases in we in we at also as have us predict the this EBITDA. and of do year though expect in next of years. significant do that

into but affected whatever or -- pandemic Brazil, are the Americas, in or may impacted on operations that as example. about increases down increases or on, Okay, How in by expected and US thanks. QX. the for you you located be regional go talk businesses Can place? concerns for India, I your specifically, know being and you And July lock being into the and then sequential are into saw still we going just coping just finally July. sequential QX regions the there restrictions

Yes.

now. plants right All are operating of our

not a there is else while the India level very -- too countries there world. everywhere And in for hasn't general, seeing around Brazil there issues. businesses But world in disruption, and mentioned US Mexico But improvement Once much certainly in they India. pretty mentioned lower But many in many most is take the be are that you a the the seeing or been are But been. there right whether can challenging we you or a So operating. everything a everywhere us. around the a is really of now, or hasn't Americas, there that for off been example in areas ways some improving. there are we're have

Okay, it. Thank you. got

Thanks.

Our next Seaport Instructions] [Operator with proceed Securities. your question from Global Harrison with comes Mike question. Please

Hi, good morning.

Good morning.

I maybe this provide a sequential from far expected the a we've it and on seems was that you there earnings guidance wondering exposed the improvement revenues, for many like if of expectations bit your can, companies industrial in out XX% are the season of little kind Mike, in Is so range of ballpark heard year-on-year. the right revenue QX improvement? with to sequential companies where of just down be in suggesting XX% could lot the

I improvement -- the have not relative certainly chosen levels. we or a to give Yes, guidance guess to specific

only sequential million. see the and the be we that second guidance third feel than think that will EBITDA we improvement over see I So $XXX point at better comfortable will will we giving quarter quarter, is this

of in to year, we the EBITDA. first essentially, So, the if were see of over you we we were of EBITDA. expect $XX six Obviously, numbers the be million million half months, of round in kind $XXX second through where

just so only of at indicate an -- that quarters we at if and point. the want this kind could in to be are look guidance perspective, improvement from that's you sequential we So EBITDA estimate the

sequential to and would just basis revenue improvement the both that EBITDA clarify basis. And a be Okay. on

Yes.

your for inventory managing restock? products? there those and talk customer generally June them, those to some or Can restocking the generally restocking come lean levels expect we benefit manage of you are little pretty inventory think did Okay. cases or a pretty your I as that but yet some guys see of any is shouldn't to levels In customers about tightly. you bit

in mean customers of lot I do -- a a our Yes. business, our of products. lot store our not

customers' inventory was yesterday I in significantly. inventory reading be this level, ago on see and were to tends example, year United lower a if might we effect they be then for more where from like States inventories pretty car So now the the

increased with And will have because -- amount with different production. site of store so, up that if the inventory production really the that at But that better get their a back is big. they product impact customers then levels, we to customer us their not

business. wanted that aerospace? Obviously, this besides at pick slower take are Alright. is expectations going And area then to was believe you that's markets longer you're the up. into you some that year that there under to even I that facing ask Are where and the be aerospace looking recovery an back that coming trajectory a pressure to about other could

No.

I example would would the to that normal. most the aerospace come the a think be have time back of been market of an -- to

Aerospace right. our X% of up around makes quarter, it's You're sales, this sales. our of X% in actually

gives the of it. magnitude you that So

aerospace impacted our last been it at you due have of revenue the that from quarter saw of drop -- we the we that X% was of XX%. to year quarter So impact by the second if look -- in

to that. agree don't the So, I that's as that impacted most but are we going impacted, everything other as have any said, be do I think markets you

where go recover that you've we've flip packaging. resilient that guys bit the be cans. seen aluminum bright about, some to talk can a you you that spot to little on that, or for more Has you of these exposure been areas some side a you? Then are through heard other have metal maybe markets I Can canning more of or shortages know quickly? there

good a really can as not think pretty I example one much. growth has is a area characteristics good of impacted Yes, as -- great that or does

above definitely on like I I -- growth that tied market industrial excited the characteristics toward forth agree more type that die A overall, But we we're of think are our areas of lot definitely have so other more about. So, we you type like in definitely of sectors have course, things that with of casting general other automotive. initiatives that. say I would and other of generally things have

price question be front. seeing Alright. was lower sustainable are metalworking businesses. pricing year-on-year? segments versus And in the on as you to looks It regional the I the is that material have metals costs within mix Is like then last those raw raw positive material presumably and continuing

a would and Yes, mix, perspective price we, said material say like you right. raw from I its and

So of it's hard -- say case, have a I that wouldn't been maybe lot would -- in that I mix. might

So view right the our year issues the from the flat pricing quarter overall you quarter And flat it in at material quarter forward, perspective. now, from when first raw I a look expect half relatively don't as well. be any the and second is major the relatively to -- it second environment from to look in second was it as that we're flat, we of we relatively

regard. don't in I see really So that much change

Alright, good. Thanks very sounds much.

Thanks, Mike.

for There in closing further Mr. the Instructions]. turn comments. Barry queue no call time, [Operator over questions are back at I like to to this would

Okay.

end our all no you we'll other that your want interest call thank now. for questions I conference of to Given And today.

next third in Quaker call be the for please Mary to any the if Houghton. Our And you, Thank November. have questions again, in your meantime, you or quarter contact will in feel myself. for free early interest conference

Thank conclude does today's you. This teleconference.

at your a time, this great You may disconnect lines have day. and