Quaker Chemical Announces Fourth Quarter And Full Year 2015 Results

- Operating results drive quarterly increase of 6% in adjusted EBITDA despite negative impacts of foreign exchange and lower global steel production

- Fourth quarter restructuring program expected to deliver meaningful savings beginning in 2016

- Strong quarterly cash flow leads to a 34% increase in full year operating cash flow to $73 million

Feb 25, 2016, 16:20 ET from Quaker Chemical Corporation

CONSHOHOCKEN, Pa., Feb. 25, 2016 /PRNewswire/ -- Quaker Chemical Corporation (NYSE: KWR) today announced net sales of $183.3 million for the fourth quarter of 2015 compared to $194.0 million for the fourth quarter of 2014 and full year net sales of $737.6 million for 2015 compared to $765.9 million for 2014.  The decreases in net sales for the fourth quarter and full year 2015 were both driven by the negative impact of foreign currency translation of $12.4 million, or approximately 7%, and $53.6 million, or 7%, respectively, which more than offset volume and acquisition-related growth that the Company achieved despite challenging market conditions. 

Earnings per diluted share decreased from $0.95 in the fourth quarter of 2014 to $0.86 for the fourth quarter of 2015, primarily due to restructuring expenses of $6.8 million, or $0.36 per diluted share, related to a global restructuring program that the Company initiated in the fourth quarter of 2015.  Excluding these restructuring expenses and other uncommon items, the Company's non-GAAP earnings per diluted share increased 16% to $1.16 for the fourth quarter of 2015 compared to $1.00 for the fourth quarter of 2014, despite the negative impact of foreign exchange of $0.05 per diluted share, or 5%, and lower global steel production.  The Company's adjusted EBITDA increased 6% to $25.3 million for the fourth quarter of 2015 from $23.8 million in the fourth quarter of 2014.  Full year 2015 earnings per diluted share were $3.84 compared to $4.26 for 2014, with non-GAAP earnings per diluted share increasing 4% to $4.43 for 2015 compared to $4.26 for 2014.  The Company was able to achieve this full year non-GAAP earnings growth despite the negative impact of foreign exchange of $0.31 per diluted share, or 7%, and a decline in full year global steel production.  As a result of this non-GAAP earnings growth, the Company's adjusted EBITDA increased 2% to $101.6 million for 2015 compared to $99.8 million in 2014. 

Michael F. Barry, Chairman, Chief Executive Officer and President commented, "We are pleased to have delivered another quarter of solid earnings and strong cash flow despite a variety of market challenges.  Foreign exchange headwinds continued to have the most significant negative impact on our sales and earnings and we were also challenged by global steel industry production being down over 4%. In addition, we are seeing continued weak economic conditions in several regions, especially in South America.  Our sales also continued to be impacted by downward price adjustments due to lower raw material costs.  Despite these market challenges, we were able to increase our non-GAAP earnings and adjusted EBITDA through additional market share gains and margin expansion."

Mr. Barry continued, "2015 was the sixth consecutive year of non-GAAP earnings and adjusted EBITDA growth.  Looking forward, we see various headwinds that include continued uncertain economic conditions in South America and China, a strong U.S. dollar and further pricing impacts to adjust to a lower raw material cost environment.  However, we remain committed to our strategy and believe our ability to continue to take market share and leverage our acquisitions will help offset these market challenges. In addition, the restructuring program we implemented in late 2015 stands to improve our SG&A leverage and yield meaningful savings, as early as the middle of 2016.  Our 2016 plans indicate growth in both the top and bottom lines despite currency headwinds.  Overall, I continue to remain confident in our future and expect 2016 to be another good year for Quaker, as we expect to increase non-GAAP earnings and adjusted EBITDA for the seventh consecutive year."

Fourth Quarter of 2015 Summary

Net sales for the fourth quarter of 2015 were $183.3 million compared to net sales of $194.0 million for the fourth quarter of 2014.  The decrease in net sales was primarily due to the negative impact of foreign currency translation of $12.4 million, or approximately 7%, and declines in selling price and product mix of 3%, which collectively offset a 4% increase in product volume, including sales from acquisitions.

Gross profit for the fourth quarter of 2015 decreased $0.8 million from the fourth quarter of 2014 due to the decrease in net sales noted above.  This decrease was partially offset by an expansion of gross margin to 37.5% for the fourth quarter of 2015 compared to 35.9% for the fourth quarter of 2014, mainly due to the timing of certain raw material cost decreases in the fourth quarter of 2015 compared to the fourth quarter of 2014. 

Selling, general and administrative expenses ("SG&A") decreased $4.3 million in the fourth quarter of 2015 as compared to the fourth quarter of 2014 due to the net impact of several factors, including the impact of foreign currency translation, lower labor-related costs, a decrease in professional fees, and a fourth quarter of 2014 charge for a cost streamlining initiative in South America.  These decreases to SG&A were partially offset by incremental costs associated with the Company's recent acquisitions. 

The Company had restructuring expenses of $6.8 million related to a global restructuring program initiated during the fourth quarter of 2015.  Specifically, this program includes restructuring and associated costs to reduce total headcount by approximately 65 people globally and to close certain non-manufacturing locations.  The Company expects to substantially complete this program in 2016, and currently projects pre-tax cost savings as a result of this program to be approximately $3 million in 2016 and approximately $6 million annually in subsequent years. 

Other income, interest expense and interest income were relatively flat in the fourth quarter of 2015 compared to the fourth quarter of 2014.  The Company had slightly higher interest expense on increased average borrowings outstanding and slightly lower third party license fees in the fourth quarter of 2015 as compared to the fourth quarter of 2014.      

The Company's effective tax rates for the fourth quarters of 2015 and 2014 were 16.5% and 28.5%, respectively.  The primary contributors to the decrease in the fourth quarter of 2015 effective tax rate were accelerated recognition of certain tax-related credits in 2015 due to changes in local tax regulations, adjustments in the fourth quarter of 2015 related to previous years' tax estimates, and the mix of earnings between higher and lower tax jurisdictions.

Equity in net income of associated companies ("equity income") was relatively consistent in the fourth quarter of 2015 compared to the fourth quarter of 2014.  The Company had lower equity income from its Venezuela affiliate in the fourth quarter of 2015 due to a first quarter of 2015 currency devaluation, which was partially offset by higher equity income from the Company's interest in a captive insurance company.     

The Company had a $0.2 million increase in net income attributable to noncontrolling interest in the fourth quarter of 2015 compared to the fourth quarter of 2014, primarily due to improved performance at its India affiliate.

During the fourth quarter of 2015, the Company recognized $0.2 million of earnings, or $0.02 per diluted share, related to its July 2015 acquisition of Verkol S.A. ("Verkol"), which was net of initial adjustments related to fair value accounting and diligence-related costs. 

Changes in foreign exchange rates negatively impacted the Company's fourth quarter of 2015 net income by approximately 5%, or $0.05 per diluted share. 

Year-to-Date 2015 Summary

Net sales for 2015 were $737.6 million compared to net sales of $765.9 million for 2014.  The decrease in net sales was primarily due to the negative impact of foreign currency translation of $53.6 million, or 7%, and declines in selling price and product mix of 1%, which collectively offset a 4% increase in product volume, including sales from acquisitions.

Gross profit for 2015 increased $3.8 million, or 1%, compared to 2014, driven by an expansion of gross margin to 37.6% for 2015 compared to 35.7% for 2014, partially offset by the negative impact of foreign currency translation.  The increase in gross margin was mainly due to the timing of certain raw material cost decreases in 2015 compared to 2014.

The increase in SG&A for 2015 of $3.1 million from 2014 was due to the net impact of several factors, including higher overall labor-related costs and incremental costs associated with the Company's recent  acquisitions, including $2.8 million of one-time transaction-related expenses incurred with the Company's third quarter of 2015 Verkol acquisition. These increases to SG&A were partially offset by decreases from foreign currency translation, a first quarter of 2014 cost related to an amendment to the Company's pension plan in the United Kingdom ("U.K."), and lower year-over-year charges related to cost streamlining initiatives in South America.  

The Company had restructuring expenses of $6.8 million in 2015, noted above, related to a global restructuring program initiated in the fourth quarter of 2015.  There were no analogous restructuring expenses incurred in the prior year.

Other income for 2015 decreased $0.8 million compared to 2014.  The decrease was primarily due to lower receipts of annual government-related grants in one of the Company's regions, higher foreign exchange transaction losses, and lower third party license fees during 2015 compared to 2014.

Interest expense was $0.2 million higher in 2015 compared to 2014, primarily due to higher average borrowings outstanding during 2015 due to the Company's recent acquisition activity.  Interest income was $0.9 million lower in 2015 compared to 2014, primarily due to a decrease in the level of the Company's invested cash in certain regions with higher returns and interest received on certain tax-related credits in 2014. 

The Company's effective tax rates for 2015 and 2014 were 25.3% and 30.1%, respectively.  The primary contributors to the decrease in the 2015 effective tax rate were the mix of earnings between higher and lower tax jurisdictions in 2015, accelerated recognition of certain tax-related credits in 2015 due to changes in local tax regulations, adjustments in 2015 related to previous years' tax estimates, and certain one-time items that inflated the 2014 effective tax rate.  Going into 2016, we expect the full year effective tax rate will increase to between 28% and 30%.  In addition, the Company expects its quarterly effective tax rates will be higher in the first three quarters of 2016, similar to the 2013 quarterly effective tax rate trend, as the Company will book earnings in one of its subsidiaries at the statutory tax rate of 25% while it awaits recertification of a concessionary 15% tax rate.  We currently estimate our first quarter of 2016 effective tax rate will be between 31% and 33%. 

Equity income for 2015 decreased $3.3 million compared to 2014.  The decrease was primarily due to a first quarter of 2015 currency conversion charge recorded at the Company's Venezuela affiliate.  Due to changes in Venezuela's foreign exchange markets and currency controls, the Company re-assessed its Venezuela affiliate's access to U.S. dollars and its ability to import or trade under the existing foreign exchange markets in the first quarter of 2015, which resulted in the 2015 charge.  This was partially offset by a similar currency charge related to the conversion of Venezuelan bolivar fuerte to the U.S. dollar recorded during the second quarter of 2014.  In addition, the Company had lower equity income from its interest in a captive insurance company during 2015 compared to 2014. 

The $0.3 million decrease in net income attributable to noncontrolling interest in 2015 compared to 2014 was primarily due to the Company's June 2014 acquisition of the noncontrolling interest in its Australia affiliate. 

Excluding the one-time transaction-related expenses mentioned above, the Company recognized a minimal impact to net income from its 2015 Verkol acquisition, as its operating results were offset by normal acquisition-related costs and initial adjustments related to fair value accounting. 

Changes in foreign exchange rates, excluding the currency conversion impacts of the Venezuelan bolivar fuerte noted above, negatively impacted the Company's 2015 net income by approximately 7%, or $0.31 per diluted share.

Balance Sheet and Cash Flow Items

The Company's net operating cash flow of $22.6 million for the fourth quarter of 2015 increased its full year net operating cash flow to $73.4 million compared to $54.7 million for 2014.  The full year increase of $18.7 million, or 34%, in net operating cash flow was driven by strong operating performance and lower cash invested in the Company's working capital during 2015.  Most notably, changes in accounts receivables improved year-over-year due to the levels of sales at each year-end and improvements in timing of cash receipts.  During 2015, the Company repurchased approximately 87,000 shares of its common stock for $7.3 million, pursuant to the share repurchase program announced in May of 2015.  The Company has continued these share repurchases during the first quarter of 2016, with repurchases of approximately 84,000 shares at an average price of $69.8 per share for approximately $5.9 million to date.  Overall, the Company's liquidity remains strong, with net debt of $1.0 million and a consolidated leverage ratio of less than one times EBITDA.

Non-GAAP Measures

Included in this public release are non-GAAP (unaudited) financial measures of non-GAAP earnings per diluted share and adjusted EBITDA.  The Company believes these non-GAAP financial measures provide meaningful supplemental information as they enhance a reader's understanding of the financial performance of the Company, are more indicative of future operating performance of the Company, and facilitate a better comparison among fiscal periods, as the non-GAAP financial measures exclude items that are not considered core to the Company's operations.  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 are reconciliations between the non-GAAP (unaudited) financial measures of non-GAAP earnings per diluted share and adjusted EBITDA to their most directly comparable GAAP financial measures:

 

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2015

2014

2015

2014

GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders

$   0.86

$   0.95

$   3.84

$   4.26

Equity income in a captive insurance company per diluted share

(0.07)

(0.02)

(0.16)

(0.18)

Restructuring expenses per diluted share

0.36

0.36

Verkol transaction-related expenses per diluted share

0.15

U.K. pension plan amendment per diluted share

0.05

Customer bankruptcy costs per diluted share

0.01

0.03

0.02

0.05

Cost streamlining initiatives per diluted share

0.04

0.01

0.06

Currency conversion impact of the Venezuelan bolivar fuerte per diluted share

0.21

0.02

Non-GAAP earnings per diluted share

$   1.16

$   1.00

$   4.43

$   4.26

 

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2015

2014

2015

2014

Net income attributable to Quaker Chemical Corporation

$ 11,393

$ 12,639

$ 51,180

$ 56,492

Depreciation and amortization

4,979

4,723

19,206

16,631

Interest expense

694

624

2,585

2,371

Taxes on income before equity in net income of associated companies

2,161

4,731

17,785

23,539

Equity income in a captive insurance company

(857)

(270)

(2,078)

(2,412)

Restructuring expenses

6,790

6,790

Verkol transaction-related expenses

2,813

U.K. pension plan amendment

902

Customer bankruptcy costs

149

515

328

825

Cost streamlining initiatives

818

173

1,166

Currency conversion impact of the Venezuelan bolivar fuerte

2,806

321

Adjusted EBITDA

$ 25,309

$ 23,780

$ 101,588

$ 99,835

 

Forward-Looking Statements

This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such statements.  A major risk is that demand for the Company's products and services is largely derived from the demand for its customers' products, which subjects the Company to uncertainties related to downturns in a customer's business and unanticipated customer production shutdowns.  Other major risks and uncertainties include, but are not limited to, significant increases in raw material costs, customer financial stability, worldwide economic and political conditions, foreign currency fluctuations, future terrorist attacks and other acts of violence.  Other factors could also adversely affect us.  Therefore, we caution you not to place undue reliance on our forward-looking statements.  This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995. 

Conference Call

As previously announced, Quaker Chemical's investor conference call to discuss the fourth quarter and full year 2015 results is scheduled for February 26, 2016 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 website at http://www.quakerchem.com.  You can also access the conference call by dialing 877-269-7756. 

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.

 

Quaker Chemical Corporation 

Consolidated Statements of Income

(Dollars in thousands, except per share data)

Three Months Ended December 31, 

Twelve Months Ended December 31,

2015

2014

2015

2014

Net sales 

$            183,275

$            194,033

$            737,555

$            765,860

Cost of goods sold 

114,509

124,457

460,515

492,654

Gross profit

68,766

69,576

277,040

273,206

%

37.5%

35.9%

37.6%

35.7%

Selling, general and administrative expenses

48,753

53,091

198,990

195,850

Restructuring and related activities

6,790

-

6,790

-

Operating income

13,223

16,485

71,260

77,356

%

7.2%

8.5%

9.7%

10.1%

Other income (expense), net 

28

209

(69)

767

Interest expense

(694)

(624)

(2,585)

(2,371)

Interest income

507

551

1,624

2,541

Income before taxes and equity in net income of associated companies

13,064

16,621

70,230

78,293

Taxes on income before equity in net income of associated companies

2,161

4,731

17,785

23,539

Income before equity in net income of associated companies

10,903

11,890

52,445

54,754

Equity in net income of associated companies

949

1,037

261

3,543

Net income

11,852

12,927

52,706

58,297

Less: Net income attributable to noncontrolling interest

459

288

1,526

1,805

Net income attributable to Quaker Chemical Corporation

$              11,393

$              12,639

$              51,180

$              56,492

%

6.2%

6.5%

6.9%

7.4%

Per share data:

Net income attributable to Quaker Chemical Corporation Common Shareholders - basic

$                   0.86

$                   0.95

$                   3.84

$                   4.27

Net income attributable to Quaker Chemical Corporation Common Shareholders - diluted

$                   0.86

$                   0.95

$                   3.84

$                   4.26

 

Quaker Chemical Corporation 

Consolidated Balance Sheets

(Dollars in thousands, except par value and share amounts)

December 31, 

2015

2014

ASSETS

Current assets 

Cash and cash equivalents 

$              81,053

$              64,731

Accounts receivable, net 

188,297

189,484

Inventories, net

75,099

77,708

Current deferred tax assets

7,822

8,367

Prepaid expenses and other current assets 

13,582

11,228

Total current assets 

365,853

351,518

Property, plant and equipment, net

87,619

85,763

Goodwill 

79,111

77,933

Other intangible assets, net 

73,287

70,408

Investments in associated companies 

20,354

21,751

Non-current deferred tax assets

27,071

24,411

Other assets 

32,218

33,742

Total assets 

$            685,513

$            665,526

LIABILITIES AND EQUITY

Current liabilities 

Short-term borrowings and current portion of long-term debt 

$                    662

$                    403

Accounts payable

67,291

74,987

Dividends payable

4,252

3,990

Accrued compensation 

19,166

19,853

Accrued restructuring

6,303

-

Accrued pension and postretirement benefits

1,144

1,239

Current deferred tax liabilities

41

732

Other current liabilities 

25,696

23,697

Total current liabilities 

124,555

124,901

Long-term debt 

81,439

75,328

Non-current deferred tax liabilities

15,003

8,584

Non-current accrued pension and postretirement benefits

40,689

46,088

Other non-current liabilities 

42,584

45,490

Total liabilities 

304,270

300,391

Equity

Common stock, $1 par value; authorized 30,000,000 shares; issued and outstanding 2015 - 13,288,113 shares; 2014 - 13,300,891 shares

13,288

13,301

Capital in excess of par value 

106,333

99,056

Retained earnings 

326,740

299,524

Accumulated other comprehensive loss 

(73,316)

(54,406)

Total Quaker shareholders' equity 

373,045

357,475

Noncontrolling interest

8,198

7,660

Total equity 

381,243

365,135

Total liabilities and equity 

$            685,513

$            665,526

 

Quaker Chemical Corporation 

Consolidated Statements of Cash Flows 

(Dollars in thousands)

Twelve Months Ended December 31,

2015

2014

Cash flows from operating activities 

Net income

$              52,706

$              58,297

Adjustments to reconcile net income to net cash provided by operating activities: 

Depreciation 

12,395

12,306

Amortization 

6,811

4,325

Equity in undistributed earnings of associated companies, net of dividends 

578

(3,180)

Deferred income taxes

(2,401)

1,007

Uncertain tax positions (non-deferred portion)

(1,122)

(1,256)

Deferred compensation and other, net 

14

3,174

Stock-based compensation 

5,919

5,309

Restructuring and related activities

6,790

-

Gain on disposal of property, plant and equipment and other assets

(12)

(86)

Insurance settlement realized 

(760)

(1,907)

Pension and other postretirement benefits

2,591

1,265

(Decrease) increase in cash from changes in current assets and current liabilities, net of acquisitions: 

Accounts receivable

(188)

(24,944)

Inventories 

1,292

(5,484)

Prepaid expenses and other current assets 

(721)

2,003

Accounts payable and accrued liabilities 

(9,040)

2,999

Change in restructuring liabilities 

(490)

-

Estimated taxes on income

(930)

862

Net cash provided by operating activities 

73,432

54,690

Cash flows from investing activities 

Investments in property, plant and equipment

(11,033)

(13,052)

Payments related to acquisitions, net of cash acquired

(24,058)

(73,527)

Proceeds from disposition of assets

135

201

Insurance settlement interest earned

35

44

Change in restricted cash, net 

725

1,863

Net cash used in investing activities 

(34,196)

(84,471)

Cash flows from financing activities 

Proceeds from long-term debt 

6,163

58,771

Repayment of long-term debt 

(477)

(1,368)

Dividends paid 

(16,513)

(14,562)

Stock options exercised, other

1,048

804

Payments for repurchase of common stock

(7,276)

-

Excess tax benefit related to stock option exercises

384

453

Purchase of noncontrolling interest in affiliates, net

-

(7,422)

Payment of acquisition-related liabilities

(226)

(4,709)

Distributions to noncontrolling affiliate shareholders

-

(1,806)

Net cash (used in) provided by financing activities 

(16,897)

30,161

Effect of exchange rate changes on cash 

(6,017)

(4,141)

Net increase (decrease) in cash and cash equivalents 

16,322

(3,761)

Cash and cash equivalents at the beginning of the period 

64,731

68,492

Cash and cash equivalents at the end of the period

$              81,053

$              64,731

 

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SOURCE Quaker Chemical Corporation



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