Quaker Chemical Corporation Announces First Quarter 2010 Results

CONSHOHOCKEN, Pa., April 27 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR) today announced first quarter 2010 net sales of $128.3 million and earnings per diluted share of $0.84, compared to net sales of $98.5 million and breakeven results for the first quarter of 2009.  The first quarter 2010 results include a tax benefit of approximately $0.11 per diluted share reflecting the expiration of applicable statutes of limitations for several uncertain tax positions.  

Michael F. Barry, Chairman, Chief Executive Officer and President, commented, "Our strong first quarter results were driven by high steel industry demand in China, Brazil, India and Russia while industrial demand in North America and Europe continues to gradually recover from depressed levels.  In addition, the aggressive actions we have taken over the past year and an unusually low tax rate also contributed to these results."  

Mr. Barry added, "While we continue to pick up new business and will benefit from continued improvement in key steel and automotive markets, we do anticipate somewhat lower product volume in the second half of the year compared with the first half.  This is primarily due to credit-tightening actions in China, seasonal factors relating to the timing of shipments to certain customers, the ending of inventory restocking in our end-use markets and the conclusion of tax incentives for automotive purchases in several countries.  The combination of somewhat lower expected demand in the second half, the lag effects as we recover our margins due to the higher raw material costs and our continued investment in key growth initiatives will likely dampen earnings over the remaining quarters for 2010.  However, we expect to deliver strong earnings over the rest of 2010 as the remaining quarters are still expected to equal or exceed the earnings we achieved in 2008 before the global crisis began.  In summary, I am confident in our future given that we are well positioned in the fastest growing economies as well as the above normal growth we expect in the more mature markets as they recover over the next few years."  

First Quarter 2010 Summary

Net sales for the first quarter were $128.3 million, up 30% from $98.5 million for the first quarter of 2009.  The increase in net sales was a result of higher volumes across the globe as the Company continues to recover from the economic downturn.  Product volumes increased 35%, partially offset by a 5% decline in selling price and mix.  Foreign exchange rates increased revenues by approximately 7%, which was offset by lower automotive chemical management services ("CMS") revenue as a result of lower revenue reported on a gross basis.  On a sequential quarterly basis, product volumes increased by approximately 3%.  

The gross margin percentage of 36.9% represents considerable improvement over the 29.1% reported in the first quarter of 2009.  This margin expansion was primarily the result of cost reduction actions taken, a more favorable raw material cost environment and the reduced automotive CMS revenues reported on a gross basis.  The increase in gross margin percentage from the fourth quarter of 2009 was due to reduced CMS revenues reported on a gross basis, partially offset by higher costs related to the start-up of the Middletown, Ohio plant expansion, as well as increasing raw material prices and mix.  

Selling, general and administrative expenses increased $7.0 million, or 26%, compared to the first quarter of 2009.  Higher incentive compensation in the first quarter of 2010, compared to reductions of incentive compensation accruals in the first quarter of 2009 and foreign exchange rate increases, were the primary drivers of the increase, representing 82% of the increase.  Higher commissions on improved sales and increased travel and other costs accounted for the remainder of the increase.  

In the first quarter of 2009, the Company implemented a restructuring program totaling $2.3 million or approximately $0.14 per diluted share.  The Company completed the initiatives under this program during 2009.  

The decrease in other income is primarily due to the first quarter 2009 gain related to the disposition of land in Europe of approximately $0.11 per diluted share.  Equity in net loss of associated companies includes a charge of approximately $0.03 per diluted share related to the first quarter 2010 devaluation of the Venezuelan Bolivar Fuerte.  The increase in net income attributable to noncontrolling interests is due to stronger financial performances from those affiliates as they continue to recover from the global economic downturn.  

The Company's low first quarter 2010 effective tax rate of 24% reflects the expiration of applicable statutes of limitations for several uncertain tax positions of approximately $0.11 per diluted share.  The tax benefit recorded in the first quarter of 2009 reflects no tax provided for the land sale gain due to the utilization of net operating losses not previously benefited.  The Company has experienced and expects to experience further volatility in its quarterly 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.  However, the Company expects a higher effective tax rate for the full year 2010 as compared to the first quarter 2010 rate.

Balance Sheet and Cash Flow Items

The Company's net debt-to-total-capital ratio improved to 24% as of March 31, 2010, compared to 31% as of March 31, 2009.  Debt increased from December 31, 2009 due to higher working capital as a result of improved business activity, as well as the timing of payments related to incentive compensation.  

Forward-Looking Statements

This release contains forward-looking statements that 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 the Company's demand is largely derived from the demand for its customers' products, which subjects the Company 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, and future terrorist attacks such as those that occurred on September 11, 2001.  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 first quarter results is scheduled for April 28, 2010 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 http://www.quakerchem.com.  You can also access the conference call by dialing 877-269-7756.  

About Quaker

Quaker Chemical Corporation is a leading global provider of process chemicals, chemical specialties, services, and technical expertise to a wide range of industries – including steel, automotive, mining, aerospace, tube and pipe, coatings and construction materials.  Our products, technical solutions and chemical management services enhance our customers' processes, improve their product quality and lower their costs.  Quaker's headquarters is located near Philadelphia in Conshohocken, Pennsylvania.  

SOURCE Quaker Chemical Corporation