Quaker Chemical Announces Record Quarterly Sales
CONSHOHOCKEN, Pa., Oct 30, 2003 /PRNewswire-FirstCall via COMTEX/ -- For its third quarter, Quaker Chemical Corporation (NYSE: KWR) today announced record quarterly sales of $89.7 million and earnings per diluted share of $0.42, a 17% increase over the second quarter of 2003 earnings per diluted share.
Third Quarter Summary
Net income for the third quarter was $4.1 million versus $4.3 million for the third quarter of 2002, or $0.42 per diluted share versus $0.45 per diluted share in the prior year period. On a sequential basis, third quarter net income increased 19% over the second quarter's net income of $3.5 million.
Net sales for the third quarter were a record $89.7 million, up 22% from $73.3 million for the third quarter 2002. Foreign exchange rate translation and the Company's 2003 acquisitions favorably impacted net sales by $4.8 million and $1.3 million, respectively. Third quarter sales also include approximately $9.7 million from the Company's recently awarded chemical management services (CMS) contracts, which were effective May 1, 2003. The remaining part of the net sales increase of approximately 1% is primarily due to double-digit growth in the Asia Pacific and South America regions offset by a decline in business in the U.S.
Gross margin as a percentage of sales declined from 40.1% for the third quarter of 2002 to 34.3% for the third quarter of 2003. As previously disclosed, the Company's new CMS contracts have caused different relationships between margins and revenue than in the past. At the majority of current CMS sites, the Company effectively acts as an agent and records revenue and costs from these sales on a net sales or "pass-through" basis. The new CMS contracts have a different structure, which results in the Company recognizing in reported revenue the gross revenue received from the CMS site customer and in cost of goods sold, the third party product purchases, which substantially offset each other. The negative impact to gross margin for the third quarter related to the new CMS contracts is approximately 4 percentage points. The remaining decline in gross margin as a percentage of sales is due to increased raw material costs, as well as product and regional sales mix. The Company continues to expect raw material prices to remain at these levels in the near term due to sustained high oil prices.
Selling, general and administrative expenses for the quarter increased $1.8 million or 8% compared to the third quarter of 2002. Approximately $1.4 million of the increase is due to foreign exchange rates and the Company's 2003 acquisitions. Increases in other expenses, including pension and the Company's continued rollout of its global ERP system, were largely offset by reduced incentive compensation expense.
Other income was lower primarily due to foreign exchange gains in 2002 as a result of the weakening of the Brazilian real and its impact on the U.S. dollar denominated cash balances in Brazil.
The year-to-date effective tax rate was reduced to 30% in the third quarter primarily due to the Company's favorable settlement of several outstanding tax audits and appeal issues.
Ronald J. Naples, Chairman and Chief Executive Officer, stated, "Though our overall earnings level is consistent with our previous guidance, we continue to see softer than expected demand for our products and services to the steel industry in the U.S. and Europe. In the third quarter, this was somewhat offset by significant growth in our Brazilian and South American markets, lower overall tax rates, and lower incentive compensation. In addition, we continue to be negatively impacted by higher raw material prices primarily due to continued high crude oil prices."
Mr. Naples continued, "While we continue to see short-term challenges in front of us, we are also making significant strides with our key strategic initiatives. In 2003, we have now made three tight-fit acquisitions, including the recently announced acquisition of the Cincinnati-Vulcan steel business. All of these acquisitions bring key customer relationships and product technology, enabling us to enhance our already strong market positions. In addition, all three are expected to be slightly accretive to earnings in the short term and more significant profit contributors longer term. Also, we continue to grow our CMS business and have recently been awarded another two major auto CMS sites that are in addition to the seven new sites we started up in May. And finally, during the last 12 months we have implemented our global ERP system at four of our largest sites in Holland, Spain, and the U.S. We believe all of the above initiatives are key steps in helping us achieve our longer-term business strategies."
Net income for the first nine months of the year was $10.7 million versus $9.9 million in the first nine months of 2002. Earnings per diluted share increased 6% to $1.11 versus $1.05 in the first nine months of 2002.
Net sales for the first nine months of the year increased to $246.5 million, up 22% from $202.7 million for the first nine months of 2002. Foreign exchange rate translation and timing of the Company's 2002 and 2003 acquisitions favorably impacted net sales by $11.1 million and $9.5 million, respectively. Net sales for the first nine months of the year also include approximately $17.1 million from the Company's new CMS contracts. The remaining part of the net sales increase of approximately 3% is primarily due to double-digit growth in the Asia Pacific and South America regions offset by a decline in business in the U.S.
Gross margin as a percentage of sales declined from 40.8% for the first nine months of 2002 to 35.7% for the first nine months of 2003. The Company's new CMS contracts negatively impacted gross margin for the first nine months of 2003 by approximately 3 percentage points with the remaining decline due to increased raw material costs, as well as product and regional sales mix.
Selling, general and administrative expenses for the first nine months of 2003 increased $4.4 million from the first nine months of 2002. $4.3 million of the increase is due to foreign exchange rates and the Company's acquisitions. The remainder of the increase is primarily due to higher pension costs and the Company's continued implementation of its global ERP system partially offset by reduced incentive compensation expense.
Balance Sheet and Cash Flow items
The Company's debt to total capital ratio remains strong at 31% at the end of September, 2003 compared to 25% at the end of 2002 and 35% at the end of September, 2002. As of the end of September 2003, the Company had approximately $26 million outstanding on its credit lines, which have a maximum borrowing capacity of $50 million.
As previously disclosed, the Company received $4.2 million of priority cash distributions from its real estate joint venture in the first half of 2003. In addition, the higher accounts receivable at the end of September 2003 is primarily due to the increased sales attributable to the Company's new CMS contracts, foreign exchange rate changes and higher sales volumes.
Mr. Naples stated, "We do expect to see some pickup in business volumes in the fourth quarter primarily due to market share gains. However, this expectation is tempered by what we still see as significant demand uncertainty in many of our key markets for the fourth quarter as well as into next year. For example, we are getting signals that some of our customers may take longer than normal shutdowns in December. While our visibility is not clear, the net of all this is that we continue to estimate that our fourth quarter earnings will be similar to the third quarter. Despite the near-term struggles for earnings growth, we are confident that the strategic steps we have taken this year, as well as our strong balance sheet and dividend yield, put us in an excellent long-term position to continue to build our business, and hence, enable us to continue to create significant long-term value for both our customers and shareholders."
Quaker Chemical Corporation, headquartered in Conshohocken, Pennsylvania, is a worldwide developer, producer, and marketer of custom-formulated chemical specialty products and a provider of chemical management services for manufacturers around the globe, primarily in the steel and automotive industries.
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 uncertainties related to downturns in a customer's business and unanticipated customer production planning curtailments. 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.
As previously announced, Quaker Chemical's investor conference call to discuss third quarter results is scheduled for October 31, 2003 at 10:00 a.m. (ET). Access the conference by calling 800-922-0755 or visit Quaker's Web site at www.quakerchem.com for a live webcast.
Quaker Chemical Corporation Condensed Consolidated Statement of Income For the period ended September 30, Unaudited Dollars in thousands, except per share data Third Quarter Nine Months 2003 2002 2003 2002 Net Sales $89,713 $73,268 $246,503 $202,652 Cost of goods sold 58,928 43,869 158,405 119,934 Gross margin 30,785 29,399 88,098 82,718 % 34.3% 40.1% 35.7% 40.8% Selling, general and administrative 24,459 22,697 70,367 66,000 Operating income 6,326 6,702 17,731 16,718 % 7.1% 9.1% 7.2% 8.2% Other income, net 295 942 830 1,194 Interest expense, net (240) (469) (614) (747) Income before taxes 6,381 7,175 17,947 17,165 Taxes on income 1,683 2,296 5,384 5,493 4,698 4,879 12,563 11,672 Equity in net income of associated companies 215 130 470 314 Minority interest in net income of subsidiaries (777) (720) (2,315) (2,103) Net income $4,136 $4,289 $10,718 $9,883 % 4.6% 5.9% 4.3% 4.9% Per share data: Net income - basic $0.44 $0.47 $1.15 $1.08 Net income - diluted $0.42 $0.45 $1.11 $1.05 Shares Outstanding: Basic 9,410,675 9,222,050 9,335,628 9,149,337 Diluted 9,856,783 9,453,208 9,687,346 9,433,279 Quaker Chemical Corporation Condensed Consolidated Balance Sheet Unaudited (Dollars in thousands) September 30, December 31, 2003 2002 ASSETS Current Assets Cash and cash equivalents $17,981 $13,857 Accounts receivable, net 73,953 53,353 Inventories Raw materials and supplies 14,619 11,342 Work-in-process and finished goods 15,742 12,294 Prepaid expenses and other current assets 12,214 12,827 Total current assets 134,509 103,673 Property, plant and equipment, at cost 129,739 113,207 Less accumulated depreciation 72,650 64,695 Net property, plant and equipment 57,089 48,512 Goodwill 28,890 21,927 Other intangible assets 6,290 5,852 Investments in associated companies 5,736 9,060 Deferred income taxes 10,571 10,609 Other assets 15,734 14,225 Total assets $258,819 $213,858 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings and current portion of long-term debt $28,991 $12,205 Accounts and other payables 35,420 29,423 Accrued compensation 7,317 10,254 Other current liabilities 15,326 14,262 Total current liabilities 87,054 66,144 Long-term debt 18,222 16,590 Deferred income taxes 1,744 1,518 Other noncurrent liabilities 37,004 33,889 Total liabilities 144,024 118,141 Minority interest in equity of subsidiaries 10,054 7,662 Shareholders' equity Common stock $1 par value; authorized 30,000,000 shares; issued (including treasury shares) 9,664,009 shares 9,664 9,664 Capital in excess of par value 1,404 626 Retained earnings 115,216 110,448 Unearned compensation (776) (1,245) Accumulated other comprehensive (loss) (19,018) (27,078) 106,490 92,415 Treasury stock, shares held at cost; 2003 - 122,369, 2002 - 324,109 (1,749) (4,360) Total shareholders' equity 104,741 88,055 $258,819 $213,858 Quaker Chemical Corporation Condensed Consolidated Statement of Cash Flows For the nine months ended September 30, Unaudited (Dollars in thousands) 2003 2002 Cash flows from operating activities Net Income $10,718 $9,883 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 5,246 3,571 Amortization 620 576 Equity in net income of associated companies (470) (314) Minority interest in earnings of subsidiaries 2,315 2,103 Deferred compensation and other postretirement benefits 257 290 Pension and other, net 2,995 1,885 Increase (decrease) in cash from changes in current assets and current liabilities: Accounts receivable, net (14,460) (3,375) Inventories (4,362) (2,543) Prepaid expenses and other current assets 1,587 (1,326) Accounts payable and accrued liabilities (2,235) 4,288 Change in restructuring liabilities (908) (1,763) Net cash provided by operating activities 1,303 13,275 Cash flows from investing activities Investments in property, plant and equipment (7,820) (7,642) Dividends and distributions from associated companies 3,890 307 Payments related to acquisitions (6,737) (21,285) Other, net (117) (443) Net cash (used in) investing activities (10,784) (29,063) Cash flows from financing activities Net increase in short-term borrowings 16,686 23,121 Dividends paid (5,909) (5,756) Treasury stock issued 3,106 2,618 Distributions to minority shareholders (1,018) (1,514) Net cash provided by financing activities 12,865 18,469 Effect of exchange rate changes on cash 740 (186) Net increase (decrease) in cash and cash equivalents 4,124 2,495 Cash and cash equivalents at beginning of period 13,857 20,549 Cash and cash equivalents at end of period $17,981 $23,044
SOURCE Quaker Chemical Corporation
Michael F. Barry, Vice President and Chief Financial Officer, Quaker Chemical, +1-610-832-8500