Quaker Chemical Announces Record Quarterly Sales and Increased Earnings
CONSHOHOCKEN, Pa., July 31 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR) today announced record quarterly sales of $83.5 million and net income growth of 7% for the second quarter ended June 30, 2003 versus the comparable period in 2002.
Second Quarter 2003 Summary
Net income for the second quarter was $3.5 million versus $3.2 million for the second quarter of 2002. The earnings per diluted share of $0.36 were a 3% improvement over the second quarter of 2002 of $0.35 per diluted share.
Net sales for the second quarter were a record $83.5 million, up 20% from $69.5 million for the second quarter 2002. Foreign exchange rate translation and the timing of the Company's 2002 acquisitions favorably impacted net sales by $4.2 million and $2.5 million, respectively. Second quarter sales also include $6.7 million from the Company's recently awarded chemical management services (CMS) contracts, which were effective May 1, 2003.
Gross margin as a percentage of sales declined from 41.7% for the second quarter of 2002 to 34.7% for the second quarter of 2003. As previously disclosed, the Company's new CMS contracts, which were effective May 1, cause a different relationship between margins and revenue than has applied in the past for the Company's traditional product business. 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 that 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 on the gross margin for the second quarter related to the new CMS contracts is approximately 3 percentage points. The remaining decline in gross margin as a percentage of sales was due to increased raw material costs, as well as product and regional sales mix. The Company continues to expect raw material prices to be higher in 2003 primarily due to continued high oil prices.
Selling, general and administrative expenses for the quarter were essentially flat with the second quarter of 2002. Increases due to foreign exchange rates and the timing of the Company's 2002 acquisitions were offset by reduced incentive compensation expense and cost containment efforts of the Company.
In the second quarter, the Company received a $2.4 million priority cash distribution from its real estate joint venture. This favorably impacted other income by $0.3 million.
Ronald J. Naples, Chairman and Chief Executive Officer, stated, "While our second quarter earnings were up consistent with our previous guidance, through the quarter we did see an increasingly difficult demand environment in comparison to the course of the business last year. Our sales to the steel industry were below our expectations in both the U.S. and Europe due to lower steel production. In addition, we saw higher raw material costs, which we expect to remain higher than last year -- and higher than we expected -- primarily due to continued strength in crude oil prices."
Mr. Naples continued, "Even as we keep a sharp eye on current performance, we continue our emphasis on building for the long-term with initiatives that expand our market reach and strengthen our competitive positioning. In the second quarter, we won a number of new CMS contracts and began operations at seven new sites in May. Also, we completed two tight-fit acquisitions in May and July, which broaden our product lines for both our steel and metalworking businesses and our geographic market presence. We'll see only minimal profit contribution from these initiatives in 2003, but we expect these to be meaningful long-term contributors."
Net income for the first half of the year was $6.6 million versus $5.6 million in the first half of 2002. Earnings per diluted share increased 15% to $0.69 versus $0.60 in the first half of 2002.
Net sales for the first half of the year increased to $156.8 million, up 21% from $129.4 million for the first half of 2002. Net sales were favorably impacted by foreign exchange rate translation and the timing of the Company's 2002 acquisitions in the respective amounts of $6.3 million and $8.1 million. As noted above, net sales for the first half of the year also include $6.7 million from the Company's new CMS contracts.
Gross margin as a percentage of sales declined from 41.2% for the first half of 2002 to 36.6% for the first half of 2003. The Company's new CMS contracts negatively impacted gross margin for the first half of 2003 by approximately 2 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 half of 2003 increased $2.6 million from the first half of 2002. Increases due to foreign exchange rates and the timing of the Company's 2002 acquisitions were partially offset by reduced incentive compensation expense and cost containment efforts of the Company.
Balance Sheet and Cash Flow Items
The Company's debt to total capital ratio remains strong at 27% at the end of June, 2003 compared to 25% at the end of 2002 and 34% at the end of June, 2002. In addition, the Company has increased its credit lines from $25 million at the end of March to its current position of $30 million committed and $20 million uncommitted. As of the end of June, the Company had approximately $17 million outstanding on its credit lines.
The Company also received $4.2 million of priority cash distributions from its real estate joint venture in the first half of 2003. In addition, the Company had higher accounts receivable at the end of the second quarter primarily due to the $6.7 million of sales attributable to the start-up of the new CMS contracts as well as increased sales volume quarter-over-quarter.
Mr. Naples stated, "As we look ahead, we expect that the demand uncertainties noted in the second quarter will continue, particularly in steel. We've seen weakness as steel producers in some markets lower their production to maintain pricing. We do expect some improvement in raw material costs as compared to the first half, but not to the extent we had expected earlier in the year, and, we expect to get some benefit from a strong euro. The net of all this is to make second half prior-year comparisons tougher against the relatively strong second half of 2002. Nevertheless, as we see the world today, we continue to expect to have 2003 full-year earnings slightly ahead of last year, with the third and fourth quarter earnings level being approximately equal. Whatever the precise course of the second half, though, we're pleased with the long-term building steps we've already taken in 2003."
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. Such risks and uncertainties include, but are not limited to, further downturns in our customers' businesses, significant increases in raw material costs, 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 to discuss second quarter results is scheduled for August 1, 2003 at 10:30 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 June 30, Unaudited (Dollars in thousands, except per share data) Second Quarter Six Months 2003 2002 2003 2002 Net sales $83,453 $69,457 $156,790 $129,384 Cost of goods sold 54,506 40,495 99,477 76,065 Gross margin 28,947 28,962 57,313 53,319 % 34.7% 41.7% 36.6% 41.2% Selling, general and administrative 23,223 23,279 45,908 43,303 Operating income 5,724 5,683 11,405 10,016 % 6.9% 8.2% 7.3% 7.7% Other income, net 447 (28) 535 252 Interest expense, net (235) (112) (374) (278) Income before taxes 5,936 5,543 11,566 9,990 Taxes on income 1,843 1,774 3,701 3,197 4,093 3,769 7,865 6,793 Equity in net income of associated companies 169 201 255 184 Minority interest in net income of subsidiaries (787) (734) (1,538) (1,383) Net income $3,475 $3,236 $6,582 $5,594 % 4.2% 4.7% 4.2% 4.3% Per share data: Net income - basic $ 0.37 $ 0.35 $ 0.71 $ 0.61 Net income - diluted $ 0.36 $ 0.35 $ 0.69 $ 0.60 Shares Outstanding: Basic 9,323,895 9,249,925 9,297,482 9,202,378 Diluted 9,671,578 9,308,678 9,593,466 9,262,025 Quaker Chemical Corporation Condensed Consolidated Balance Sheet Unaudited (Dollars in thousands) June 30, December 31, 2003 2002 ASSETS Current Assets Cash and cash equivalents $15,098 $13,857 Accounts receivable, net 67,964 53,353 Inventories Raw materials and supplies 13,352 11,342 Work-in-process and finished goods 14,739 12,294 Prepaid expenses and other current assets 12,298 12,827 Total current assets 123,451 103,673 Property, plant and equipment, at cost 123,125 113,207 Less accumulated depreciation 70,540 64,695 Net property, plant and equipment 52,585 48,512 Goodwill 24,155 21,927 Other intangible assets 5,771 5,852 Investments in associated companies 5,420 9,060 Deferred income taxes 10,566 10,609 Other assets 15,093 14,225 Total assets $237,041 $213,858 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings and current portion of long-term debt $19,987 $12,205 Accounts and other payables 33,828 29,423 Accrued compensation 6,192 10,254 Other current liabilities 13,471 14,262 Total current liabilities 73,478 66,144 Long-term debt 16,620 16,590 Deferred income taxes 1,700 1,518 Other noncurrent liabilities 36,006 33,889 Total liabilities 127,804 118,141 Minority interest in equity of subsidiaries 9,585 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 1,174 626 Retained earnings 113,083 110,448 Unearned compensation (931) (1,245) Accumulated other comprehensive (loss) (20,410) (27,078) 102,580 92,415 Treasury stock, shares held at cost; 2003 - 213,566, 2002 - 324,109 (2,928) (4,360) Total shareholders' equity 99,652 88,055 $237,041 $213,858 Quaker Chemical Corporation Condensed Consolidated Statement of Cash Flows For the Six months ended June 30, Unaudited (Dollars in thousands) 2003 2002* Cash flows from operating activities Net income $6,582 $5,594 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 3,394 2,327 Amortization 438 325 Equity in net income of associated companies (255) (184) Minority interest in earnings of subsidiaries 1,538 1,383 Deferred compensation and other postretirement benefits (382) (329) Pension and other, net 2,798 1,096 Increase (decrease) in cash from changes in current assets and current liabilities: Accounts receivable, net (11,380) (4,532) Inventories (2,789) (798) Prepaid expenses and other current assets 1,204 (2,293) Accounts payable and accrued liabilities (2,467) 2,750 Change in restructuring liabilities (866) (1,167) Net cash (used in) provided by operating activities (2,185) 4,172 Cash flows from investing activities Investments in property, plant and equipment (4,859) (5,060) Dividends and distributions from associated companies 3,890 307 Payments related to acquisitions (1,105) (21,576) Other, net 53 (9) Net cash (used in) investing activities (2,021) (26,338) Cash flows from financing activities Net increase in short-term borrowings 7,747 22,009 Dividends paid (3,924) (3,802) Treasury stock issued 1,697 2,404 Distributions to minority shareholders (609) (1,335) Other, net 3 85 Net cash provided by financing activities 4,914 19,361 Effect of exchange rate changes on cash 533 572 Net increase (decrease) in cash and cash equivalents 1,241 (2,233) Cash and cash equivalents at beginning of period 13,857 20,549 Cash and cash equivalents at end of period $15,098 $18,316 * Certain reclassification of prior year data have been made to improve comparability.
SOURCE Quaker Chemical Corporation -0- 07/31/2003 /CONTACT: Michael F. Barry, Vice President and Chief Financial Officer, Quaker Chemical, +1-610-832-8500/ /Web site: http://www.quakerchem.com / (KWR) CO: Quaker Chemical Corporation ST: Pennsylvania IN: CHM SU: ERN CCA MAV ERP PD -- PHTH037 -- 6991 07/31/2003 17:14 EDT http://www.prnewswire.com