Press Releases
Quaker Chemical Announces Record Third Quarter Sales and a 42% Increase in Net Income
CONSHOHOCKEN, Pa., Oct. 31 /PRNewswire-FirstCall/ -- Quaker Chemical Corporation (NYSE: KWR) today announced record third quarter sales of $116.4 million and a 42% net income improvement to $3.1 million, compared to third quarter 2005 sales of $105.8 million and net income of $2.2 million. Diluted earnings per share increased to $0.32 for the third quarter of 2006 versus $0.23 in the third quarter of last year.
Third Quarter 2006 Summary
Net sales for the third quarter of 2006 were $116.4 million, up 10.1% from the third quarter of 2005 due to higher selling prices across all regions and volume growth in the U.S. and China.
Gross margin as a percentage of sales was 31.6% for the third quarter of 2006, as compared to 32.0% for the third quarter of 2005. Higher selling prices and stronger performance from the Company's CMS channel helped restore margins to prior year third quarter levels despite continued significant escalations in raw material costs. The third quarter 2006 gross margin percentage of 31.6% shows sequential improvement over the first two quarters of the year in which the Company reported gross margins of 29.6% and 30.4%, respectively.
Selling, general and administrative expenses for the quarter increased $1.5 million, but decreased as a percentage of sales to 27% from 28.3% in the prior year third quarter. Planned new spending in higher growth areas was funded by savings from the Company's restructuring program in the fourth quarter of 2005. Higher variable compensation in the third quarter of 2006 as compared to the prior year third quarter was the result of increased earnings.
The increase in net interest expense is attributable to higher average borrowings and higher interest rates. The decrease in minority interest expense is due to lower financial performance from the Company's minority affiliates.
Year-to-Date Summary
Net sales for the first nine months of 2006 were $344.9 million, up 8.8% from $317.0 million for the first nine months of 2005. The increase in net sales was attributable to higher sales prices and volume growth. Volume growth was mainly attributable to market share growth and increased demand in the U.S. and China. Selling price increases continue to be broadly implemented across all regions and market segments to offset significantly higher raw material costs.
Net income for the first nine months of 2006 was $8.7 million compared to $7.1 million for the first nine months of 2005, which included a $4.2 million pre-tax gain from the Company's real estate joint venture, partially offset by a $1.2 million pre-tax restructuring charge.
Gross margin as a percentage of sales was 30.5% for the first nine months of 2006, as compared to 30.8% for the first nine months of 2005. Higher selling prices and a stronger performance from the Company's CMS channel helped maintain margins notwithstanding continued increases in raw material prices, particularly crude oil derivatives.
Selling, general and administrative expenses for the first nine months of 2006 increased $1.4 million compared to the first nine months of 2005. As was the case in the third quarter, cost savings from the Company's restructuring efforts in 2005 enabled increased spending in higher growth areas, restoration of variable compensation and higher professional fees with only minor cost increases. In addition, due to a legislative change, effective January 1, 2006, the Company recorded a pension gain in the first quarter of 2006 for $0.9 million relating to one of its European pension plans. As a percentage of sales, selling, general and administrative expenses were 25.7% for the first nine months of 2006, as compared to 27.5% in the first nine months of 2005.
The decrease in other income is largely due to $4.2 million of pre-tax gain relating to the Company's real estate joint venture recorded in 2005. The remainder of the decrease was the result of foreign exchange losses in the first nine months of 2006, compared to gains in the first nine months of 2005.
The increase in net interest expense is attributable to higher average borrowings and higher interest rates. The decrease in minority interest expense for the year is due to the acquisition of the remaining 40% interest in the Company's Brazilian affiliate in March of 2005 and lower financial performance from the Company's minority affiliates.
Balance Sheet and Cash Flow Items
The Company's net debt has increased from December 2005, primarily to fund working capital needs, as well as the restructuring actions taken in the fourth quarter of 2005. The Company's net debt-to-total capital ratio was 38% at September 30, 2006, compared to 39% at June 30, 2006, 40% at March 31, 2006 and 35% at December 31, 2005.
Ronald J. Naples, Chairman and Chief Executive Officer, commented, "We had a great third quarter that flowed from increasing contributions from strategic initiatives such as Asia/Pacific growth and CMS, persistent pricing attention, and the fourth quarter 2005 repositioning of our cost base. We have also benefited from strong global steel demand in 2006. We're pleased with our continued earnings progress and to have been able to generate sequential quarter-over-quarter improvement in gross margin percentage in the face of continued increases in raw material costs. The recent easing of crude oil prices may help mineral oil in the long term, but this year so far we're still facing increases in mineral oil prices. Further, we have observed that global steel and automotive production has been outpacing demand in some markets over the past few months. We've had a fine profit rebound this year, and this is one of the challenges we'll be dealing with in keeping up our sequential quarterly progress as the year comes to a close. Still, we're performing significantly better than prior year, and longer term, we have a number of initiatives underway in both new markets and new products that provide new promise for the future."
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 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 by the Private Securities Litigation Reform Act of 1995.
As previously announced, Quaker Chemical's investor conference call to discuss third quarter results is scheduled for November 1, 2006 at 2:30 p.m. (ET). Access the conference by calling 877-269-7756 or visit Quaker's Web site at http://www.quakerchem.com for a live webcast.
Quaker Chemical Corporation
Condensed Consolidated Statement of Income
(Dollars in thousands, except per share data and share amounts)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Net sales $116,425 $105,751 $344,924 $316,954
Cost of goods sold 79,650 71,874 239,599 219,441
Gross margin 36,775 33,877 105,325 97,513
% 31.6% 32.0% 30.5% 30.8%
Selling, general and
administrative 31,485 29,937 88,636 87,274
Restructuring and
related activities,
net - - - 1,232
Operating income 5,290 3,940 16,689 9,007
% 4.5% 3.7% 4.8% 2.8%
Other income, net 539 353 1,054 5,869
Interest expense, net (1,218) (670) (3,435) (1,844)
Income before taxes 4,611 3,623 14,308 13,032
Taxes on income 1,378 1,178 5,058 4,235
3,233 2,445 9,250 8,797
Equity in net income of
associated companies 218 208 456 414
Minority interest in net
income of subsidiaries (312) (441) (1,033) (2,078)
Net income $3,139 $2,212 $8,673 $7,133
% 2.7% 2.1% 2.5% 2.3%
Per share data:
Net income - basic $0.32 $0.23 $0.89 $0.74
Net income - diluted $0.32 $0.23 $0.88 $0.73
Shares Outstanding:
Basic 9,792,187 9,693,851 9,762,019 9,671,516
Diluted 9,854,625 9,801,893 9,833,903 9,816,006
Quaker Chemical Corporation
Condensed Consolidated Balance Sheet
(Dollars in thousands, except par value and share amounts)
(Unaudited)
September 30, December 31,
2006 2005*
ASSETS
Current assets
Cash and cash equivalents $15,785 $16,121
Accounts receivable, net 106,657 93,943
Inventories, net 51,533 45,818
Prepaid expenses and other current assets 13,324 10,111
Total current assets 187,299 165,993
Property, plant and equipment 153,591 140,903
Less accumulated depreciation 93,773 84,006
Net property, plant and equipment 59,818 56,897
Goodwill 37,966 35,418
Other intangible assets, net 7,839 8,703
Investments in associated companies 6,780 6,624
Deferred income taxes 24,031 24,385
Other assets 34,294 33,975
Total assets $358,027 $331,995
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current portion
of long-term debt $2,862 $5,094
Accounts and other payables 58,314 52,923
Accrued compensation 12,642 9,818
Other current liabilities 17,481 19,053
Total current liabilities 91,299 86,888
Long-term debt 83,550 67,410
Deferred income taxes 5,035 4,608
Other non-current liabilities 57,889 60,573
Total liabilities 237,773 219,479
Minority interest in equity of subsidiaries 6,452 6,609
Shareholders' equity
Common stock, $1 par value; authorized
30,000,000 shares; issued 2006 - 9,873,744,
2005 - 9,726,385 shares 9,874 9,726
Capital in excess of par value 4,456 3,574
Retained earnings 113,640 111,317
Accumulated other comprehensive loss (14,168) (18,710)
Total shareholders' equity 113,802 105,907
Total liabilities and shareholders'
equity $358,027 $331,995
* Condensed from audited financial statements.
Quaker Chemical Corporation
Condensed Consolidated Statement of Cash Flows
For the nine months ended September 30,
(Dollars in thousands)
(Unaudited)
2006 2005*
Cash flows from operating activities
Net income $8,673 $7,133
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation 7,406 6,731
Amortization 1,058 1,014
Equity in undistributed earnings of
associated companies, net of dividends (251) (180)
Minority interest in earnings of subsidiaries 1,033 2,078
Deferred income taxes 834 419
Deferred compensation and other, net 387 145
Stock-based compensation 601 563
Restructuring and related activities, net - 1,232
Gain on sale of partnership assets - (2,989)
(Gain) Loss on disposal of property, plant
and equipment 19 -
Insurance settlement realized (252) -
Pension and other postretirement benefits (3,108) (3,905)
Increase (decrease) in cash from changes in
current assets and current liabilities,
net of acquisitions:
Accounts receivable (10,077) (8,635)
Inventories (4,561) (2,920)
Prepaid expenses and other current assets (3,022) (2,063)
Accounts payable and accrued liabilities 8,351 5,349
Change in restructuring liabilities (3,731) (1,636)
Net cash provided by operating activities 3,360 2,336
Cash flows from investing activities
Capital expenditures (8,513) (5,142)
Payments related to acquisitions (1,069) (6,700)
Proceeds from partnership disposition
of assets - 2,989
Proceeds from disposition of assets 64 1,894
Interest received on insurance settlement 240 -
Change in restricted cash, net 12 -
Net cash used in investing activities (9,266) (6,959)
Cash flows from financing activities
Short-term debt borrowings 1,873 7,815
Repayments of short-term debt (4,519) -
Long-term debt borrowings 15,680 -
Repayments of long-term debt (704) (9,328)
Dividends paid (6,320) (6,251)
Issuance of common stock 429 256
Distributions to minority shareholders (1,464) (3,163)
Net cash provided by (used in) financing
activities 4,975 (10,671)
Effect of exchange rate changes on cash 595 (675)
Net decrease in cash and cash equivalents (336) (15,969)
Cash and cash equivalents at the beginning
of the period 16,121 29,078
Cash and cash equivalents at the end of
the period $15,785 $13,109
* Certain reclassifications of prior year data have been made to improve
comparability.
SOURCE Quaker Chemical Corporation
-0- 10/31/2006
/CONTACT: Neal E. Murphy, Vice President and Chief Financial Officer,
Quaker Chemical Corporation, +1-610-832-4189/
/Web site: http://www.quakerchem.com /
(KWR)
CO: Quaker Chemical Corporation
ST: Pennsylvania
IN: CHM
SU: ERN CCA
FB
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2871 10/31/2006 17:13 EST http://www.prnewswire.com
