CONSHOHOCKEN, Pa., Feb. 28, 2017 /PRNewswire/ — Quaker Chemical Corporation (NYSE: KWR) today announced net sales of $191.2 million in the fourth quarter of 2016, a 4% increase compared to $183.3 million in the fourth quarter of 2015 and full year net sales of $746.7 million in 2016, a 1% increase compared to $737.6 million in 2015.  The fourth quarter and full year 2016 increases in net sales were driven by organic volume growth of 7% and 3%, respectively, which overcame negative impacts from foreign currency translation of 3% in both the fourth quarter and full year.  While gross margins declined somewhat in the quarter and slightly for the full year, the Company was able to grow its operating income in both periods due to increased sales volumes, continued discipline in managing labor-related costs in its selling, general and administrative expenses («SG&A») and lower restructuring expenses in connection with its 2015 global restructuring program.  This operating performance drove fourth quarter and full year 2016 net income of $17.4 million and $61.4 million, respectively, and increases of 1% and 5% in its fourth quarter and full year 2016 adjusted EBITDA of $25.6 million and $106.6 million, respectively.

The Company’s current quarter earnings per diluted share increased to $1.31 compared to $0.86 in the fourth quarter of 2015, with non-GAAP earnings per diluted share increasing 9% to $1.26 in the fourth quarter of 2016 compared to $1.16 in the prior year.  The Company’s strong fourth quarter performance led to full year 2016 earnings per diluted share of $4.63 compared to $3.84 in 2015, with non-GAAP earnings per diluted share increasing 4% to $4.60 in 2016 compared to $4.43 in 2015.  This growth in fourth quarter and full year reported and non-GAAP earnings per diluted share was achieved despite negative impacts from foreign exchange of approximately 5%, or $0.07 per diluted share, in the quarter and 4%, or $0.18 per diluted share, for the full year.  The strong fourth quarter earnings drove net operating cash flow of $20.8 million in the quarter, increasing the Company’s full year 2016 net operating cash flow 1% to $73.8 million compared to $73.4 million in 2015.

Michael F. Barry, Chairman, Chief Executive Officer and President, commented, «We are pleased with our fourth quarter results, despite continued foreign exchange headwinds.  We were able to grow our organic volumes by 7% on continued market share gains, as well as from increased production in some of our end markets.  While our gross margins declined due to raw material price increases and certain one-time costs, we were able to partially offset the decline with savings realized from our previously announced restructuring program and other cost streamlining initiatives.  Overall, we achieved a 9% increase in non-GAAP earnings despite foreign exchange negatively impacting earnings by 5%.»

Mr. Barry continued, «2016 was our seventh consecutive year of adjusted EBITDA and non-GAAP earnings growth.  The 5% growth in full year adjusted EBITDA was achieved despite foreign exchange negatively impacting our bottom line by 4%.  Looking forward, we expect foreign exchange to continue to be a headwind.  However, we remain committed to our strategy and believe our ability to take market share and leverage our past acquisitions will continue to help offset market challenges.  Our 2017 plans indicate growth in both the top and bottom lines, despite expected currency headwinds, with profit growth in all regions.  Overall, I continue to remain confident in our future and expect 2017 to be another good year for Quaker, as we expect to increase non-GAAP earnings and adjusted EBITDA for the eighth consecutive year.»

Fourth Quarter of 2016 Summary
Net sales in the fourth quarter of 2016 were $191.2 million compared to $183.3 million in the fourth quarter of 2015.  The approximate $7.9 million or 4% increase in net sales was primarily due to a 7% increase in organic volumes, partially offset by the negative impact of foreign currency translation of $4.7 million or 3%. 

Gross profit in the fourth quarter of 2016 increased $0.9 million or 1% from the fourth quarter of 2015, primarily due to the increase in sales volumes, noted above, partially offset by a lower gross margin of 36.4% in the fourth quarter of 2016 compared to 37.5% in the prior year quarter.  While the Company did experience some gross margin decline from changes in raw material costs and product mix, the Company’s quarterly gross margin was also negatively impacted by one-time charges to its raw material and manufacturing costs that were higher during the current quarter and not expected to recur at the same level in the future.

SG&A increased $1.0 million during the fourth quarter of 2016 due to the net impact of several factors.  The Company had incremental SG&A associated with acquisitions, including $0.4 million for certain uncommon transaction-related costs in connection with the execution of, and diligence on, acquisition candidates.  In addition, the Company’s overall labor-related costs were higher quarter-over-quarter primarily due to annual compensation increases.  These cost increases quarter-over-quarter were partially offset by a decrease from foreign currency translation and certain cost saving efforts, including the 2015 global restructuring program noted below.  

The Company had restructuring expenses of $6.8 million during the fourth quarter of 2015 related to the 2015 global restructuring program.  The Company substantially completed the program during 2016, and recognized a restructuring credit of $0.4 million during the fourth quarter of 2016 to update its initial estimates for employee separation costs. 

Operating income in the fourth quarter of 2016 was $20.4 million compared to $13.2 million in the fourth quarter of 2015.  The $7.2 million increase in operating income was primarily due to the decrease in restructuring expenses and the increase in sales volumes, noted above, partially offset by a decline in gross margin and an increase in SG&A expenses.

Other income increased $0.3 million during the fourth quarter of 2016 primarily due to higher receipts of local municipality-related grants in one of the Company’s regions quarter-over-quarter.

Interest expense was relatively consistent on comparable average borrowings outstanding in both quarters. Interest income was $0.1 million higher in the fourth quarter of 2016 compared to the fourth quarter of 2015, primarily due to an increase in the level of the Company’s invested cash in certain regions with higher returns.

The Company’s effective tax rates for the fourth quarters of 2016 and 2015 were 17.3% and 16.5%, respectively.  The Company’s fourth quarter of 2016 effective tax rate reflects the receipt of a concessionary tax rate in one of its subsidiaries, which allowed the Company to adjust the subsidiaries tax rate from 25%, used in the first nine months of 2016, to 15% for the full year.  The Company recorded the cumulative full year benefit of the lower rate in the fourth quarter of 2016.  In the fourth quarter of 2015, the effective tax rate reflected the accelerated recognition of certain tax-related incentives due to changes in local tax regulations, adjustments related to previous years’ tax estimates, and the overall mix of earnings between higher and lower tax jurisdictions.   

Equity in net income of associated companies («equity income») decreased $0.1 million in the fourth quarter of 2016 compared to the fourth quarter of 2015, primarily due to slightly lower earnings from the Company’s interest in a captive insurance company. 

The Company recognized a minimal impact to net income from its Lubricor, Inc. acquisition during the fourth quarter of 2016, as its operating results were offset by initial adjustments related to fair value accounting. 

Changes in foreign exchange rates negatively impacted the Company’s fourth quarter of 2016 net income by approximately 5%, or $0.07 per diluted share. 

Full Year 2016 Summary
Net sales in 2016 were $746.7 million compared to net sales of $737.6 million in 2015.  The $9.1 million or 1% increase in net sales was primarily due to a 3% increase in organic volumes and a 2% increase from acquisitions, partially offset by the negative impact of foreign currency translation of $21.7 million or 3% and a decline in selling price and product mix of 1% year-over-year. 

Gross profit in 2016 increased $2.6 million or 1% compared to 2015, primarily driven by the increase in sales volumes noted above, on a slightly lower gross margin of 37.4% in 2016 compared to 37.6% in the prior year.

The SG&A decrease of $2.0 million from 2015 was primarily due to a decrease from foreign currency translation, a decrease in certain uncommon transaction-related costs year-over-year and the impact from the cost savings efforts, noted above.  These decreases were partially offset by higher overall labor-related costs, primarily due to annual compensation increases, as well as incremental costs associated with the Company’s recent acquisition activity. 

As noted above, the Company had restructuring expenses of $6.8 million in 2015 related to a global restructuring program initiated in the fourth quarter of 2015 and also recognized a restructuring credit of $0.4 million in 2016 to update its initial estimates for employee separation costs.  The Company’s pre-tax cost savings as a result of this program were approximately $3 million in 2016, realized mainly over the second half of the year, and are expected to increase to $5 million for the full-year 2017. 

Operating income in 2016 was $83.1 million compared to $71.3 million in 2015.  The $11.8 million increase in operating income was primarily due to the increase in sales volumes, as well as lower SG&A and restructuring expenses year-over-year, partially offset by a slight decline in gross margin during 2016.

Other income was $1.8 million in 2016 compared to other expense of $0.1 million in 2015.  The increase in other income was primarily driven by foreign currency transaction gains realized in 2016 compared to foreign currency transaction losses in 2015, as well as higher receipts of local municipality-related grants in one of the Company’s regions year-over-year. 

Interest expense was $0.3 million higher in 2016 compared to 2015, primarily due to increased average borrowings outstanding during 2016 as a result of the Company’s recent acquisition activity.  Interest income was $0.4 million higher in 2016 compared to 2015, primarily due to an increase in the level of the Company’s invested cash in certain regions with higher returns and increased interest received on certain tax-related credits in 2016. 

The Company’s effective tax rates for 2016 and 2015 were 27.6% and 25.3%, respectively.  The primary contributors to the difference between the Company’s effective tax rates in 2016 and 2015 were certain one-time items recorded during 2015, including the accelerated recognition of certain tax-related incentives and adjustments related to previous years’ tax estimates, noted above.  Going into 2017, we expect the full year effective tax rate will be between 28% and 30%. 

Equity income in 2016 increased $2.0 million compared to 2015.  The increase in equity income was primarily due to a smaller currency conversion charge recorded at the Company’s Venezuela affiliate during 2016 compared to 2015, related to changes in Venezuela’s foreign exchange markets and currency controls in both periods.  Equity income also includes earnings from the Company’s interest in a captive insurance company which was lower in 2016 compared to 2015.

The Company had a $0.1 million increase in net income attributable to noncontrolling interest in 2016 compared to 2015, primarily due to stronger performance at its India affiliate.

Changes in foreign exchange rates, excluding the currency conversion impacts of the Venezuelan bolivar fuerte noted above, negatively impacted the Company’s 2016 net income by approximately 4%, or $0.18 per diluted share.

Balance Sheet and Cash Flow Items
The Company’s net operating cash flow of $20.8 million in the fourth quarter of 2016 increased its full year net operating cash flow to $73.8 million compared to $73.4 million in 2015.  The increase in net operating cash flow was driven by the Company’s strong operating performance and lower cash invested in the Company’s working capital during 2016, partially offset by a year-over-year increase in cash outflows related to pension contributions, restructuring payments and tax-related payments.  In addition, the Company paid approximately $4.6 million in cash dividends during the fourth quarter of 2016, increasing its total dividends paid to $17.6 million in 2016.  The Company also repurchased approximately 84,000 shares of its common stock for $5.9 million in 2016.  Overall, the Company’s liquidity and balance sheet remain strong, as its cash position exceeded its debt at December 31, 2016 and the Company’s total debt continued to be less than one times adjusted EBITDA.

Non-GAAP Measures
Included in this public release are two non-GAAP (unaudited) financial measures: 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 tables reconcile non-GAAP earnings per diluted share (unaudited) and adjusted EBITDA (unaudited) to their most directly comparable GAAP financial measures:

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2016

2015

2016

2015

GAAP earnings per diluted share attributable to
Quaker Chemical Corporation Common Shareholders

$   1.31

$   0.86

$   4.63

$   3.84

Equity income in a captive insurance company per
diluted share

(0.06)

(0.07)

(0.13)

(0.16)

Restructuring (credit) expense per diluted share

(0.02)

0.36

(0.02)

0.36

Certain uncommon transaction-related expenses
per diluted share

0.03

0.11

0.15

Customer bankruptcy costs per diluted share

0.01

0.02

Cost streamlining initiatives per diluted share

0.01

Currency conversion impact of the Venezuelan
bolivar fuerte per diluted share

0.01

0.21

Non-GAAP earnings per diluted share

$   1.26

$   1.16

$   4.60

$   4.43

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2016

2015

2016

2015

Net income attributable to Quaker Chemical
Corporation

$ 17,434

$ 11,393

$ 61,403

$ 51,180

Depreciation and amortization

4,778

4,979

19,566

19,206

Interest expense

663

694

2,889

2,585

Taxes on income before equity in net income
of associated companies

3,562

2,161

23,226

17,785

Equity income in a captive insurance
company

(736)

(857)

(1,688)

(2,078)

Restructuring (credit) expense

(439)

6,790

(439)

6,790

Certain uncommon transaction-related
expenses

374

1,531

2,813

Customer bankruptcy costs

149

328

Cost streamlining initiatives

173

Currency conversion impact of the Venezuelan
bolivar fuerte

88

2,806

Adjusted EBITDA

$ 25,636

$ 25,309

$ 106,576

$ 101,588

Adjusted EBITDA margin (%)

13.4%

13.8%

14.3%

13.8%

 

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, significant changes in applicable tax rates and regulations, 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 2016 results is scheduled for March 1, 2017 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 share and per share data)

Three Months Ended December 31,

Twelve Months Ended December 31,

2016

2015

2016

2015

Net sales

$      191,245

$      183,275

$      746,665

$      737,555

Cost of goods sold

121,541

114,509

467,072

460,515

Gross profit

69,704

68,766

279,593

277,040

%

36.4%

37.5%

37.4%

37.6%

Selling, general and administrative expenses

49,758

48,753

196,981

198,990

Restructuring and related activities

(439)

6,790

(439)

6,790

Operating income

20,385

13,223

83,051

71,260

%

10.7%

7.2%

11.1%

9.7%

Other income (expense), net

319

28

1,810

(69)

Interest expense

(663)

(694)

(2,889)

(2,585)

Interest income

593

507

2,037

1,624

Income before taxes and equity in net income of associated companies

20,634

13,064

84,009

70,230

Taxes on income before equity in net income of associated companies

3,562

2,161

23,226

17,785

Income before equity in net income of associated companies

17,072

10,903

60,783

52,445

Equity in net income of associated companies

867

949

2,256

261

Net income

17,939

11,852

63,039

52,706

Less: Net income attributable to noncontrolling interest

505

459

1,636

1,526

Net income attributable to Quaker Chemical Corporation

$        17,434

$        11,393

$        61,403

$        51,180

%

9.1%

6.2%

8.2%

6.9%

Share and per share data:

Basic weighted average common shares outstanding

13,157,411

13,180,364

13,136,138

13,199,630

Diluted weighted average common shares outstanding

13,198,611

13,193,659

13,160,469

13,214,849

Net income attributable to Quaker Chemical Corporation Common
Shareholders – basic

$             1.31

$             0.86

$             4.64

$             3.84

Net income attributable to Quaker Chemical Corporation Common
Shareholders – diluted

$             1.31

$             0.86

$             4.63

$             3.84

 

 

Quaker Chemical Corporation

Consolidated Balance Sheets

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

December 31,

2016

2015

ASSETS

Current assets

Cash and cash equivalents

$        88,818

$        81,053

Accounts receivable, net

195,225

188,297

Inventories, net

77,082

75,099

Prepaid expenses and other current assets

15,343

13,582

Total current assets

376,468

358,031

Property, plant and equipment, net

85,734

87,619

Goodwill

80,804

79,111

Other intangible assets, net

73,071

73,287

Investments in associated companies

22,817

20,354

Non-current deferred tax assets

24,382

30,107

Other assets

28,752

32,218

Total assets

$      692,028

$      680,727

LIABILITIES AND EQUITY

Current liabilities

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

$             707

$             662

Accounts payable

77,583

67,291

Dividends payable

4,581

4,252

Accrued compensation

19,356

19,166

Accrued restructuring

670

6,303

Accrued pension and postretirement benefits

1,086

1,144

Other current liabilities

23,428

25,696

Total current liabilities

127,411

124,514

Long-term debt

65,769

81,439

Non-current deferred tax liabilities

12,008

10,258

Non-current accrued pension and postretirement benefits

38,348

40,689

Other non-current liabilities

35,886

42,584

Total liabilities

279,422

299,484

Equity

Common stock, $1 par value; authorized 30,000,000 shares; issued
and outstanding 2016 – 13,277,832 shares; 2015 – 13,288,113 shares

13,278

13,288

Capital in excess of par value

112,475

106,333

Retained earnings

364,414

326,740

Accumulated other comprehensive loss

(87,407)

(73,316)

Total Quaker shareholders’ equity

402,760

373,045

Noncontrolling interest

9,846

8,198

Total equity

412,606

381,243

Total liabilities and equity

$      692,028

$      680,727

 

 

Quaker Chemical Corporation

Consolidated Statements of Cash Flows

(Dollars in thousands)

Twelve Months Ended December 31,

2016

2015

Cash flows from operating activities

Net income

$            63,039

$            52,706

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

Depreciation

12,557

12,395

Amortization

7,009

6,811

Equity in undistributed (earnings) losses of associated
companies, net of dividends

(1,969)

578

Deferred income taxes

5,488

(2,401)

Uncertain tax positions (non-deferred portion)

(3,206)

(1,122)

Deferred compensation and other, net

(424)

14

Stock-based compensation

6,349

5,919

Restructuring and related activities

(439)

6,790

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

(18)

(12)

Insurance settlement realized

(1,023)

(760)

Pension and other postretirement benefits

(3,420)

2,591

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

Accounts receivable

(11,705)

(188)

Inventories

(1,870)

1,292

Prepaid expenses and other current assets

(703)

(721)

Accounts payable and accrued liabilities

14,566

(9,040)

Change in restructuring liabilities

(5,252)

(490)

Estimated taxes on income

(5,226)

(930)

Net cash provided by operating activities

73,753

73,432

Cash flows from investing activities

Investments in property, plant and equipment

(9,954)

(11,033)

Payments related to acquisitions, net of cash acquired

(15,024)

(24,058)

Proceeds from disposition of assets

186

135

Insurance settlement interest earned

32

35

Change in restricted cash, net

991

725

Net cash used in investing activities

(23,769)

(34,196)

Cash flows from financing activities

Proceeds from long-term debt

6,163

Repayments of long-term debt

(14,513)

(477)

Dividends paid

(17,625)

(16,513)

Stock options exercised, other

(811)

1,048

Payments for repurchase of common stock

(5,859)

(7,276)

Excess tax benefit related to stock option exercises

678

384

Payment of acquisition-related liabilities

(226)

Net cash used in financing activities

(38,130)

(16,897)

Effect of exchange rate changes on cash

(4,089)

(6,017)

Net increase in cash and cash equivalents

7,765

16,322

Cash and cash equivalents at beginning of period

81,053

64,731

Cash and cash equivalents at end of period

$            88,818

$            81,053

 

 

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SOURCE Quaker Chemical Corporation