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Edited Transcript of KWR earnings conference call or presentation 2-Nov-18 12:30pm GMT

Q3 2018 Quaker Chemical Corp Earnings Call

CONSHOHOCKEN Nov 15, 2018 (Thomson StreetEvents) -- Edited Transcript of Quaker Chemical Corp earnings conference call or presentation Friday, November 2, 2018 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mary Dean Hall

Quaker Chemical Corporation - CFO, VP & Treasurer

* Michael F. Barry

Quaker Chemical Corporation - Chairman of the Board, CEO & President

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Conference Call Participants

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* Daniel Dalton Rizzo

Jefferies LLC, Research Division - Equity Analyst

* Edward James Marshall

Sidoti & Company, LLC - Senior Equity Research Analyst

* Garo Norian

Palisade Capital Management LLC - SVP of Research

* Jonathan E. Tanwanteng

CJS Securities, Inc. - MD

* Michael Christopher Gyure

Janney Montgomery Scott LLC, Research Division - MD of Forensic Accounting and MLPs

* Michael Joseph Harrison

Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Quaker Chemical Corporation Third Quarter 2018 Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Michael Barry, Chairman, Chief Executive Officer and President for Quaker Chemical Corporation. Thank you. Mr. Barry, you may begin.

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [2]

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Thank you. Good morning, everyone. Joining me today are Mary Hall, our CFO; and Robert Traub, our General Counsel. After my comments, Mary will provide details around the financials, and then we'll address any questions that you have. We also have slides for the conference call, and you can find them in the Investor Relations section of our website at www.quakerchem.com.

I'll start off now with some remarks about the third quarter. I'm pleased we have delivered another strong quarter despite some market challenges. The quarter's results were largely driven by 2 major themes: the first being sales increases and the second was gross margin improvement.

Let me start with our margins. Since mid-2016, we've been in a generally rising raw material cost environment. And as we've discussed in the past, with the raw materials, there is a lag effect between the changes in our raw material cost and adjustments to our product pricing.

On the last conference call, our expectation was that our gross margin will be in the low to mid-36% range. I'm pleased to report that it came in at the high end of the expectation as our recent pricing initiatives continue to offset new raw material cost increases. However, we also experienced raw material cost increases in the third quarter and they are continuing into the fourth quarter, which we are addressing with additional price increases where necessary. How exactly this all plays out in the fourth quarter is hard to predict in a precise manner, but our best estimate is that gross margins will be in the low to mid-36% range. And going forward, we still expect our gross margins to get back to our target 37% once raw material cost increases subside.

Let me now move on to sales. Our sales increased 4% versus prior year with good volume growth of 4% and an increase of 3% from price and mix. Foreign exchange turned into a headwind this quarter, negatively impacting our sales by 3% versus the prior year.

And now let me give you some more color around the regions and how they performed. The biggest segment, North America, had a very strong quarter and showed a sales increase of 12%, with 9% volume growth and 4% due to price increases and mix. Our European or EMEA region showed a 6% decrease, primarily due to lower volumes. The lower volumes in Europe were primarily due to timing of customer order patterns at the end of the quarter, and to a lesser extent, we stopped selling a piece of business to a nonstrategic customer, primarily due to its low profitability.

In our Asia Pacific region, our sales increased 3% as we continue to see good volume growth of 6%, but this was partially offset by foreign exchange of 3%. So our Asia Pacific region continues to show good organic volume growth and produce strong results for us.

For South America, we showed a decline in revenue of 5%, despite positive volume growth of 5% and price mix improvement of about 10%. So the sales decline was all due to our year-over-year negative foreign exchange impact of 20%.

Overall, good volume growth continues to be a consistent theme for us, and increasing our market share continues to be a large driver of this volume growth. One way to see our market share gains is to look at our overall organic product volume growth in the quarter and compare that to the underlying production growth in our base markets of global steel and auto.

Our volume growth was 4% in the quarter as compared to the underlying growth in our base markets, which we estimate at approximately 1%. We believe this spread of approximately 3% is indicative of our share gains and is due to our commitment to our customer intimacy model. Specifically, we put the customer needs first as our top priority providing them with strong service and business solutions. I believe this approach continues to differentiate us in the marketplace.

So in summary, despite the challenges we faced in the quarter, including foreign exchange and higher raw material costs, we were able to grow our adjusted EBITDA by 12% and our non-GAAP earnings by 21%.

In a nutshell, we were able to do this by growing in our base markets, taking share in the marketplace, increasing our gross margins and continuing to leverage our SG&A. And we're also seeing an increase in our earnings per share due to the favorable impacts of U.S. tax reform, which was the primary driver for our non-GAAP earnings growth of 21%, exceeding our adjusted EBITDA growth of 12%.

I'd now like to make a few remarks about our combination with Houghton International. Since our last press release on July 30, we have chosen a buyer for the product lines to be divested and presented a remedy to both the Federal Trade Commission and European Commission. We filed for regulatory approval with the European Commission on October 19, and we expect their process to end on or about December 11. Our goal is to finalize agreements with the buyer and receive approval from both the regulatory authorities by mid-December, so that we can close the transaction either in December or January.

Overall, the magnitude of divested product lines continues to be approximately 3% of the combined revenue of the companies, which is consistent with our original expectations. As I said in the past, we're excited about this combination as it will double the size of the company, enable continued above-market growth through good cross-selling opportunities and provide at least $45 million in cost synergies. Our intent is to have an investor call after the closing and provide an updated view of the new company as well as our expected synergies.

Looking forward, I am pleased with the future outlook for Quaker. We are having a strong 2018, and we expect the fourth quarter to be another good quarter for us as we expect to continue our year-over-year non-GAAP earnings and adjusted EBITDA growth, despite some potential headwinds, such as currency and higher raw materials. Looking ahead to 2019, we do expect to see modest growth in our global end markets, including our 2 largest, steel and automotive. And we also expect to continue to grow above the market as we have done historically through our growth initiatives and market share gains. We'll also begin realizing the benefits from combining with Houghton. So all in all, I continue to be confident in our future.

In closing, I want to thank all of our associates, whose dedication and expertise helps to create value for our customers and shareholders and differentiate Quaker in the marketplace. People are everything in our business and, by far, our most valuable asset. I'm very happy with our Quaker team and continue to be excited about the upcoming combination with the Houghton International team.

And now I'll turn it over to Mary Hall, our CFO, so that she can provide you with more details behind our financials. Once Mary has completed her comments on the financials for the quarter, we will address any questions that you have. Mary?

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Mary Dean Hall, Quaker Chemical Corporation - CFO, VP & Treasurer [3]

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Thank you, Mike, and good morning all. Before I begin, please remember that comments made during this call include forward-looking statements, which are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially.

For a discussion of these risks, please review the cautionary statements regarding forward-looking statements included in our earnings release and the risk factors included in our 2017 Form 10-K filed with the SEC. These are available on our website.

Please refer now to Charts 4 and 5 as I review our financial performance. Q3 performance was similar to our strong Q2. For Q3, Quaker reported a 21% increase in non-GAAP earnings per share to $1.60 as a result of strong operating performance, which also drove a 12% increase in adjusted EBITDA to $33 million. Our operating performance year-over-year benefited from good sales growth, improved gross margins and continued good cost discipline. We delivered strong earnings despite a negative impact on earnings of 6% from foreign exchange.

Our net sales were up 4% to about $222 million versus Q3 last year, with volume growth of 4% and price mix improvement of 3%, partially offset by the negative impact of foreign exchange of about 3%. We saw a stronger U.S. dollar across our footprint year-over-year, with the main drivers of the negative impact being the Brazilian real down about 25%, the Indian rupee down about 9%, the Chinese RMB and the Euro, each down about 2% and the Mexican peso down about 6%.

Gross margin for Q3 of 36.5% is up from 35.1% in Q3 of last year and flat sequentially, despite rising raw material costs. In addition, Quaker continued to show good cost discipline. Please note that our GAAP operating income and operating margin include $2.9 million of Houghton-related combination expenses in the current quarter.

If we look at the ratio of SG&A to sales on Chart 5, the Q3 ratio of 24% is flat year-over-year and down sequentially from 24.4% in Q2. Our operating income and operating margin were both up significantly compared to the prior year quarter as a result of our improved gross margin, lower Houghton-related expenses and continued cost discipline.

As a result of this strong operating performance, our current quarter adjusted EBITDA was up 12% year-over-year, and our operating cash flow improved significantly. A lower effective tax rate in the current quarter of 18.5% versus 22.1% last year also contributed to the strong net earnings performance.

In the current quarter, we recorded a $1.1 million net tax adjustment to reduce the estimated impact of U.S. tax reform. Recall that we had a similar tax adjustment in Q2 of this year of about $1.2 million. Excluding these adjustments related to U.S. tax reform and the impacts from nondeductible Houghton costs, our tax rate improved to 22% in the current quarter compared to 25% in the prior year due to a lower U.S. tax rate of 21% this year. For the full year, the company expects its effective tax rate will be between 22% and 24%, which is slightly better than our previous estimate of 23% to 25%, excluding tax reform adjustments and the impact of nondeductible Houghton costs. Our liquidity and balance sheet remain strong with a net cash position of $47.3 million as of September 30.

And now turn your attention please to Chart 6. Here you can see the continued upward trend in our volumes, which, as Mike mentioned, continue to outpace our base markets growth.

In Chart 7, you can see the nice pickup year-over-year in gross margin and the flat margin sequentially.

Looking to Q4, we expect gross margin to be in the low to mid-36% area as we continue to implement price increases to offset the continued rise in raw material costs.

Chart 8 shows our strong consistent trend in adjusted EBITDA growth and our record trailing 12 months adjusted EBITDA of $125.6 million, which is up 13% year-over-year.

Chart 9 shows our cash and debt balances and highlights our strong balance sheet and good liquidity with a net cash position of $47.3 million, as I mentioned earlier.

In summary, Quaker continues to consistently deliver good earnings and cash flow despite various market challenges. As Mike mentioned, we expect Q4 to be another good quarter as we continue to grow non-GAAP earnings and adjusted EBITDA year-over-year. We remain focused on delivering value to our shareholders and closing the Houghton combination.

Thank you all for your interest in Quaker. And now back to you, Mike.

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [4]

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Thank you, Mary. At this stage, we'd like to address any questions from any of the participants on the conference call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Mike Harrison with Seaport Global Securities.

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Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [2]

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I was wondering if you could give us a little bit more detail on what you're seeing in raw material trends. You mentioned -- obviously, we've been in an inflationary environment for a couple of years now. But you mentioned that things seem to tick higher during Q3 and into Q4. And any detail on what specific raws or baskets that you're seeing move right now and maybe the magnitude of those increases.

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [3]

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Sure, Mike. The main driver at this point in time has been mineral oils. There's also some other things like [we buy poly] oils or other additives that get put into our products that are increasing as well. The, I would say, general range of increase that we're seeing lately is in that maybe 1% to 2% of our overall raw material mix.

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Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [4]

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And in terms of how much additional pricing is necessary, I guess just compared to the 3% price mix number you reported in the third quarter. Should we expect that to tick higher in Q4 and into Q1? Or is that probably a good assumption for the next couple of quarters?

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [5]

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It's hard to say precisely the timing of our price increases. I'd rather not give specific guidance around that price mix number. All we do is kind of commit that we want to put our price increases in place. So that we eventually get these and they will offset the raw material increases.

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Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [6]

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Or you feel pretty confident in your ability to capture pricing where you need it?

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [7]

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Yes.

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Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [8]

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And then in terms of the North America volume growth rate, that 9% number was pretty impressive. Is that related at all to some of the tariffs; maybe benefits to manufacturers or steel makers because of tariffs? Just trying to get a sense of the sustainability of that type of number.

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [9]

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Certainly, steel production increased in the United States, and that's part of it. But it's not really, I would say, the major driver. Tariffs are certainly part of it, but a major driver really in the U.S. for us is pretty broad-based market share gains. We saw them in our primary metals business, we saw them in our automotive business, our tube and pipe business, our grease business, our AC products business. And it was very broad-base. We continue to, as I said, using our baseball analogy, hit a number of singles and continue to grow and take share in the marketplace.

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Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [10]

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All right. And then the last question for me for now is just an update on Houghton. Obviously, everybody is focused on the timing. I was wondering if you could give us any update on what kind of progress they've made on their sales and earnings. I think the last number that we have was a 2016 number of $767 million of revenue and $120 million of EBITDA and also that $690 million of net debt. Can you provide updates on any of those numbers?

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [11]

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I'm sorry, we can't. Houghton is a private company at this point. We've said that we'll do that once we close the combination. I think the only guidance we've given over time is that what we put in our proxy relative to their performance is pretty close. It's not inconsistent of what's been happening. So it's -- no surprises on our end.

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Operator [12]

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Our next question comes from the line of Jon Tanwanteng with CJS Securities.

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Jonathan E. Tanwanteng, CJS Securities, Inc. - MD [13]

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My first one is, do you expect to see the same magnitude of currency impact going forward in your earnings? It looks like it was little -- it hit your earnings a little bit more than it hit your revenue this quarter. Is that a onetime situation? How do you see that going forward?

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [14]

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Yes, I think from a top line perspective, we're going to continue to see something of that magnitude or so. It's going to be a pretty good hit. Hopefully, the bottom line will not be twice as much what the top line was this time.

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Mary Dean Hall, Quaker Chemical Corporation - CFO, VP & Treasurer [15]

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That was due to a year-over-year transaction flip from gains to losses. So we believe that, that won't repeat to that magnitude, Jon.

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Jonathan E. Tanwanteng, CJS Securities, Inc. - MD [16]

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Great. And then just any commentary on end market demand? I think you addressed North America earlier. What are you seeing worldwide in terms of steel and autos, aerospace, any slowdowns or pockets of strength or resistance? And any details on that would be appreciated.

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [17]

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Sure. As I think about the year, and I think about our overall demand, I, put the year into 2 parts. There's the first half of the year and the second half of the year. First half of the year, we saw our end markets of steel and automotive to be very strong. I would say, those end markets were growing on the range of 2% or 3%. And then starting in the second half of the year, we've seen what I consider to be more of a step change down with more modest growth of 1%. So that's kind of what we estimate our markets were growing in the third quarter. We estimate that it's going to be close to that low modest growth in the fourth quarter. And actually kind of even going into next year. What we read in our publications or services that we get relative to the auto market or steel markets, is that modest growth like in that 1% range or so is expected for these types of markets globally. And of course, globally is what we are generally concerned about because we tend to have relatively equal shares in these global markets, auto and steel everywhere around the world. That's how we view things right now.

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Operator [18]

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Our next question comes the line of Laurence Alexander with Jefferies.

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Daniel Dalton Rizzo, Jefferies LLC, Research Division - Equity Analyst [19]

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Dan Rizzo on for Laurence. Has the lag from cost increases, the price, like, shortened at all? It just seems that this cycle things are a lot more manageable than it has been in the past, I was just wondering what's changed?

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [20]

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It really hasn't changed. I think what happened is the magnitude of some of these increases earlier were larger, and then we started catching in the second quarter of the year. And then the magnitude of the increases between the second quarter and the third quarter were relatively modest. So things we have then put in place were able to offset some of those modest increases. But now, as I said earlier, we're starting to see another increase because the crude is going up and mineral oils and so forth, we're starting to see more increases coming to our raw materials and we'll be going out with price increases. But in general, we still expect to see a 3- to 6-month lag in our capturing raw material increases.

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Daniel Dalton Rizzo, Jefferies LLC, Research Division - Equity Analyst [21]

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Okay. And then you mentioned -- you made it that there was some weakness in the quarter due to some timing issues or -- I was just wondering if that would imply that's going to be some sort of catch up or a partial catch up in the fourth quarter?

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [22]

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Yes, we would expect that in the beginning in the quarter some of these orders hit. We'll see how that plays out for the whole quarter. But yes, we have seen that at least early on.

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Operator [23]

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(Operator Instructions) Our next question comes from the line of Mike Gyure with Janney.

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Michael Christopher Gyure, Janney Montgomery Scott LLC, Research Division - MD of Forensic Accounting and MLPs [24]

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You touched a little bit on the market share gains you guys think you're capturing. Can you talk about, I guess, your labor situation, your associate base? Has that really grown to capture those market share benefits? Or I guess how are you looking at labor for the rest of the year?

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [25]

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Well, sure. We have grown in number of people over the years. I think about where we were -- 2009, we were like 1,200 people and now we're a little over 2,000 people, some of that through acquisitions that we've made as well. But nothing from a manpower perspective. This year has been relatively flat. We feel we have resources in place to drive our current growth initiatives. A lot of the new technologies that we brought into the company and we want to spread out globally. A number of years ago, we had to go out hire that expertise in different parts of the world, to help drive them, but they are in place at this point. So it's a relatively steady labor environment for us right now.

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Michael Christopher Gyure, Janney Montgomery Scott LLC, Research Division - MD of Forensic Accounting and MLPs [26]

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Okay. And then maybe on the Houghton integration or at least thinking about the integration. Can you talk a little bit about, I guess, how you guys are preparing maybe your current site or your infrastructure or your personnel, it's getting, I guess, sort of assuming you're going to close the Houghton early next year or the end of this year from that perspective?

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [27]

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Sure. Yes, one thing at least this prolonged regulatory approval period has given us is the ability to plan effectively, and it's also helped that the 2 companies' headquarters are 10 miles apart. So we were able to do a lot. We hired McKenzie to help us with the integration planning. We have a lot of thought. We have a lot of playbooks in place right now, so that once we close, we can kind of hit the ground running here. From the perspective of our organization and design of the organization, it's given us a lot of time to very thoughtfully assess the talent in the organization. And so I think we're much further ahead than we normally would be under a normal acquisition perspective. So I'm very optimistic that once we close, we can at least get started relatively quickly here.

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Operator [28]

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Our next question comes from the line of Edward Marshall with Sidoti & Company.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [29]

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I wanted to ask, if we talk about the market growth of 1%. I think you guys have been saying 4% to 5% for some time. I'm just curious as we kind of look at price to offset some of the higher raw materials, do you think these markets are strong enough to accept more price? And two, on a volume perspective, do think that slowdowns related to inflation, currency, maybe some uncertainties geopolitically. Maybe what's your view for maybe 2019, if you could share those?

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [30]

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Sure. Yes, I mean, like I said earlier, I think, Ed, we did see strength in the first half of the year. We never thought it was really 4% or 5%, but we thought it was in that 2% to 3% range for both steel and for automotive. And we've seen that kind of drop to this 1% type of level in the third quarter. We expect that for the foreseeable future based on things that we have read relative to these markets. And for the same reasons that you hear, whether it's the tariff -- impacts of the tariff, things hanging over the people's heads or slowdown in China automotive or things like that. But when you put it all together, we expect to see somewhat of a more modest growth of that 1%.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [31]

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And on the price discussions. How -- I mean, the markets...

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [32]

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Yes, I mean -- yes, I don't really connect them to be honest. I think we have a number of contracts with customers that are based on indices that can go up or down and then the rest are more negotiated , and we negotiate when prices go up or down on raw materials. So I would expect us to continue to be able to achieve what we've done in the past and try to keep our margins in the right place.

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Edward James Marshall, Sidoti & Company, LLC - Senior Equity Research Analyst [33]

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Got it. And so as I think about switching gears over to the acquisition and the letter of commitments that's been extended. I'm curious first, I'm assuming that can be extended further if necessary? And second, when I think about the commitment to shares -- to the shareholders of Houghton, what -- is there a reason or would -- is it foreseeable that you could actually increase the number of shares based on -- and

(technical difficulty)

that in global equity. I'm just kind of trying to get a sense as to how you might be thinking about that?

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Mary Dean Hall, Quaker Chemical Corporation - CFO, VP & Treasurer [34]

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So let me take that , Ed. With respect to financing commitment, we do clearly expect that if we need to extend that, there won't be a problem. We are already -- have discussions with the bank group. They're fully aware of the situation and the time line. So we have had and expect to have good support there. With respect to the number of shares that are part of the purchase consideration for the transaction, the Hindujas get 24.5% stake in NewCo. And that will be basically a formula off of whatever the outstanding shares are of Quaker Chemical close to the time of close. So no intention to renegotiate that. It really is a formula that's embedded in the contract and we don't have any plans to change that at this point in time.

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Operator [35]

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Our next question comes from the line of Garo Norian with Palisade Capital Management.

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Garo Norian, Palisade Capital Management LLC - SVP of Research [36]

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I want to just get a little bit more better understanding around the North American volume strength. I think if I go back in my notes, the last year's third quarter was a little weaker on volumes owing to some auto shutdowns. I wanted to see if the comp from that was somewhat beneficial in the 9% for this year?

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [37]

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Sure, it can be part of that. But we've also seen just really good market share gains in that area as well.

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Garo Norian, Palisade Capital Management LLC - SVP of Research [38]

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Okay, great. And then just on the European Commission. The original date that they put out was 27th of November and then it went to December 11. Do you have any understanding of what changed there?

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [39]

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Sure. There's a number of filings that you make with European Commission. And when you put the first filing in, it goes to something where there is 25 business days and that was kind of the first day. And then when you have a subsequent filing a few days after that, that pushes it out automatically an additional 10 days. So we have always had this 35-business day time frame in our head. I know what they put out, but we've always expected once we put in the October 19 submission that it would be December 11 or somewhere around there.

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Operator [40]

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Our next question is a follow-up from the line of Michael Harrison with Seaport Global Securities.

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Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [41]

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Just a couple of additional questions. First of all, you mentioned that we've heard from a number of other companies that there was slowing in auto sales in China. You don't seem to have shown much impact in your numbers in the quarter, but can you just talk a little bit about the potential for seeing some impact from slowing auto production as we get into Q4?

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [42]

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Yes. I mean, again, we would expect that there will be some slowdown in China. We've actually started to experience that in the third quarter. It's going to be soft, but again, it's one part of our global perspective on automotive. And when we put everything together, we continue to expect to see relatively modest growth in automotive in the fourth quarter.

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Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [43]

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All right. And then with regard to the financing for Houghton, interest rates are obviously higher than where they were when you first announced the deal. Can you maybe update your view on the rate that you expect to pay on the financing there?

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Mary Dean Hall, Quaker Chemical Corporation - CFO, VP & Treasurer [44]

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Mike, I think we believe it's in the 10Q there. We are holding to our 3.5% to 3.75% based on current rates. We have seen movement. Obviously, upward movement in the LIBOR rates in the U.S. But remember that we have 2 tranches anticipated for debt, 1 in the U.S., 1 in Europe. The Europe tranche will benefit from the lower rates there. So when you blend the 2, we're still comfortable saying that that's the range at the current rates that we would expect.

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Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [45]

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All right. And then last question for me is the Europe. You mentioned a product line or a customer that had low probability that you stopped selling to. Can you give any detail there on how large that product line is, and maybe what it was?

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [46]

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Yes, I would just say it is -- probably, it was close to 2% of the sales of Europe in that quarter and that was a nonstrategic customer. It wasn't a whole product line we exited, it was really just more of a customer thing and had very low profitability.. So it actually does not impact our bottom line that much, but it was more of an impact on volume.

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Operator [47]

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Mr. Barry, there are no further questions. At this time, I'll turn the floor back to you for any final comments.

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Michael F. Barry, Quaker Chemical Corporation - Chairman of the Board, CEO & President [48]

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Okay, thank you. Given there's no other questions, we'll end our conference call now, and I want to thank you all for your interest today. We are pleased with our results for the third quarter, and we continue to be confident in the future of Quaker Chemical. Our next conference call for the fourth quarter and full year 2018 results will be in late February or early March. And if you have any questions in the meantime, please feel free to contact Mary or myself. Thanks, again, for your interest in Quaker Chemical.

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Operator [49]

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Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.