U.S. Markets close in 2 hrs 12 mins
  • S&P 500

    4,205.70
    +83.23 (+2.02%)
     
  • Dow 30

    33,285.12
    +510.71 (+1.56%)
     
  • Nasdaq

    12,828.99
    +335.06 (+2.68%)
     
  • Russell 2000

    1,962.52
    +49.63 (+2.59%)
     
  • Crude Oil

    91.93
    +1.43 (+1.58%)
     
  • Gold

    1,813.10
    +0.80 (+0.04%)
     
  • Silver

    20.70
    +0.22 (+1.09%)
     
  • EUR/USD

    1.0324
    +0.0107 (+1.0427%)
     
  • 10-Yr Bond

    2.7570
    -0.0400 (-1.43%)
     
  • Vix

    19.83
    -1.94 (-8.91%)
     
  • GBP/USD

    1.2259
    +0.0183 (+1.5152%)
     
  • USD/JPY

    132.4730
    -2.6430 (-1.9561%)
     
  • BTC-USD

    23,925.55
    +875.65 (+3.80%)
     
  • CMC Crypto 200

    563.36
    +32.14 (+6.05%)
     
  • FTSE 100

    7,507.11
    +18.96 (+0.25%)
     
  • Nikkei 225

    27,819.33
    -180.67 (-0.65%)
     

QUAKER HOUGHTON ANNOUNCES SECOND QUARTER 2022 RESULTS

  • Oops!
    Something went wrong.
    Please try again later.
·17 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Record net sales of $492.4 million increased 13% compared to Q2'21 driven by higher selling prices

  • Reported net income of $14.3 million and earnings per diluted share of $0.80

  • Delivered $58.5 million of adjusted EBITDA and $1.32 of non-GAAP earnings per diluted share

  • Successfully amended our credit agreement and extended our maturity profile to June 2027

CONSHOHOCKEN, Pa., Aug. 4, 2022 /PRNewswire/ -- Quaker Houghton ("the Company") (NYSE: KWR), the global leader in industrial process fluids, today announced its second quarter 2022 results.


Three Months Ended

June 30,


Six Months Ended

June 30,


($ in millions, except per share data)

2022


2021


2022


2021

Net sales

$ 492.4


$ 435.3


$ 966.6


$ 865.0

Net income attributable to Quaker Chemical Corporation

14.3


33.6


34.2


72.2

Earnings per diluted share attributable to Quaker Chemical Corporation

0.80


1.88


1.91


4.03

Non-GAAP net income *

23.7


32.4


49.1


70.4

Non-GAAP earnings per diluted share *

1.32


1.82


2.74


3.93

Adjusted EBITDA *

58.5


70.1


118.9


147.2












* Refer to the Non-GAAP Measures and Reconciliations section below for additional information

Second Quarter 2022 Consolidated Results

Second quarter 2022 net sales were a record of $492.4 million, an increase of 13% compared to $435.3 million in the prior year quarter primarily due to an increase in selling price and product mix of approximately 22% and additional net sales from acquisitions of 1%, partially offset by a 6% unfavorable impact from foreign currency translation and a 4% decrease in organic sales volumes. The increase in selling price and product mix was primarily attributable to double-digit price increases in all segments in response to ongoing and unprecedented raw material and supply chain-related inflationary pressures. The decline in organic sales volumes was primarily attributable to COVID-19 related disruptions in China, the wind-down of the tolling agreement for products previously divested related to the Quaker Houghton combination, the impact of the war in Ukraine and the Company's ongoing value based pricing initiatives, partially offset by net new business wins.

The Company generated net income in the second quarter of 2022 of $14.3 million or $0.80 per diluted share, compared to the prior year quarter net income of $33.6 million or $1.88 per diluted share. Excluding non-recurring and non-core items in each period, the Company's second quarter of 2022 non-GAAP earnings per diluted share was $1.32 compared to $1.82 in the prior year quarter. The Company's second quarter of 2022 adjusted EBITDA of $58.5 million declined compared to $70.1 million in the second quarter of 2021, as the increase in net sales was more than offset by lower gross margins primarily attributable to significant increases in raw material and other costs, compared to the prior year period.

Andy Tometich, Chief Executive Officer and President, commented, "We delivered another quarter of record net sales in the second quarter, driven by strong price realization and above market volume growth. As expected our earnings declined primarily due to ongoing inflationary pressures, COVID-19 disruptions in China, unfavorable foreign currency translation, geopolitical issues and other disruptions that impacted our customers and end markets. Notwithstanding, we delivered significant price increases which offset the raw material inflation and helped to stabilize our gross margins on a sequential basis. I am energized by the commitment and focus of our people who continually demonstrate their dedication to delivering on our objectives and the value proposition of our products and services to our customers.

Looking ahead, our focus remains on executing on items within our control. We are actively working with our customers to get the needed pricing to offset the persistent inflationary pressures on our margins while remaining vigilant on our costs. Therefore, despite significant uncertainty caused by several macroeconomic factors, we continue to expect to deliver sequential gross margin expansion and earnings growth in the second half of 2022."

Second Quarter 2022 Segment Results

The Company's second quarter 2022 operating performance of each of its four reportable operating segments: (i) Americas; (ii) Europe, Middle East and Africa ("EMEA"); (iii) Asia/Pacific; and (iv) Global Specialty Businesses, are further described below.





Three Months Ended

June 30,


Six Months Ended

June 30,


Net Sales*

2022


2021


2022


2021


Americas

$ 172.7


$ 139.7


$ 326.9


$ 274.5


EMEA

123.1


123.4


248.7


243.3


Asia/Pacific

99.8


91.6


204.1


188.3


Global Specialty Businesses

96.8


80.6


186.9


159.0



























Segment operating earnings*







Americas

$ 33.8


$ 33.6


$ 63.0

$ 65.9

EMEA

13.3


23.4


30.0

48.6

Asia/Pacific

22.2


23.2


44.1

50.7

Global Specialty Businesses

27.8


24.2


52.9

48.4








* Refer to the Segment Measures and Reconciliations section below for additional information

All four segments benefitted from double-digit increases in selling price and product mix in the second quarter of 2022 compared to the prior year quarter. Organic sales volumes increased approximately 10% in Global Specialty Businesses compared to the prior year quarter, while the other segments declined due to the impacts on sales volumes mentioned above. The EMEA and Asia/Pacific segments were also significantly impacted by unfavorable foreign currency translation. Operating earnings from the Global Specialty Businesses and Americas segments increased compared to the prior year quarter whereas the other segments declined due to continued raw material and other inflationary cost pressures, the impact of the COVID-19 disruptions in China on our Asia/Pacific segment, and the unfavorable impact from foreign currency translation.

All four segments benefitted from increases in selling price and product mix compared to the first quarter of 2022, as we continued our strategic pricing initiatives. Organic sales volumes increased compared to the first quarter of 2022 in the Global Specialty Businesses and the Americas but declined in Asia/Pacific and EMEA, primarily due to COVID-19 disruptions in China, which impacted our Asia/Pacific segment, as well as lower sales volumes attributable to the war in Ukraine, and the Company's ongoing value based pricing initiatives, partially offset by net new business wins. Asia/Pacific and EMEA were also unfavorably impacted by foreign currency translation.

Cash Flow and Liquidity Highlights

The Company had a net operating cash outflow of $2.1 million during the second quarter of 2022, bringing the year-to-date net operating cash outflow to $8.4 million, compared to a net operating cash outflow of $9.6 million during the six months ended June 30, 2021. The net operating cash outflow in both periods reflects working capital investment primarily related to higher accounts receivable due to increases in net sales and higher inventory due primarily to rising raw material costs and to a lesser extent an increase in certain inventory stocks in response to global supply chain and logistics challenges.

During the second quarter of 2022, the Company successfully amended its credit agreement and extended the maturity from August 2024 to June 2027. As of June 30, 2022, the Company's total gross debt was $989.1 million and its cash and cash equivalents was $202.3 million. The Company's net debt was approximately $786.8 million, and its net debt divided by its trailing twelve months adjusted EBITDA was approximately 3.2x.

Non-GAAP Measures and Reconciliations

The information included in this press release includes non-GAAP (unaudited) financial information that includes EBITDA, adjusted EBITDA, adjusted EBITDA margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per diluted share. 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 indicative of future operating performance of the Company, and facilitate a comparison among fiscal periods, as the non-GAAP financial measures exclude items that are not indicative of future operating performance or 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 Company presents EBITDA which is calculated as net income attributable to the Company before depreciation and amortization, interest expense, net, and taxes on income before equity in net (loss) income of associated companies. The Company also presents adjusted EBITDA which is calculated as EBITDA plus or minus certain items that are not indicative of future operating performance or not considered core to the Company's operations. In addition, the Company presents non-GAAP operating income which is calculated as operating income plus or minus certain items that are not indicative of future operating performance or not considered core to the Company's operations. Adjusted EBITDA margin and non-GAAP operating margin are calculated as the percentage of adjusted EBITDA and non-GAAP operating income to consolidated net sales, respectively. The Company believes these non-GAAP measures provide transparent and useful information and are widely used by investors, analysts, and peers in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.

Additionally, the Company presents non-GAAP net income and non-GAAP earnings per diluted share as additional performance measures. Non-GAAP net income is calculated as adjusted EBITDA, defined above, less depreciation and amortization, interest expense, net, and taxes on income before equity in net (loss) income of associated companies, in each case adjusted, as applicable, for any depreciation, amortization, interest or tax impacts resulting from the non-core items identified in the reconciliation of net income attributable to the Company to adjusted EBITDA. Non-GAAP earnings per diluted share is calculated as non-GAAP net income per diluted share as accounted for under the "two-class share method." The Company believes that non-GAAP net income and non-GAAP earnings per diluted share provide transparent and useful information and are widely used by investors, analysts, and peers in our industry as well as by management in assessing the operating performance of the Company on a consistent basis.

As it relates to 2022 projections for the Company as well as other forward-looking information described further above, the Company has not provided guidance for comparable GAAP measures or a quantitative reconciliation of forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP measure because it is unable to determine with reasonable certainty the ultimate outcome of certain significant items necessary to calculate such measures without unreasonable effort. These items include, but are not limited to, certain non-recurring or non-core items the Company may record that could materially impact net income, as well as the impact of COVID-19. These items are uncertain, depend on various factors, and could have a material impact on the U.S. GAAP reported results for the guidance period.

The Company's reference to trailing twelve months adjusted EBITDA within this press release refers to the twelve month period ended June 30, 2022 adjusted EBITDA of $245.8 million, which includes (i) the six months ended June 30, 2022 adjusted EBITDA of $118.9 million, as presented in the non-GAAP reconciliations below, and (ii) the twelve months ended December 31, 2021 adjusted EBITDA of $274.1 million, as presented in the non-GAAP reconciliations included in the Company's fourth quarter and full year 2021 results press release dated February 24, 2022, less (iii) the six months ended June 30, 2021 adjusted EBITDA of $147.2 million, as presented in the non-GAAP reconciliations below.

Certain of the prior period non-GAAP financial measures presented in the following tables have been adjusted to conform with current period presentation. The following tables reconcile the Company's non-GAAP financial measures (unaudited) to their most directly comparable GAAP (unaudited) financial measures (dollars in thousands unless otherwise noted, except per share amounts):

Non-GAAP Operating Income and Margin Reconciliations


Three Months Ended

June 30,


Six Months Ended

June 30,



2022


2021


2022


2021




Operating income

$ 31,903


$ 38,816


$ 61,306


$ 83,710




Combination, restructuring and other

acquisition-related expenses (a)

1,831


7,082


6,704


15,288




Strategic planning and transformation expenses

3,112



6,200





Executive transition costs

645


308


1,184


812




Russia-Ukraine conflict related expenses

929



2,095





Other charges

385


242


476


293




Non-GAAP operating income

$ 38,805


$ 46,448


$ 77,965


$ 100,103




Non-GAAP operating margin (%)

7.9 %


10.7 %


8.1 %


11.6 %




EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and

Non-GAAP Net Income Reconciliations







Three Months Ended

June 30,


Six Months Ended

June 30,



2022


2021


2022


2021



Net income attributable to Quaker Chemical Corporation

$ 14,343


$ 33,570


$ 34,159


$ 72,185



Depreciation and amortization (a)(b)

20,856


22,344


41,583


44,792



Interest expense, net

6,494


5,618


11,839


11,088



Taxes on income before equity in net (loss) income

1,374


15,218


4,240


25,907



of associated companies (c)

















EBITDA

$ 43,067


$ 76,750


$ 91,821


$ 153,972



Equity loss (income) in a captive insurance company

1,781


(883)


2,025


(3,963)



Combination, restructuring and other

2,248


6,956


9,100


9,359



acquisition-related expenses (a)

















Strategic planning and transformation expenses

3,112



6,200




Executive transition costs

645


308


1,184


812



Russia-Ukraine conflict related expenses

929



2,095




Brazilian non-income tax credits


(13,293)



(13,293)



Loss on extinguishment of debt

6,763



6,763




Other charges

(54)


219


(253)


318



Adjusted EBITDA

$ 58,491


$ 70,057


$ 118,935


$ 147,205



Adjusted EBITDA margin (%)

11.9 %


16.1 %


12.3 %


17.0 %













Adjusted EBITDA

$ 58,491


$ 70,057


$ 118,935


$ 147,205



Less: Depreciation and amortization - adjusted (a)(b)

20,856


22,218


41,583


44,251



Less: Interest expense, net

6,494


5,618


11,839


11,088



Less: Taxes on income before equity in net (loss)

7,466


9,773


16,368


21,512



income of associated companies – adjusted (c)

















Non-GAAP net income

$ 23,675


$ 32,448


$ 49,145


$ 70,354



Non-GAAP Earnings per Diluted Share Reconciliations







Three Months Ended

June 30,


Six Months Ended

June 30,



2022


2021


2022


2021



GAAP earnings per diluted share attributable to Quaker

Chemical Corporation common shareholders

$ 0.80


$ 1.88


$ 1.91


$ 4.03



Equity loss (income) in a captive insurance company per diluted share

0.10


(0.05)


0.11


(0.22)



Combination, restructuring and other acquisition-related

expenses per diluted share (a)

0.13


0.30


0.41


0.42



Strategic planning and transformation expenses per diluted share

0.13



0.27




Executive transition costs per diluted share

0.03


0.02


0.05


0.04



Russia-Ukraine conflict related expenses per diluted share

0.04



0.10




Brazilian non-income tax credits per diluted share


(0.44)



(0.44)



Loss on extinguishment of debt per diluted share

0.29



0.29




Other charges per diluted share

(0.00)


0.01


(0.01)


0.02



Impact of certain discrete tax items per diluted share

(0.20)


0.10


(0.39)


0.08



Non-GAAP earnings per diluted share

$ 1.32


$ 1.82


$ 2.74


$ 3.93



(a)

The Company recorded $0.1 million and $0.5 million of accelerated depreciation expense related to the Quaker Houghton combination during the three and six months ended June 30, 2021 all of which was recorded in cost of goods sold ("COGS"). These amounts recorded within COGS are included in the caption Combination, restructuring and other acquisition-related expenses in the reconciliation of Operating income to Non-GAAP operating income and GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders to Non-GAAP earnings per diluted share. In addition, the total amounts of such depreciation are included within the caption Depreciation and amortization in the reconciliation of Net income attributable to Quaker Chemical Corporation to Adjusted EBITDA; however, they are excluded in the reconciliation of Adjusted EBITDA to Non-GAAP net income. During the three and six months ended June 30, 2022, the Company recorded expenses of $0.4 million and $2.4 million, respectively related to indemnification assets. During the six months ended June 30, 2021, the Company recognized a gain of $5.4 million associated with the sale of certain held-for-sale real property assets which was the result of the Company's manufacturing footprint integration plan. These amounts were recorded within Other (expense) income, net and therefore are included in the caption Combination, restructuring and other acquisition-related expenses in the reconciliation of Net income attributable to Quaker Chemical Corporation to Adjusted EBITDA and GAAP earnings per diluted share attributable to Quaker Chemical Corporation common shareholders to Non-GAAP earnings per diluted share, however it is excluded in the reconciliation of Operating income to Non-GAAP operating income.



(b)

Depreciation and amortization for the three and six months ended June 30, 2022 includes $0.2 million and $0.5 million, respectively, and for the three and six months ended June 30, 2021 included $0.3 million and $0.6 million, respectively, of amortization expense recorded within equity in net income of associated companies in the Condensed Consolidated Statement of Income, which is attributable to the amortization of the fair value step up for the Company's 50% interest in a Houghton joint venture in Korea as a result of required purchase accounting.



(c)

Taxes on income before equity in net (loss) income of associated companies – adjusted includes the Company's tax expense adjusted for the impact of any current and deferred income tax expense (benefit), as applicable, of the reconciling items presented in the reconciliation of Net income attributable to Quaker Chemical Corporation to adjusted EBITDA, above, determined utilizing the applicable rates in the taxing jurisdictions in which these adjustments occurred, subject to deductibility. This caption also includes the impact of specific tax charges and benefits in the three and six months ended June 30, 2022 and 2021, which the Company does not consider core or indicative of future performance.

Segment Measures and Reconciliations

The Company's operating segments, which are consistent with its reportable segments, reflect the structure of the Company's internal organization, the method by which the Company's resources are allocated and the manner by which the chief operating decision maker assesses the Company's performance. The Company has four reportable segments: (i) Americas; (ii) EMEA; (iii) Asia/Pacific; and (iv) Global Specialty Businesses. The three geographic segments are composed of the net sales and operations in each respective region, excluding net sales and operations managed globally by the Global Specialty Businesses segment, which includes the Company's container, metal finishing, mining, offshore, specialty coatings, specialty grease and Norman Hay businesses. Segment operating earnings for each of the Company's reportable segments are comprised of the segment's net sales less directly related COGS and selling, general and administrative expenses. Operating expenses not directly attributable to the net sales of each respective segment, such as certain corporate and administrative costs, Combination, integration and other acquisition-related expenses, and Restructuring and related charges, are not included in segment operating earnings. Other items not specifically identified with the Company's reportable segments include interest expense, net and other (expense) income, net.

The following tables reconcile the Company's reportable operating segments performance to that of the Company (dollars in thousands):


Three Months Ended

June 30,


Six Months Ended

June 30,

Net Sales

2022


2021


2022


2021





Americas

$ 172,747


$ 139,673


$ 326,891


$ 274,544





EMEA

123,053


123,436


248,740


243,250





Asia/Pacific

99,828


91,559


204,062


188,265





Global Specialty Businesses

96,760


80,594


186,866


158,986





Total net sales

$ 492,388


$ 435,262


$ 966,559


$ 865,045

















Segment operating earnings












Americas

$ 33,785


$ 33,648


$ 63,005


$ 65,882





EMEA

13,283


23,405


30,049


48,649





Asia/Pacific

22,226


23,227


44,133


50,705