Quaker Chemical Corporation (NYSE:KWR) Q3 2017 Earnings Conference Call Transcript

Oct 27, 2017 • 08:30 am ET


Quaker Chemical Corporation (NYSE:KWR) Q3 2017 Earnings Conference Call Transcript


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Greetings, and welcome to the Quaker Chemical Corporation Third Quarter 2017 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Michael Barry, Chairman, CEO and President. Thank you. You may begin.

Michael Barry

Thank you, Donna. Good morning, everyone. Joining me today are Mary Hall, our CFO; and Robert Traub, our General Counsel.

After my comments, Mary will provide the details around the financials, and then, we will address any questions that you may have. We also have slides for our conference call, and you can find them in the Investor Relations section of our website at www.quakerchem.com.

I'll start it off now with some remarks about the third quarter. I'm pleased that we delivered another good quarter despite some market challenges. The quarter's results were largely driven by two major factors: first was strong sales; and the second, lower gross margins due primarily to higher raw material costs.

Let me start with margins. For the past five quarters, we have been in a rising raw material cost environment. And as we've discussed in the past, with the raw materials, there is a lag effect between changes in our material costs and adjustments to our product pricing. During the last conference call, we had expected a stabilization of raw material costs, and we anticipated our third quarter gross margins would start to improve.

However, we did not see the stabilization in our raw materials for a variety of reasons, and we saw some regional and product mix differences as well, which when combined, declined our gross margins. The good news is that we do expect our gross margins to trend upwards over the next few quarters, gradually heading back to our 37% target.

So now, let me move on to sales, and I'll do so in each of our respective regions. Our biggest segment, North America, showed a sales increase of 5%, due primarily to the Lubricor acquisition last year as well as price increases. Base volumes declined somewhat partially due to more prolonged automotive-related shutdowns in summer versus last year.

Our European or EMEA region showed an 18% increase, due primarily to an 8% growth in volumes and a 6% positive impact from foreign exchange rates. In our Asia-Pacific region, our volumes were very strong, driving a sales increase of 18%. And for the fifth quarter in a row, we were happy to report that South America showed good revenue growth. The 11% growth in South America sales was due to a combination of higher pricing and volume growth.

One way to see our market share gains is to look at our overall organic volume growth in the quarter of 5% and compare that to the underlying production growth in our base markets, which we estimate grew at approximately 3%. We believe this spread of approximately 2% is indicative of