Quaker Chemical Corporation (NYSE:KWR) Q4 2017 Earnings Conference Call - Final Transcript

Mar 01, 2018 • 08:30 am ET


Quaker Chemical Corporation (NYSE:KWR) Q4 2017 Earnings Conference Call - Final Transcript


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Greetings, and welcome to the Quaker Chemical Corporation Fourth Quarter and Full-Year 2017 Results Conference. [Operator Instructions]

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

Michael Barry

Thank you, Dana. 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'll address any questions that you may have. We also have slides for our conference call. You can find them in the Investor Relations section of our website at www.quakerchem.com.

I'll now start it off with some remarks about the fourth quarter. I'm pleased we have delivered another good quarter, despite some market challenges. The quarter's results were largely driven by two major factors. The first were very strong sales, and the second, lower than expected gross margins.

Let me start with the margins. Since mid-2016, we have been in a generally rising raw material cost environment. And as we've discussed in the past with raw materials, there's a lag effect between changes in our raw material costs and the adjustments to our product pricing. On the last conference call, our expectation was that gross margins would begin to increase in Q4, but instead they were even with Q3, primarily due to raw materials being higher than our expectations. The good news is that we do expect our gross margins to trend upward over the next few quarters, and expect that during most of 2018, our gross margins will be around 36%. While we see raw materials continuing to increase, especially in the first part of the year, we also have pricing initiatives in place where necessary to offset the raw material cost increases as well. While we'll continue to experience some more of this lag effect we have talked about in the past, we are making good progress, and that is the reason for our higher margin expectations. So we do expect the margins to continue to increase, but the exact timing of when we will reach our goal of 37% is hard to predict.

So now let me move on to sales. I'm very pleased with the strong revenue and volume growth we have achieved in both the fourth quarter and the full year. Let me now give you some additional information at the regional level for the quarter. Our biggest segment, North America, showed a sales increase of 5%, due primarily to the Lubricor acquisition last year as well as price increases. Our European or EMEA region showed a 17% increase, 8% of which was due to foreign exchange, while the rest was due to a combination of good volume growth and higher pricing. In our Asia-Pacific region, our volumes were very strong driving essentially the entire sales increase of 11%. And for the sixth quarter in a row, we are happy to report that South America showed good revenue growth. The 24% growth in South America was