Quaker Chemical Corporation (NYSE:KWR) Q1 2018 Earnings Conference Call Transcript

Greetings, and welcome to the Quaker Chemical Corporation First Quarter 2018 Results Conference Call. A brief 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, Michael Barry, Chairman, Chief Executive Officer and President for Quaker Chemical Corporation. Mr. Barry, you may begin.

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 off now with some remarks about the first quarter. I am pleased we have delivered another good quarter despite some market challenges, the quarter's results were largely driven by two major factors. The first was sales and the second was gross margins.

Let me start with margins. Since mid-2016, we have been in a generally rising raw material cost environment. And as we have discussed in the past with raw materials, there's a lag effect between changes in our raw material costs and adjustments to our product pricing. On the last conference call, our expectation was that gross margins would begin to increase in the first quarter and they did. While raw materials continue to rise sequentially from the fourth quarter, our previous price increases were enough to begin to turn a tide and we saw our gross margin increase. The good news is that we expect the gross margins to trend upwards over the next few quarters, and expect that for 2018 our gross margins will be around 36%.

While we expect certain raw materials to continue to increase, especially in the first part of the year. We also have price initiatives in place to offset the raw material cost increases where necessary. While we continue to experience more of this lag effect that we talk about in the past, we are making good progress and that is the reason for our higher margin expectations. So we do expect our margins to continue to increase, but the exact timing of when we will reach our 37% target is hard to predict.

Now let me move on to sales. Our sales increased 9% versus prior year, with 6% of the increase coming from foreign exchange.

Let me now give you some additional color on our region's performance for the quarter. Our biggest segment, North America, showed a sales increase of 5% with volume growth near 2% and the remainder mainly due to price increases. Our European or EMEA region showed a 15% increase, with exchange rates being the primary reason. We did see a volume decrease of 6% being offset by primarily higher prices. The EMEA volumes in the first quarter were actually quite strong, but the prior year volumes were unusually high, due to an