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

May 01, 2018 • 08:30 am ET

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

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Presentation
Executive
Mary Dean Hall

5 as I review our financial performance. Quaker reported a 17% increase in non-GAAP earnings per share to $1.38 this quarter versus analyst consensus of $1.25, these results were driven by strong sales growth and continued discipline in managing costs. While our gross margin continue to reflect some pressure year-over-year due to increased raw material cost, we did see sequential improvement over Q4 2017. Our net sales increased 9% to about $212 million, compared to Q1 of last year, benefiting from organic volume growth in all regions except EMEA as Mike explained and the positive impact from selling pricing and mix. We also benefited from a generally-weaker dollar with foreign exchange translation increasing our topline by 6%.

Appreciation of the Euro versus the US dollar was the largest driver for the FX impact with the Euro appreciating about 15% versus Q1 last year from $1.07 to $1.23 per Euro. The favorable FX impact flowed through to the bottomline with a positive 5% impact on earnings this quarter. Our gross margin of 35.6% is down from last year's Q1 at 36.4%, but up sequentially from 35.1% in Q4. As we discussed on our last call, gross margin is beginning to show the positive impact from price increases, as Mike mentioned, we continue to expect gradual gross margin improvement, trending up to the 36% area this year.

Quaker continue to show good cost discipline as we leveraged our infrastructure to support the strong topline growth, helping to offset the gross margin decline. Note that our GAAP operating income and operating margin reflect $5.2 million of Houghton related expenses. If we look at the ratio of the SG&A lines to sales on Chart 5, the Q1 ratio of 23.6% compares favorably to the 24.7% in Q1 of last year, helping to drive the improvement in operating income and operating margin.

Please also note that our effective tax rate in Q1 of 29.8% is down from last year's rate of 50.8%. Both periods reflect the impact of Houghton combination related expenses, some of which are nondeductible. The Company estimates that excluding these nondeductible expenses, our effective tax rate would have been approximately 26% this quarter and 28% in Q1 of last year. The decrease is primarily the result of US tax reform. For the full year, we continue to expect that our effective tax rate will be between 23% and 25% excluding the impact of Houghton combination related cost.

As a result of our solid operating performance, adjusted EBITDA was at 9% to a record $30.8 million for the quarter. Operating cash flow of $2.7 million is down a bit from last year's $8.3 million, primarily as a result in investment and working capital to support the 9% sales growth. Our liquidity and balance sheet remains strong with a net cash position of $17.2 million.

Turning to Chart 6, here you see the volumes were up Q-over-Q, despite the atypical volume levels in EMEA in Q1 of last year as Mike mentioned. In Chart