Release Date: November 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Quaker Houghton (KWR, Financial) delivered stable sales and consistent margins despite challenging market conditions.
- The company achieved a gross margin of 37.3%, in line with the prior year and quarter, demonstrating effective cost management.
- Quaker Houghton (KWR) generated $79 million in adjusted EBITDA and $1.89 in non-GAAP diluted earnings per share, highlighting business resilience.
- The Asia Pacific segment showed strong performance with a 9% increase in volumes year-to-date, driven by new business wins.
- The company has a strong financial position with over $200 million in cash and a net leverage ratio of 1.6 times trailing 12-month adjusted EBITDA.
Negative Points
- Net sales declined by approximately 6% year-over-year, impacted by lower selling prices and product mix.
- The Americas segment experienced a 10% decline in net sales due to lower industrial activity and customer downtimes.
- The EMEA segment faced challenges with a 4% decrease in net sales and higher manufacturing costs.
- The company anticipates continued soft market conditions in the fourth quarter, with potential impacts from seasonal patterns.
- Extended customer downtimes and reduced production rates, particularly in automotive and metals, negatively affected performance.
Q & A Highlights
Q: Looking at the operating margin performance in Q3, you guys were 120 basis points lower sequentially even though the revenue level was pretty similar to last quarter. Can you help us understand the different pieces of that sequential margin decline?
A: Andrew Tometich, CEO: The decline was due to a lag effect on pricing related to index-based contracts as raw materials have come down. This impacted the third quarter, but we expect this effect to diminish as raw materials stabilize. Additionally, there was an uptick in SG&A due to timing around cost structures, though some of this was offset by cost controls.
Q: You talked about Asia and the strength you've seen there. Can you talk about what's driving that strength?
A: Andrew Tometich, CEO: We've seen relative strength across the Pacific region, including China, India, and Southeast Asia, driven by new business wins in metals and metalworking. The Sutai acquisition helped, but most growth has been organic, focusing on unlocking customer value.
Q: In terms of the outlook for Q4, you mentioned there's some seasonality. Can you talk about some of the puts and takes as we're thinking about Q4 versus Q3 from revenue as well as a margin standpoint?
A: Andrew Tometich, CEO: The market remains soft, with expected seasonal impacts, particularly in the Americas and EMEA. We anticipate continued headwinds in automotive, steel, and aerospace. However, we are earning new business to offset some of these challenges, and Asia Pacific is expected to remain positive.
Q: Any chance I can get you to comment on some modeling assumptions as we're starting to turn our attention to 2025?
A: Andrew Tometich, CEO: While it's early for specifics, we plan to build on our progress, maintaining our target margin range and optimizing the organization. We expect some macro improvement, with potential growth in auto and steel production, and will continue to drive new business wins.
Q: If we were to lap current pricing, what would the net price tail be next year?
A: Andrew Tometich, CEO: Pricing was down year-over-year due to index pricing, but it's stabilizing. We expect this trend to continue into next year, operating within our targeted 37% to 38% gross margin range.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
