On August 5, 2024, Quaker Houghton (KWR, Financial) released its 8-K filing for the second quarter of 2024. Quaker Houghton, a global leader in industrial process fluids, reported net sales of $463.6 million and net income of $34.9 million, or $1.94 per diluted share. This performance fell short of analyst estimates, which projected earnings per share (EPS) of $2.76 and revenue of $493.68 million for the quarter.
Company Overview
Quaker Houghton manufactures and sells a variety of industrial process fluids. The product portfolio includes metal removal fluids, cleaning fluids, corrosion inhibitors, metal drawing and forming fluids, die-cast mold releases, heat treatment and quenchants, metal forging fluids, hydraulic fluids, specialty greases, offshore sub-sea energy control fluids, rolling lubricants, rod and wire drawing fluids, and surface treatment chemicals. The company operates in four geographic segments: America, EMEA, Asia/Pacific, and Global Specialty Businesses, with the majority of revenue earned from America.
Performance and Challenges
Quaker Houghton reported a 6% decline in net sales compared to the same quarter last year, primarily due to a decrease in selling price and product mix (4%), a decline in sales volumes (1%), and an unfavorable impact from foreign currency translation (1%). The decline in sales volumes was mainly attributed to soft end market conditions in the EMEA and Americas segments, partially offset by improvements in the Asia/Pacific segment and new business wins across all segments.
Financial Achievements
Despite the revenue shortfall, Quaker Houghton achieved several financial milestones. The company reported a non-GAAP net income of $38.2 million and non-GAAP earnings per diluted share of $2.13. Adjusted EBITDA for the quarter was $84.3 million, a 5% increase compared to $80.2 million in Q2 2023. Gross margins improved by 200 basis points year-over-year, marking the eighth consecutive quarterly increase.
Income Statement Highlights
| Metric | Q2 2024 | Q2 2023 |
|---|---|---|
| Net Sales | $463.6 million | $495.4 million |
| Net Income | $34.9 million | $29.3 million |
| Earnings per Diluted Share | $1.94 | $1.63 |
| Non-GAAP Net Income | $38.2 million | $34.8 million |
| Non-GAAP Earnings per Diluted Share | $2.13 | $1.93 |
| Adjusted EBITDA | $84.3 million | $80.2 million |
Segment Performance
Net sales in the Americas segment declined due to lower sales volumes and selling prices. The EMEA segment also saw a decline in net sales, primarily due to lower selling prices and unfavorable foreign currency translation. Conversely, the Asia/Pacific segment experienced an increase in net sales, driven by higher sales volumes, partially offset by lower selling prices and unfavorable currency impacts.
Cash Flow and Liquidity
Quaker Houghton generated $73.5 million in operating cash flow year-to-date, compared to $116.1 million in the same period last year. The company's total gross debt stood at $737.4 million, with cash and cash equivalents of $188.6 million, resulting in a net debt of approximately $548.8 million. The net debt to trailing twelve months adjusted EBITDA ratio was approximately 1.7x. Additionally, the company repurchased 49,000 shares for approximately $7.8 million during the quarter.
Analysis
Quaker Houghton's Q2 2024 results highlight the company's resilience amid challenging market conditions. While the decline in net sales and the shortfall against analyst estimates are concerning, the improvement in gross margins and adjusted EBITDA indicates effective cost management and operational efficiency. The company's strong cash flow and balanced capital allocation strategy position it well for future growth, despite ongoing market challenges.
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Explore the complete 8-K earnings release (here) from Quaker Houghton for further details.
