CONSHOHOCKEN, PA — Quaker Houghton (NYSE: KWR) announced its second-quarter 2024 results, demonstrating resilience amid a challenging market. The company reported net sales of $463.6 million, a 6% decrease from $495.4 million in the same quarter last year. This decline was mainly due to lower selling prices, reduced sales volumes, and unfavorable foreign currency impacts.
Despite the drop in revenue, Quaker Houghton achieved a net income of $34.9 million, or $1.94 per diluted share, up from $29.3 million, or $1.63 per diluted share, in the second quarter of 2023. Excluding non-recurring and non-core items, non-GAAP net income reached $38.2 million, translating to $2.13 per diluted share, compared to $34.8 million and $1.93 per diluted share last year. Adjusted EBITDA rose by 5% to $84.3 million, driven by improved gross margins across all segments.
“Quaker Houghton achieved solid results in the second quarter, demonstrating the resilience of our business and delivering year-over-year and sequential earnings growth,” said Andy Tometich, CEO and President. “We continue to outperform our end markets, driven by the team’s focus and execution, earning profitable new business by enhancing our customer’s operations.”
The results by region were mixed. The Americas saw a decline in net sales due to lower volumes and selling prices. The EMEA (Europe, Middle East, and Africa) region also experienced drops in sales and unfavorable currency impacts. However, the Asia/Pacific region saw a rise in sales volumes, which helped offset some pricing and currency challenges.
Despite the soft market conditions in the Americas and EMEA, Quaker Houghton improved its segment margins for the eighth consecutive quarter. The company’s balance sheet remains robust, with strong cash flow generation supporting its capital allocation strategy. Net cash from operating activities was $73.5 million for the first half of 2024, down from $116.1 million in the same period last year due to working capital needs.
Looking ahead, Tometich expressed confidence in achieving another year of earnings growth in 2024, despite market headwinds. “We remain committed to advancing our enterprise strategy, enhancing our capabilities, and strengthening our leading portfolio of products and technical capabilities to drive efficiencies and further reinforce the relationship with our customers,” he added.
Navigating Quaker Houghton’s Financial Landscape
For investors, Quaker Houghton presents a complex yet compelling picture. The company’s ability to grow earnings and margins in challenging market conditions demonstrates strong operational resilience. Gross margins improved by 200 basis points from the prior year, marking the eighth consecutive quarterly increase.
However, the ongoing challenges in the Americas and EMEA segments could weigh on future performance. The company’s revenue decline was primarily due to a decrease in selling prices and product mix, along with lower sales volumes and unfavorable foreign currency impacts. These factors contributed to a 6% drop in net sales compared to the previous year.
The Asia/Pacific region was a bright spot, showing increased sales volumes despite some pricing and currency challenges. This improvement was attributed to new business wins and a modest recovery in end-market conditions, particularly in metals applications.
Quaker Houghton’s financial health remains strong. The company’s operating cash flow for the first half of 2024 was $73.5 million, though down from $116.1 million in the same period last year due to higher working capital requirements. As of June 30, 2024, the company’s total gross debt was $737.4 million, with cash and cash equivalents of $188.6 million, resulting in net debt of approximately $548.8 million. The net debt-to-trailing twelve months adjusted EBITDA ratio stood at a manageable 1.7x.
The company also demonstrated shareholder-friendly actions by repurchasing 49,000 shares for approximately $7.8 million in the second quarter and increasing its cash dividend by 6.6%. These moves signal confidence in its financial stability and future prospects.
Conclusion: Hold
Given these factors, Quaker Houghton is a Hold. The company’s strong operational resilience and robust financial health provide a cushion against market volatility. However, the ongoing challenges in the Americas and EMEA segments and overall market softness are concerns that could impact future performance.
Investors should monitor the company’s strategic initiatives, particularly its efforts to enhance capabilities and drive efficiencies. The strong balance sheet and cash flow generation support a balanced capital allocation strategy, positioning Quaker Houghton well for long-term growth. However, current market conditions and regional performance will be key determinants of future growth.
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