Release Date: May 02, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Quaker Houghton (NYSE:KWR) successfully gained additional market share across all segments despite challenging global macroeconomic conditions.
• The company is advancing a $20 million cost program, expected to be substantially complete in the first half of 2025, which will deliver approximately $15 million of in-year benefit.
• Quaker Houghton (NYSE:KWR) made strategic acquisitions, including Dipsol, which are expected to expand their addressable market and enhance their portfolio.
• Gross margins improved by 120 basis points to 36.4% compared to the fourth quarter of 2024.
• The company is in a strong financial position with a disciplined capital allocation strategy, including investments in a new facility in China to enhance local supply capabilities.

Negative Points

• First quarter net sales were $443 million, a decline of approximately 6% from the prior year.
• Volumes declined by 1.5% due to continued soft industrial activity and uncertainty regarding tariffs.
• Gross margins are below the prior year due to the timing of raw material cost increases and product and geographic mix.
• The Americas segment experienced a 7% decline in net sales year over year, with volumes declining due to soft industrial activity and low steel utilization rates.
• The company faces uncertainty and volatility in demand due to tariffs and trade dynamics, impacting end markets and customer decision-making.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Sign with AIG.

Q: Are there any concerns regarding input costs or cross-border finished goods selling due to tariffs, and how might this impact overall demand and customer uncertainty? A: Joe Berquist, President and CEO, explained that Quaker Houghton is largely mitigating the impact of tariffs due to their local sourcing and production strategies. While raw materials are sourced globally, the company has dual sources of supply and can qualify alternatives as needed. The main concern is the uncertainty around demand, which has shown some impact in the first quarter. However, the company is prepared to manage these uncertainties and maintain margins and costs effectively.

Q: Can you provide more details on the initiatives to simplify the portfolio and improve brand awareness? A: Joe Berquist highlighted efforts to reduce complexity by aligning strategy and product management with business segments. The company is focusing on cross-selling newer technologies and creating clarity around brand positioning. They are also enhancing customer experience through technology, inside sales channels, and e-commerce, allowing the salesforce to focus on larger targets.

Q: What is the outlook for the second quarter in terms of sequential growth and cost contributions? A: Tom Koller, Executive Vice President and CFO, indicated that EBITDA is expected to be modestly higher in Q2 due to normal seasonality and continued share gains. SG&A is anticipated to remain around Q1 levels, with additional contributions from the Dipsol acquisition.

Q: How has order volatility changed, and what are customers indicating about returning to stable order patterns? A: Joe Berquist noted that volatility has been present for a few years, with recent acceleration due to tariffs. The most impacted regions are Europe and the Americas, where customers are managing inventories prudently. Asia experienced some impact from the lunar holiday, but the company showed growth through share gains.

Q: What are the expectations for the impact of deregulation on Quaker Houghton's business? A: Joe Berquist stated that deregulation is not expected to have a material impact on the business. The company is supportive of any measures that stimulate business growth and is prepared to innovate and provide solutions to help customers navigate regulatory changes.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.