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Quaker Chemical Corp    KWR   $0.71
same period last year        -$0.26

Quaker Chemical Corporation (NYSE: KWR) announced net sales of $131.7 million and earnings per diluted share of $0.71 for the fourth quarter of 2009, compared to sales of $116.2 million and a loss of $0.26 per diluted share for the fourth quarter of 2008.  Full year 2009 sales were $451.5 million and earnings per diluted share were $1.47, compared to full year 2008 sales of $581.6 million and earnings per diluted share of $1.05.  

Michael F. Barry, Chairman, Chief Executive Officer and President, stated, "We posted strong fourth quarter results, especially in light of a continued challenging global economic environment.  A large driver of the sequential improvement in our profitability was the strong steel industry demand in China, Brazil and India.  Steel and auto volumes, while gradually recovering, remain depressed in North America and Europe, and profitability, while improved from the prior year loss, is not where we need it to be longer term.  We also benefited from a low tax rate and volume increases related to our customers' inventory restocking which we do not expect to be repeated to the same degree going forward.  In 2010, we expect year-over-year earnings growth as volumes gradually increase, but this will be tempered by our continued investment in the BRIC countries and other key growth initiatives."  

Mr. Barry added, "While 2009 was a challenging year given the severe decline in volumes, we were able to exit the year in a stronger financial and competitive position.  During 2009, we generated record operating cash flows and paid down more than one-quarter of our debt.  In addition, due to the aggressive actions taken over the past year, our current EBITDA run rate now exceeds pre-crisis levels.  We also continued to invest in our business as demonstrated by our Middletown, Ohio plant expansion and an upgrade to our global ERP system.  In summary, we are a financially stronger company today than when we entered into the global crisis, and we believe we are in a better competitive position as well."  

Fourth Quarter Summary

Net sales for the fourth quarter were $131.7 million, an increase of approximately 13% compared to $116.2 million for the fourth quarter of 2008.  The increase in net sales was primarily due to volume increases in all of the Company's regions, as the Company began to recover from the global economic downturn.  Volumes increased 12%, partially offset by a 7% decline in selling price and mix.  Foreign exchange rates increased revenues by approximately 8%.  Volumes also continued to increase on a sequential quarter basis by approximately 7% compared to the third quarter of 2009.  

Gross margins increased approximately $19.5 million, or 69%, compared to the fourth quarter of 2008.  The gross margin percentage of 36.1% represents considerable improvement over the 24.2% reported in the fourth quarter of 2008.  This margin expansion was primarily the result of higher volumes, cost reduction actions taken, a more favorable raw material cost environment and reduced automotive chemical management services revenue reported on a gross basis.  Gross margin as a percentage of sales declined 1.3 percentage points from the third quarter 2009 level due to higher costs related to the start-up of the Middletown, Ohio plant expansion, increasing raw material prices and mix.  

Selling, general and administrative expenses ("SG&A") increased $8.9 million, or 33%, compared to the fourth quarter of 2008.  The increase was primarily due to incentive compensation accruals in 2009 compared to reversals in incentive compensation accruals in the prior year quarter related to the fourth quarter 2008 loss, and accounted for approximately 75% of the increase.  Changes in foreign exchange rates accounted for the majority of the remainder.

The increase in other income is primarily due to larger foreign exchange losses in the fourth quarter of 2008.  The increase in equity in net income of associated companies and net income attributable to noncontrolling interests was due to stronger financial performances from those affiliates as they began to recover from the global economic downturn.  

Full Year Summary

Net sales for 2009 were $451.5 million, a decline of $130.2 million, or approximately 22%, compared to $581.6 million for 2008.  Volumes declined approximately 20%, reflective of the global economic downturn.  Changes in foreign exchange rates also decreased revenue by approximately 2%.  

Gross margin decreased by $6.2 million, or 4%, compared to 2008, reflective of the above-noted volume declines which were tempered by gross margin percentage expansion.  The gross margin percentage increased to 34.7% in 2009, compared to 28.0% in 2008, primarily due to cost reduction actions taken, a more favorable raw material cost environment and reduced automotive chemical management services revenue reported on a gross basis.

SG&A decreased $10.7 million, or 8%, compared to 2008.  Savings from cost reduction programs, lower travel and entertainment expenses and lower commissions, partially offset by higher incentive compensation accruals, accounted for 64% of the decline.  Changes in foreign exchange rates accounted for the remainder.

In response to the global economic downturn, the Company initiated restructuring programs and incurred charges of approximately $2.3 million, or approximately $0.14 per diluted share, in 2009 and $2.9 million, or approximately $0.18 per diluted share, in 2008.  The Company completed both initiatives in 2009.  

The Company incurred charges related to the former CEO's supplemental retirement plan of approximately $2.4 million in 2009, or approximately $0.14 per diluted share, and expects to incur a final charge of approximately $1.3 million, or approximately $0.07 per diluted share, in 2010.  The CEO transition costs incurred in 2008 were approximately $3.5 million, or approximately $0.22 per diluted share.  

Other income for 2009 includes a $1.2 million gain related to the disposition of excess land in Europe, while other income for 2008 includes a net arbitration award of approximately $1.0 million related to litigation with one of the former owners of the Company's Italian subsidiary.  Lower foreign exchange rate losses in 2009, compared to 2008, also contributed to the change in other income in 2009.  The increase in net interest expense was primarily due to lower interest income, as lower average debt balances were offset by higher interest rates.  

The Company's effective tax rate for 2009 was 29.8%, compared to 29.9% in 2008.  The 2009 effective tax rate reflects no tax expense being provided for the land sale gain due to the utilization of net operating losses, which were previously not benefited, while the 2008 effective tax rate includes a tax refund of $0.5 million related to the Company's increased investment in China.  The Company has experienced and expects to experience further volatility in its quarterly effective tax rates due to the varying timing of tax audits and the expiration of applicable statutes of limitations as they relate to uncertain tax positions.  

For more information, visit http://www.quakerchem.com

Quaker Chemical Corporation develops, produces, and markets formulated chemical specialty products for various heavy industrial and manufacturing applications, as well as offers chemical management services (CMS).

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