Quaker Houghton Q2 Earnings Call Highlights

Record profitability: Second-quarter sales rose 10% to $533 million, while sales volumes increased 7% and adjusted EBITDA reached a record $85 million. Non-GAAP EPS climbed 28% to $2.19 despite raw-material and container-cost pressure. Broad-based regional growth: Asia-Pacific led performance with 12% sales growth and 27% higher segment earnings, while EMEA sales rose 13% and Americas sales increased 7%. Management attributed volume gains largely to market-share wins, although Americas profitability declined because of higher operating and one-time quality-related costs. Positive outlook and shareholder returns: Quaker Houghton expects approximately $10 million in run-rate savings, maintained its outlook for flat-to-modestly positive end markets and mid- to high-single-digit full-year adjusted EBITDA growth. The company also authorized $250 million in additional buybacks and raised its quarterly dividend 4.3%.

Quaker Houghton NYSE: KWR reported second-quarter results marked by higher sales volumes, record adjusted EBITDA and broad-based share gains, as the company navigated elevated raw-material costs and supply-chain uncertainty tied to the conflict in the Strait of Hormuz. President and Chief Executive Officer Joe Berquist said the company recorded its fourth consecutive quarter of year-over-year profitability growth. Sales volumes rose 7% from a year earlier, helping produce the highest quarterly adjusted EBITDA in the company’s more than 160-year history. Management estimated that aggregate end markets were flat to slightly higher than the prior year, indicating that share gains were a significant driver of volume growth.

Second-quarter net sales increased 10% year over year to $533 million. Volume growth contributed 7 percentage points, while selling price and product mix added 1 percentage point and favorable foreign exchange contributed 2 percentage points, according to Executive Vice President and Chief Financial Officer Tom Coler.

Quaker Houghton generated adjusted EBITDA of $85 million in the second quarter, with an adjusted EBITDA margin of 16%. The margin improved 40 basis points from a year earlier and 90 basis points sequentially, as stronger sales volumes and stable selling, general and administrative expenses as a percentage of sales offset pressure on product margins. Gross margin declined to 35.5%, down 130 basis points sequentially, due primarily to higher raw-material costs. Berquist said base oil and crude-related materials, which represent about two-thirds of the company’s raw-material basket, remained volatile and elevated. The company also experienced meaningful container-cost increases during the quarter, which management said appeared to peak in June and early July. The company implemented two rounds of price increases during the quarter, and certain index-based pricing adjustments are expected to take effect during the third quarter. Berquist said management expects third-quarter gross margin to remain roughly in line with the second quarter before improving toward the end of the year. The company continues to target gross margins above 36% by year-end. GAAP diluted earnings per share were $1.55, while non-GAAP diluted earnings per share were $2.19, up 28% from the prior-year period. The increase reflected improved operating performance and lower interest expense resulting from reduced borrowings. Interest expense was $10 million, while the cost of debt declined to approximately 4.4% following refinancing actions.

Asia-Pacific remained Quaker Houghton’s strongest growth region, with sales rising 12% year over yea...