Quaker Chemical Announces Fourth Quarter And Full Year 2016 Results
-- Organic volume growth of 7% drives a 4% increase in quarterly net sales despite continued FX headwinds
-- Strong quarterly earnings of $1.31 per diluted share result in a 9% increase in non-GAAP earnings per diluted share to $1.26 -- Fourth quarter and full year net income of $17.4 million and $61.4 million lead to quarterly adjusted EBITDA of $25.6 million and record full year adjusted EBITDA of $106.6 million CONSHOHOCKEN, Pa., Feb. 28, 2017 /PRNewswire/ -- Quaker Chemical Corporation (NYSE: KWR) today announced net sales of $191.2 million in the fourth quarter of 2016, a 4% increase compared to $183.3 million in the fourth quarter of 2015 and full year net sales of $746.7 million in 2016, a 1% increase compared to $737.6 million in 2015. The fourth quarter and full year 2016 increases in net sales were driven by organic volume growth of 7% and 3%, respectively, which overcame negative impacts from foreign currency translation of 3% in both the fourth quarter and full year. While gross margins declined somewhat in the quarter and slightly for the full year, the Company was able to grow its operating income in both periods due to increased sales volumes, continued discipline in managing labor-related costs in its selling, general and administrative expenses ("SG&A") and lower restructuring expenses in connection with its 2015 global restructuring program. This operating performance drove fourth quarter and full year 2016 net income of $17.4 million and $61.4 million, respectively, and increases of 1% and 5% in its fourth quarter and full year 2016 adjusted EBITDA of $25.6 million and $106.6 million, respectively. The Company's current quarter earnings per diluted share increased to $1.31 compared to $0.86 in the fourth quarter of 2015, with non-GAAP earnings per diluted share increasing 9% to $1.26 in the fourth quarter of 2016 compared to $1.16 in the prior year. The Company's strong fourth quarter performance led to full year 2016 earnings per diluted share of $4.63 compared to $3.84 in 2015, with non-GAAP earnings per diluted share increasing 4% to $4.60 in 2016 compared to $4.43 in 2015. This growth in fourth quarter and full year reported and non-GAAP earnings per diluted share was achieved despite negative impacts from foreign exchange of approximately 5%, or $0.07 per diluted share, in the quarter and 4%, or $0.18 per diluted share, for the full year. The strong fourth quarter earnings drove net operating cash flow of $20.8 million in the quarter, increasing the Company's full year 2016 net operating cash flow 1% to $73.8 million compared to $73.4 million in 2015. Michael F. Barry, Chairman, Chief Executive Officer and President, commented, "We are pleased with our fourth quarter results, despite continued foreign exchange headwinds. We were able to grow our organic volumes by 7% on continued market share gains, as well as from increased production in some of our end markets. While our gross margins declined due to raw material price increases and certain one-time costs, we were able to partially offset the decline with savings realized from our previously announced restructuring program and other cost streamlining initiatives. Overall, we achieved a 9% increase in non-GAAP earnings despite foreign exchange negatively impacting earnings by 5%." Mr. Barry continued, "2016 was our seventh consecutive year of adjusted EBITDA and non-GAAP earnings growth. The 5% growth in full year adjusted EBITDA was achieved despite foreign exchange negatively impacting our bottom line by 4%. Looking forward, we expect foreign exchange to continue to be a headwind. However, we remain committed to our strategy and believe our ability to take market share and leverage our past acquisitions will continue to help offset market challenges. Our 2017 plans indicate growth in both the top and bottom lines, despite expected currency headwinds, with profit growth in all regions. Overall, I continue to remain confident in our future and expect 2017 to be another good year for Quaker, as we expect to increase non-GAAP earnings and adjusted EBITDA for the eighth consecutive year." Fourth Quarter of 2016 Summary Gross profit in the fourth quarter of 2016 increased $0.9 million or 1% from the fourth quarter of 2015, primarily due to the increase in sales volumes, noted above, partially offset by a lower gross margin of 36.4% in the fourth quarter of 2016 compared to 37.5% in the prior year quarter. While the Company did experience some gross margin decline from changes in raw material costs and product mix, the Company's quarterly gross margin was also negatively impacted by one-time charges to its raw material and manufacturing costs that were higher during the current quarter and not expected to recur at the same level in the future. SG&A increased $1.0 million during the fourth quarter of 2016 due to the net impact of several factors. The Company had incremental SG&A associated with acquisitions, including $0.4 million for certain uncommon transaction-related costs in connection with the execution of, and diligence on, acquisition candidates. In addition, the Company's overall labor-related costs were higher quarter-over-quarter primarily due to annual compensation increases. These cost increases quarter-over-quarter were partially offset by a decrease from foreign currency translation and certain cost saving efforts, including the 2015 global restructuring program noted below. The Company had restructuring expenses of $6.8 million during the fourth quarter of 2015 related to the 2015 global restructuring program. The Company substantially completed the program during 2016, and recognized a restructuring credit of $0.4 million during the fourth quarter of 2016 to update its initial estimates for employee separation costs. Operating income in the fourth quarter of 2016 was $20.4 million compared to $13.2 million in the fourth quarter of 2015. The $7.2 million increase in operating income was primarily due to the decrease in restructuring expenses and the increase in sales volumes, noted above, partially offset by a decline in gross margin and an increase in SG&A expenses. Other income increased $0.3 million during the fourth quarter of 2016 primarily due to higher receipts of local municipality-related grants in one of the Company's regions quarter-over-quarter. Interest expense was relatively consistent on comparable average borrowings outstanding in both quarters. Interest income was $0.1 million higher in the fourth quarter of 2016 compared to the fourth quarter of 2015, primarily due to an increase in the level of the Company's invested cash in certain regions with higher returns. The Company's effective tax rates for the fourth quarters of 2016 and 2015 were 17.3% and 16.5%, respectively. The Company's fourth quarter of 2016 effective tax rate reflects the receipt of a concessionary tax rate in one of its subsidiaries, which allowed the Company to adjust the subsidiaries tax rate from 25%, used in the first nine months of 2016, to 15% for the full year. The Company recorded the cumulative full year benefit of the lower rate in the fourth quarter of 2016. In the fourth quarter of 2015, the effective tax rate reflected the accelerated recognition of certain tax-related incentives due to changes in local tax regulations, adjustments related to previous years' tax estimates, and the overall mix of earnings between higher and lower tax jurisdictions. Equity in net income of associated companies ("equity income") decreased $0.1 million in the fourth quarter of 2016 compared to the fourth quarter of 2015, primarily due to slightly lower earnings from the Company's interest in a captive insurance company. The Company recognized a minimal impact to net income from its Lubricor, Inc. acquisition during the fourth quarter of 2016, as its operating results were offset by initial adjustments related to fair value accounting. Changes in foreign exchange rates negatively impacted the Company's fourth quarter of 2016 net income by approximately 5%, or $0.07 per diluted share. Full Year 2016 Summary Gross profit in 2016 increased $2.6 million or 1% compared to 2015, primarily driven by the increase in sales volumes noted above, on a slightly lower gross margin of 37.4% in 2016 compared to 37.6% in the prior year. The SG&A decrease of $2.0 million from 2015 was primarily due to a decrease from foreign currency translation, a decrease in certain uncommon transaction-related costs year-over-year and the impact from the cost savings efforts, noted above. These decreases were partially offset by higher overall labor-related costs, primarily due to annual compensation increases, as well as incremental costs associated with the Company's recent acquisition activity. As noted above, the Company had restructuring expenses of $6.8 million in 2015 related to a global restructuring program initiated in the fourth quarter of 2015 and also recognized a restructuring credit of $0.4 million in 2016 to update its initial estimates for employee separation costs. The Company's pre-tax cost savings as a result of this program were approximately $3 million in 2016, realized mainly over the second half of the year, and are expected to increase to $5 million for the full-year 2017. Operating income in 2016 was $83.1 million compared to $71.3 million in 2015. The $11.8 million increase in operating income was primarily due to the increase in sales volumes, as well as lower SG&A and restructuring expenses year-over-year, partially offset by a slight decline in gross margin during 2016. Other income was $1.8 million in 2016 compared to other expense of $0.1 million in 2015. The increase in other income was primarily driven by foreign currency transaction gains realized in 2016 compared to foreign currency transaction losses in 2015, as well as higher receipts of local municipality-related grants in one of the Company's regions year-over-year. Interest expense was $0.3 million higher in 2016 compared to 2015, primarily due to increased average borrowings outstanding during 2016 as a result of the Company's recent acquisition activity. Interest income was $0.4 million higher in 2016 compared to 2015, primarily due to an increase in the level of the Company's invested cash in certain regions with higher returns and increased interest received on certain tax-related credits in 2016. The Company's effective tax rates for 2016 and 2015 were 27.6% and 25.3%, respectively. The primary contributors to the difference between the Company's effective tax rates in 2016 and 2015 were certain one-time items recorded during 2015, including the accelerated recognition of certain tax-related incentives and adjustments related to previous years' tax estimates, noted above. Going into 2017, we expect the full year effective tax rate will be between 28% and 30%. Equity income in 2016 increased $2.0 million compared to 2015. The increase in equity income was primarily due to a smaller currency conversion charge recorded at the Company's Venezuela affiliate during 2016 compared to 2015, related to changes in Venezuela's foreign exchange markets and currency controls in both periods. Equity income also includes earnings from the Company's interest in a captive insurance company which was lower in 2016 compared to 2015. The Company had a $0.1 million increase in net income attributable to noncontrolling interest in 2016 compared to 2015, primarily due to stronger performance at its India affiliate. Changes in foreign exchange rates, excluding the currency conversion impacts of the Venezuelan bolivar fuerte noted above, negatively impacted the Company's 2016 net income by approximately 4%, or $0.18 per diluted share. Balance Sheet and Cash Flow Items Non-GAAP Measures
Forward-Looking Statements Conference Call About Quaker
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