Quaker(KWR) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - First quarter net sales were $443 million, a decline of approximately 6% from the prior year or 3% on a constant currency basis [7][23] - Gross margins improved 120 basis points to 36.4% compared to the lows in the fourth quarter of 2024, but declined year over year due to higher raw material costs and product mix [10][24] - Adjusted EBITDA for the first quarter was $69 million, reflecting a sequential increase of $4 million, with adjusted EBITDA margins at 15.6% [11][25] Business Line Data and Key Metrics Changes - The Asia Pacific segment saw net sales decline by 2% year over year, but organic volumes increased approximately 1% [26] - EMEA segment net sales were down 7% year over year, with total sales volumes declining 3% [28] - The Americas segment experienced a 7% decline in net sales year over year, with volumes down 3% due to soft industrial activity [29] Market Data and Key Metrics Changes - Overall market conditions were softer than anticipated, with aggregate market declines estimated at a low to mid single digit percentage compared to the prior year [5][20] - The company outperformed the aggregate of the end markets, with total volumes inclusive of acquisitions declining approximately 1.5% [8][10] Company Strategy and Development Direction - The company is advancing a $20 million cost program expected to deliver approximately $15 million in benefits primarily in SG&A [6][14] - Strategic investments included the acquisition of three companies to enhance the portfolio and expand the addressable market [6][18] - The company aims to enhance customer intimacy and streamline operations to improve efficiency and reduce complexity [12][16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in mitigating tariff impacts through a local for local strategy and maintaining strong customer relationships [7][21] - The outlook for 2025 anticipates a low single digit percentage decline in underlying market growth rates, with expectations for revenue and earnings to align with 2024 levels [20][21] - Management noted a strong pipeline of trials and business development opportunities, expecting to drive above market growth in 2025 [19][20] Other Important Information - The company is focused on improving customer satisfaction through initiatives that reduce lead times and enhance cost competitiveness [13][15] - Capital expenditures in the first quarter were approximately $12 million, with expectations for 2025 capital expenditures to remain at 2.5% to 3.5% of sales [32] Q&A Session Summary Question: Impact of tariffs on input costs and overall demand - Management indicated that while there are some impacts from raw material purchases, the local sourcing strategy helps mitigate most tariff effects [39][40] Question: Details on strategic initiatives for simplifying operations - Management discussed efforts to reduce complexity in product lines and improve brand clarity, along with enhancing customer service through technology [46][48][50] Question: Expectations for second quarter EBITDA growth - Management expects modest sequential improvement in EBITDA for Q2, driven by seasonal demand and contributions from recent acquisitions [52][54] Question: Volatility in order patterns and customer feedback - Management noted increased order volatility, particularly in Europe and The Americas, with customers managing inventories prudently [58][59] Question: Capital allocation strategy amidst market conditions - Management emphasized a balanced approach to capital allocation, focusing on growth investments, debt reduction, and shareholder returns [72][74]