Quaker Houghton Q2 2025 Earnings Report

Quaker Houghton EPS Results

• Actual EPS: $1.71
• Consensus EPS: $1.82
• Beat/Miss: Missed by -$0.11
• One Year Ago EPS: $2.13

Quaker Houghton Revenue Results

• Actual Revenue: $483.40 million
• Expected Revenue: $463.57 million
• Beat/Miss: Beat by +$19.83 million
• YoY Revenue Growth: +4.30%

Quaker Houghton Announcement Details

• Quarter: Q2 2025
• Date: 7/31/2025
• Time: After Market Closes
• Conference Call Date: Friday, August 1, 2025
• Conference Call Time: 8:30AM ET

Quaker Houghton (NYSE:KWR) (NYSE: KWR) is a global provider of industrial process fluids and specialty chemicals. The company develops, manufactures and services products used in metalworking and other industrial applications, including coolants, lubricants, hydraulic fluids, corrosion preventatives, cleaners and specialty fluids.

Its products and technical services support manufacturing processes such as machining, forming, rolling, casting and heat treatment. Quaker Houghton serves customers across industries including steel, aluminum, automotive, aerospace, mining, construction, energy and general manufacturing.

The company traces its history to Quaker Chemical, which was founded in 1918. It adopted the Quaker Houghton name following the 2019 acquisition of Houghton International, combining the two industrial fluid businesses. The company serves customers through operations and technical teams in North America, Europe, Asia-Pacific and other international markets.

Quaker Houghton Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Delivered 2% organic volume growth and 4% sales growth, with sequential expansion in all segments and high‐end share gains driven by a customer‐focused reorganization.
• Positive Sentiment: Achieved an 8% increase in organic sales volume in Asia Pacific—marking growth in seven of the last eight quarters—supported by the Dipsol acquisition and expanded local manufacturing capacity.
• Negative Sentiment: Ongoing tariffs and macroeconomic uncertainty are driving low single‐digit declines in served markets and putting pressure on geographic and product mix.
• Negative Sentiment: Gross margins dipped to 36% due to higher raw material and manufacturing costs, and GAAP EPS was hurt by a $3.78 goodwill impairment charge and restructuring expenses.
• Positive Sentiment: Generated $42 million of operating cash flow, repurchased $33 million of shares, raised the dividend by 5%, and launched additional cost actions targeting $20 million in run‐rate savings by 2026.

Presentation

[Operator]

Greetings and welcome to the Quaker Houghton second quarter 2025 earnings conference call. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Jeffrey Schnell, Vice President of Investor Relations. Mr. Schnell, you may begin.

[Jeffrey Schnell, VP of Investor Relations at Quaker Houghton]

Thank you. Good morning and welcome to our second quarter 2025 earnings conference call. On the call today are Joseph Berquist, our President and Chief Executive Officer, Tom Koler, our Executive Vice President and Chief Financial Officer, and Robert Traub, our General Counsel. Our comments relate to the financial information released after the close of the U.S. markets yesterday, July 31, 2025. Our press release and accompanying slides can be found on our Investor Relations website. Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the Company's current view of future events and their potential effect on Quaker Houghton's operating performance. These statements involve uncertainties and risks which may cause actual results to differ. The Company is under no obligation to provide subsequent updates to these forward-looking statements.

[Jeffrey Schnell, VP of Investor Relations at Quaker Houghton]

This presentation also contains certain non-GAAP financial measures, and the Company has provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measure in the appendix of the presentation materials, which are available on our website. For additional information, please refer to our filings with the SEC. Now it is my pleasure to hand.

[Jeffrey Schnell, VP of Investor Relations at Quaker Houghton]

The call over to Joe.

[Joseph Berquist, President and CEO at Quaker Houghton]

Thank you, Jeff, and good morning, everyone. In the second quarter, we delivered organic volume growth of 2% year-over-year, led by another strong performance in Asia Pacific. Importantly, all segments delivered organic volume growth on a sequential basis, mitigating sustained macroeconomic pressures. We are gaining traction with our key objectives, refocusing and strengthening the organization around the customer, which is enabling us to grow our share and outpace the market at solid levels of profitability. We have been deliberate in our actions to reduce complexity and improve our cost structure to support stronger and sustained performance over the long term. In the second quarter, we generated $42 million of operating cash flow and executed our capital allocation strategy, including repurchasing $33 million of shares.

[Joseph Berquist, President and CEO at Quaker Houghton]

I am pleased with the team's performance in the second quarter as they continue to adapt to the dynamic external environment while keeping a clear focus on our customers' needs. Second quarter results were broadly in line with our expectations. We delivered a 4% year-over-year increase in sales, including a 2% increase in organic sales volume. This was led by an 8% increase in organic sales volume in Asia Pacific. We also benefited from the contribution from acquisitions, namely Dipsol, which we closed early in the quarter and is performing in line with expectations. We estimate the aggregate of the markets we serve declined in the second quarter, a low single-digit percentage compared to the prior year with regional differences. Our end markets were also largely stable with the first quarter.

[Joseph Berquist, President and CEO at Quaker Houghton]

Uncertainty created by tariffs is impacting demand overall as well as weighing on our geographic and product mix. Share gains remain strong across the portfolio, mitigating the impact of the persistent and challenging end markets. These gains are trending at the high end of our range as we successfully convert trials and cross-sell. We remain encouraged by the business development opportunities we are generating and expect to continue to capitalize on our pipeline to drive sustained above-market growth. Gross profit dollars were in line with the prior year and above the prior quarter. Gross margins were slightly lower at 36% but remain within our target range. Margin performance was influenced by both product and geographic mix as well as higher raw material and manufacturing costs, some of which were induced by tariffs.

[Joseph Berquist, President and CEO at Quaker Houghton]

We generated $75.5 million of adjusted EBITDA in the second quarter, an increase of approximately $6 million sequentially, with adjusted EBITDA margins of 15.6%, reflecting our sales growth and disciplined cost management. Our resilient performance underscores the strong culture at Quaker Houghton. Our success is driven by our commitment to serving the customer. By being indispensable to our customers, we are earning the right to grow as a stronger, more profitable enterprise, regardless of the end market environment. A few key areas of strength are fueling our organic growth. We believe we have the most comprehensive portfolio of solutions in our industry, and our team of technical experts collectively possess unmatched industry-leading process and application knowledge.

[Joseph Berquist, President and CEO at Quaker Houghton]

We are leveraging our financial strength and global reach by investing in new manufacturing capabilities, driving innovation through our global R&D organization, and deploying resources to help our customers manufacture metals and metal-containing industrial goods more cost effectively, safer, and in more sustainable ways. We are also giving our customers a broader set of solutions and improving our manufacturing capabilities in highly competitive markets to drive growth with strategic customers and reduce churn, which is trending back to historical levels. We are harnessing our centers of innovation around key initiatives like FLUID INTELLIGENCE to enhance the outcomes for our customers by developing breakthrough sensor technology, digitized services, and automation. We also have significant opportunities in our portfolio of advanced solutions, where volumes are up a double-digit percentage year-over-year.

[Joseph Berquist, President and CEO at Quaker Houghton]

As I mentioned in the beginning, we are winning in Asia Pacific, where we have delivered organic growth for seven of the last eight quarters as we earn new business in excess of market growth rates by capitalizing on the evolving landscape in China as well as growth regions like India and Southeast Asia. We expect further contribution as we integrate Dipsol's leading technology and capabilities into our portfolio and commercialize our new facility in China in the second half of 2026. Solidifying our local-for-local strategy in the region, it is critical that we continue to invest in our growth while maintaining a clear emphasis on controlling what we can control. In the first half of 2025, we actioned our previously announced $20 million cost program, yielding approximately $15 million of realized savings in 2025.

[Joseph Berquist, President and CEO at Quaker Houghton]

To align with the ongoing environment, we have identified further actions to drive out complexity and enhance our competitiveness. To that end, we are initiating cost actions which we expect will deliver approximately $20 million of additional run-rate savings by the end of 2026. We expect these actions will deliver $5 to $8 million of incremental in-year savings in the second half of 2025. We have closed one facility in our Americas network year-to-date. Further actions across the network are necessary, including possible asset consolidation to unlock the leverage in our model and support our ability to deliver adjusted EBITDA margins in the high teens as a percent of sales over time. This journey is underway, and we expect to provide more details in the coming quarters. Lastly, we are executing on our disciplined capital allocation strategy.

[Joseph Berquist, President and CEO at Quaker Houghton]

This week, the board approved a 5% increase to our cash dividend, our 16th consecutive annual increase. We also closed on two acquisitions, and we repurchased $33 million of shares. We have approximately $68 million remaining on our current authorization, and we will continue to be opportunistic with share repurchases balanced with our growth ambitions while preserving our financial flexibility. We continue to execute our enterprise strategy with a focus on driving growth and delivering greater value to customers. Turning to our outlook, based on indicators we track, tariffs, and a significant amount of uncertainty, we forecast the end market softness we experienced in the first half will persist through the second half of 2025. Our pipeline of product trials remains healthy, and we are confident in our ability to convert them to new business with customers.

[Joseph Berquist, President and CEO at Quaker Houghton]

This will support our ability to drive above-market growth in 2025 in line with our long-term annual expectation of 2% to 4%. Dipsol is performing in line with expectations and should also help offset some of the market softness as we progress through the year. We expect the business performance will improve in the second half of 2025, and therefore, we forecast revenue and earnings will be in the range of 2024. This is based on our current market visibility and the timing and execution of the additional cost actions I mentioned earlier. We will remain diligent and agile to navigate the current uncertainty while positioning the company to capitalize on the positive long term fundamentals of our industry. We have conviction in our strategy and are balancing the near term and long term needs of the organization.

[Joseph Berquist, President and CEO at Quaker Houghton]

We will continue to demonstrate strong execution regardless of the market environment, delivering for our customers and in turn creating value for shareholders. With that, I'd like to pass it to Tom to discuss the financials in more detail.

[Tom Koler, EVP and CFO at Quaker Houghton]

Thank you Joe and good morning everyone. Second quarter net sales were $483 million, a 4% increase from the prior year. Organic volumes increased 2% driven by new business wins of approximately 5% and continued strength in our Asia Pacific segment. Acquisitions contributed an additional 6% to sales. Selling price and product mix were 4% lower than the prior year, approximately 2/3 of which stems from product, service, and geographic mix. Organic volumes grew sequentially in all our segments, adjusting for one time acquisition related charges. Gross margins were 36% compared to 36.4% in the first quarter of 2025. Gross margins declined when compared to the near record levels in the second quarter of 2024, primarily due to higher raw material and manufacturing costs and the impact of geographic and product mix. Gross margins remain within our target range.

[Tom Koler, EVP and CFO at Quaker Houghton]

Gross profit dollars increased sequentially and were in line with the prior year due to the increase in net sales. Excluding one time items, SG&A increased approximately $8 million or 7% compared to the prior year. Excluding acquisitions, SG&A is approximately 3% lower on a year-to-date basis in 2025 compared to 2024. As we benefit from the completion of our previously announced $20 million of annualized cost and operational efficiency actions, we are managing costs in a disciplined and prudent manner without sacrificing our ability to serve customers. We delivered $75.5 million of adjusted EBITDA in the second quarter and adjusted EBITDA margins of 15.6%. The lower result compared to the prior year reflects the combination of higher sales, lower gross margins, and our disciplined cost management.

[Tom Koler, EVP and CFO at Quaker Houghton]

Switching to our segment results, our Asia Pacific segment generated 3% organic sales growth in the second quarter due to a strong contribution from organic volume growth. We continue to capitalize on the momentum in this competitive region, winning trials with new entrants and existing customers and successfully cross selling in China and in broader Asia including India. Sales increased 20% year-over-year as organic growth was amplified by a contribution from our acquisitions of Dipsol and Sutai, which are performing in line with expectations. Organic sales and volumes increased approximately 7% in Asia Pacific sequentially. Segment earnings declined approximately $2 million compared to the prior year but increased sequentially. Segment margins declined compared to both periods, reflecting higher raw material and manufacturing costs as well as product and geographic mix.

[Tom Koler, EVP and CFO at Quaker Houghton]

We remain disciplined and have opportunities across the region to improve our profitability while continuing to outpace market growth rates. Net sales in the EMEA segment grew compared to the prior year and prior quarter. End market conditions remain the most challenged in this region. On a sequential basis, organic volumes increased 4% in the region, driven by double-digit growth in our portfolio of advanced and operating solutions. Acquisitions were additive to sales on both a year-over-year and sequential basis. Segment earnings in EMEA continue to improve, increasing sequentially, driven by higher sales and stable margins. Despite higher raw material costs, net sales in the Americas declined 1% year-over-year. Volumes declined 2%, whereas price mix was slightly positive. This compares to a market we estimate was down a mid-single-digit percentage. Organic volumes grew 2% sequentially, driven by growth in metalworking and advanced solutions.

[Tom Koler, EVP and CFO at Quaker Houghton]

Despite a modest contraction in our end markets, segment earnings in the Americas declined by $5 million compared to the prior year, driven by lower sales and segment margins. Segment margins in the Americas are flat with the first quarter and trending in line with 2024. Overall, our performance reflects our ability to generate value for customers and outperform our markets regardless of the operating environment. Our growth initiatives are building momentum, and we remain disciplined on cost to enhance the leverage we have embedded in our model. Turning to non-operating costs, our interest expense was $13 million in the second quarter. This is slightly higher on a year-over-year and sequential basis, reflecting the acquisition of Dipsol, which we funded under our existing credit facility. Our cost of debt was approximately 5% in the quarter. Our effective tax rate, excluding non-recurring and non-core items, was approximately 28%.

[Tom Koler, EVP and CFO at Quaker Houghton]

We expect our full-year effective tax rate to be between 28% and 29%. In the second quarter, our GAAP diluted earnings per share were a loss of $3.78. This reflects a non-cash goodwill impairment charge on our EMEA segment, driven by persistent market volatility and geopolitical events which have increased our cost of capital in the region. We also recorded a $9 million restructuring charge in the quarter as part of our cost and optimization program. Excluding these items, our second quarter non-GAAP diluted earnings per share were $1.71. Cash generated from operations was $42 million in the second quarter. Working capital was a source of cash. As expected, cash conversion was at the low end of our targeted range due to higher restructuring costs and the lower year-over-year operating performance. We continue to expect to deliver another solid year of cash flow in 2025.

[Tom Koler, EVP and CFO at Quaker Houghton]

Capital expenditures in the second quarter were approximately $8 million, reflecting the construction of our new facility in China, which is expected to be online in the second half of 2026. We are maintaining a balanced approach to CapEx and are slightly moderating our expectation of CapEx spending in 2025 to 2% to 3% of sales versus our previous expectation of 2.5% to 3.5% of sales due to the timing of ongoing projects. As highlighted earlier in the quarter, we completed the acquisitions of Natech and Dipsol. We also repurchased approximately $33 million of shares outstanding and have approximately $68 million remaining on our existing share repurchase authorization. Our net debt-at-quarter end was $735 million and our net leverage ratio increased to 2.6 times our trailing twelve months adjusted EBITDA, reflecting the Dipsol acquisition.

[Tom Koler, EVP and CFO at Quaker Houghton]

We are pleased with the consistent cash flow generation of the business and our balance sheet continues to provide ample flexibility. While macroeconomic conditions remain challenged, the team is executing well, returning to growth highlighted by the positive inflection in our year-over-year organic sales volumes, managing costs to improve our competitiveness, maintaining margins in our targeted range, and efficiently deploying capital to create long-term shareholder value. With that, I'll turn it back over to Joe.

[Joseph Berquist, President and CEO at Quaker Houghton]

Thank you, Tom. The team has responded well to the sustained challenges in our end markets by solving customer needs and improving our cost competitiveness. The resilience and progress we are making on our journey gives me confidence in our ability to reaccelerate our growth and deliver value for customers and shareholders. With that, we'd be happy to address your questions.

[Operator]

Thank you. We'll now begin the question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.

[Mike Harrison, Managing Director and Senior Chemicals Analyst at Seaport Research Partners]

Hi, good morning.

[Joseph Berquist, President and CEO at Quaker Houghton]

Hey, good morning, Mike.

[Mike Harrison, Managing Director and Senior Chemicals Analyst at Seaport Research Partners]

The 5% above market growth that you guys delivered in the quarter was quite impressive. It's ahead of that 2 to 4% kind of target or guidance that you provide. Can you just give us a little more color on where those share gains are coming from, both from a regional perspective and specific product lines or markets? To the extent that you have some recurring aspects to your business model, can you guys sustain a mid-single-digit above market growth rate into the second half or were there some aspects of Q2 strength that probably won't repeat?

[Joseph Berquist, President and CEO at Quaker Houghton]

Yeah, thanks Mike, for the questions. I think start with share gains. Look, broad based. We had share gains in all the regions. Right. So in EMEA, Americas, and Asia PAC. Asia PAC particularly was strong. I think we're very happy there. We're kind of winning with the new winners there, especially as automotive growth is happening in that region. That was good. In the product mix side of things, some of the newer things that we've brought on, the advanced solutions, even the operating solutions, our specialty greases are growing pretty strongly for us. I would say on the sustainability side of things, we are very confident we've got the visibility to the pipeline as we head into the second half of the year.

[Joseph Berquist, President and CEO at Quaker Houghton]

I think you've also got the benefit of business that you won in the first half of the year that will wrap as you head into the remainder of the year. We feel pretty confident that we should be able to sustain that 2 to 4% really over the long term, no matter what happens in the external markets. Overall, I think Asia very strong, but seeing share gains across all of our product lines, maybe a little bit better in the specialty side of things, but really growing in all the regions as well.

[Mike Harrison, Managing Director and Senior Chemicals Analyst at Seaport Research Partners]

I wanted to dig in a little bit on Asia Pacific margins. Can you just give us a little better sense of what's going on there and whether we could see some recovery from the Q2 weakness in the second half? I guess to what extent are the raw material headwinds that you might be seeing there related to oleochemicals and some of the plant-based inputs that are showing some spikes right now?

[Joseph Berquist, President and CEO at Quaker Houghton]

Yeah. For Asia, I think I would start out by saying we're winning new business there in a lot of different areas. With that sometimes comes some incentives for new business. First bills, over time those things are going to stabilize and we'll see modest improvement. There's some pure product mix, just the mix of do you have higher automotive, less mining, those types of things that are going on. Also, India comes into play. There's particularly been a raw material impact in that region related to oleochemicals. Palm oils, we have some targeted pricing that we're going after. We have a few things that have held us back from doing that just based upon timing of indexes and where the contracts sit. Additionally, in HPAC, we have a little bit of noise with the Dipsol acquisition. Those things should moderate over time.

[Joseph Berquist, President and CEO at Quaker Houghton]

I think generally I would expect stability, some modest improvement in the second half long term with a new plant coming on in China. We made some recent investments in our plant in Thailand, for instance, where we're starting to do Ester manufacturing there and those types of things that will really improve.

[Joseph Berquist, President and CEO at Quaker Houghton]

Profitability over the long term.

[Mike Harrison, Managing Director and Senior Chemicals Analyst at Seaport Research Partners]

All right, last question for me is just in terms of the outlook. Clearly you're going to need some earnings growth relative to where you were in the first half or even the second quarter here if you're going to be near 2024 earnings for the full year. Can you give us any better sense of the cadence of sequential EBITDA growth in Q3, and I guess could Q4 be even higher? I know that typically you would see some seasonal decline in EBITDA, but what are your thoughts on the earnings cadence for the rest of the year?

[Joseph Berquist, President and CEO at Quaker Houghton]

Yeah, I mean, second half we expect will be stronger than the first half from our, you know, from our overall perspective. We're not really baking into that like any market improvement. Essentially we're assuming that we're going to have flat markets heading into the second half and where that growth is going to come from is, you know, I mentioned wrap of new business wins, insight to how that comes on. Also visibility to our pipeline of new business as well. Dipsol, we had one quarter of Dipsol. Right. The acquisitions will have the benefit of an additional quarter there. I mentioned the cost actions. $5 to $8 million of in-year impact in the second half. Why the range on that?

[Joseph Berquist, President and CEO at Quaker Houghton]

I think it's just the timing of how we execute some of those factors, a little bit of self help on pricing and, you know, just a continued focus on improving our operating margins in manufacturing.

[Mike Harrison, Managing Director and Senior Chemicals Analyst at Seaport Research Partners]

All right, thanks very much.

[Joseph Berquist, President and CEO at Quaker Houghton]

Yeah. Mike, just your fourth quarter question. The seasonality of the business generally, the third quarter is usually a stronger quarter for us. I'd say second half is better than first half, and that's largely driven by what happens in Asia PAC, primarily China and India in the second half. They don't see that kind of dip that Europe and the Americas see in the fourth quarter. I would expect our fourth quarter will be better than our fourth quarter last year. I don't know that it would be sequentially up over third quarter.

[Tom Koler, EVP and CFO at Quaker Houghton]

Yeah. I would just amplify that, Mike, that as we think about the market environment in the second half, Joe sort of described it as flat. We're not assuming any market improvement from the lower sort of challenged environment that we saw in the first half. Assuming that environment consists with no incrementally significant impact relative to tariffs or geopolitical disrupt, and then you think about self help and we lag on index pricing by a quarter and then some other selective pricing, that's sort of how we're thinking about second half.

[Mike Harrison, Managing Director and Senior Chemicals Analyst at Seaport Research Partners]

All right, thanks for the extra clarification there.

[Operator]

Thank you. Our next question comes from the line of Jon Tanwanteng with CJS Securities. Please proceed with your question.

[Jonathan Tanwanteng, Managing Director at CJS securities]

Hi, good morning.

[Jonathan Tanwanteng, Managing Director at CJS securities]

Thank you for taking my questions.

[Jonathan Tanwanteng, Managing Director at CJS securities]

It is really nice to see the.

[Jonathan Tanwanteng, Managing Director at CJS securities]

Organic volume growth there. I was wondering if you could talk a little bit more about the comment you made earlier about double-digit growth in the advanced products? I assume that includes FLUID INTELLIGENCE, but I was wondering if there's any more.

[Jonathan Tanwanteng, Managing Director at CJS securities]

Than that in there.

[Jonathan Tanwanteng, Managing Director at CJS securities]

What percentage is that of the total revenue, and if the incremental margins there are higher than the corporate average?

[Joseph Berquist, President and CEO at Quaker Houghton]

Yeah. Jon, thanks for the comments and good to hear from you. FLUID INTELLIGENCE, I'll start there. FLUID INTELLIGENCE really is something that crosses over all of our product lines. We are seeing really good traction there. I can give you sort of a little anecdotal story where one of the Japanese customers that we've been coveting for a long time, we've been able to get a trial there and convert some business because the technology in that space has really come along and it's helping us convert and win some new things. That is technology that really crosses over all of our segments. On the advanced and operating solutions side, that is the recent Dipsol acquisition, the Coral acquisition that we made a couple years ago. It's things within the Norman Hay Group.

[Joseph Berquist, President and CEO at Quaker Houghton]

Plating, anodizing, these are still products that are sold into existing customer base, but they're on the finishing end of those plants. We're adding value to the part. We're changing the metallurgy or coating the metallurgy in some way. We're seeing a lot of growth there. Those are newer things for us as we bought things and we start to globalize them. You know that there was a strength in a region. An example there would be IKV, what we did in the Greece side of things. That was a plant that we now have manufacturing capabilities in Europe and we're starting to see that take off and grow a little bit. The overall specialty, or what we would call advanced and operating solutions, part of our portfolio is somewhere around 20% of total revenues. We're seeing a little bit higher growth rate in that part of the business.

[Jonathan Tanwanteng, Managing Director at CJS securities]

Got it.

[Jonathan Tanwanteng, Managing Director at CJS securities]

Is it fair to say that's just the old specialties business that got resegmented, or is it something different than that?

[Joseph Berquist, President and CEO at Quaker Houghton]

That's fair to say, Jon. Yeah, that's exactly how we kind of look at it.

[Tom Koler, EVP and CFO at Quaker Houghton]

I would just add we've continued to grow that, Jon, with our acquisition of Dipsol, Sutai. I think as you've seen us acquire businesses over the last year to 18 months, we've had a focus on expanding our addressable market in that area.

[Jonathan Tanwanteng, Managing Director at CJS securities]

Okay, great.

[Jonathan Tanwanteng, Managing Director at CJS securities]

Thank you, that's very helpful. Second question is just wanted to drill down a little bit on the new $20 million cost program that you mentioned. One, what's the cash cost of that this year and next year? And two, how much of it's coming from OpEx versus COGS?

[Tom Koler, EVP and CFO at Quaker Houghton]

Yeah, thanks, Jon. I would say that the way we think about it is it's sort of a one to one and a half times sort of the expected run-rate savings that we'll see in terms of the restructuring charge. Once that's behind us, that sort of adds to the profile. That's really how you should think about it.

[Tom Koler, EVP and CFO at Quaker Houghton]

We took approximately $9 million worth of restructuring in Q2, and then in terms of mix associated with that, we're continuing to look across both our manufacturing network as well as opportunities to reduce complexity and ensure that we're positioning ourselves in the best possible way to support our customers. I would say in this current environment, it's probably a little bit more of G&A than it is network. With the incremental $20 million that we announced as part of our Q2 earnings, I think you'll see us look at both G&A as well as opportunities to improve our network, particularly in places like Europe where our segment margins are lower than the Americas and APAC and we've talked about that on previous calls.

[Jonathan Tanwanteng, Managing Director at CJS securities]

Got it. Thank you so much.

[Operator]

Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star one on your telephone keypad. Our next question comes in line of Arun Viswanathan with RBC Capital Markets, please proceed with your question.

[Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets]

Great. Thanks for taking my question. Hope you guys are well. Thanks.

[Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets]

Arun.

[Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets]

I guess you've had a nice turnaround here in Asia Pacific. As you look out, what does that mean for your margin growth? Would you really need maybe some recovery in the other regions as well to continue to drive that adjusted EBITDA margin closer to 18%? I think maybe some of your prior targets. Maybe I'll start with that.

[Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets]

Thanks.

[Joseph Berquist, President and CEO at Quaker Houghton]

Yeah, look, I think our gross margins in that 36% range, 36, 37%, that's really. We feel we're in the target there to get to the 18%. There's a couple different things that we could do on the cost side. Right. Our SG&A as a percent of sales, really G&A as a percent of sales is higher than it's been historically. Thus, the actions that we announced in the first half of the year and some of that is continuing. We think we're taking prudent steps to reduce complexity, improve our cost without inhibiting our ability to grow or causing any impact to our customers. Going from sort of mid-teens to 18%, I think there's opportunity there just on the cost side.

[Joseph Berquist, President and CEO at Quaker Houghton]

When you look at our manufacturing costs as a percent of sales, I think Tom alluded to things that we're looking at in the network and just being more efficient overall in how we execute with our operations. Finally, in an inflationary environment, and there are some things we mentioned, oleochemicals, you've got other things right now that are really tariff related. We're seeing a little bit of inflation on the additive side where suppliers are, we're local for local. It's not like we're paying tariffs, but it's the suppliers that are saying, hey, they are experiencing difficulty with tariffs and they're trying to pass that along in pricing. In an inflationary environment like that, we do tend to lag by a quarter or two, but we expect over the long term that we'll be within our target range. We've shown in the past our ability to get pricing.

[Joseph Berquist, President and CEO at Quaker Houghton]

We have some of that ongoing right now.

[Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets]

Great, thanks for that. Secondly, do your customers.

[Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets]

I.

[Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets]

What are they telling you about how they feel about the tariffs? Could it be a potential positive in North America and especially for the metals complex, whether it be steel or aluminum? What are your customers indicating to you and would you have to kind of build some inventory or is there anything you need to do to prepare for that?

[Joseph Berquist, President and CEO at Quaker Houghton]

Yeah, I mean, I think we use the word uncertainty and I think our customers are in the same space. Arun, people are being cautious right now as far as building their own inventory and actually saw inventories at our customers adjust down a little bit in the second quarter. Hopefully that's a good sign for the rest of the year. As far as North America goes, it's a bit of moving the deck chairs around. If something is a benefit for the U.S. it could potentially be a detriment to Mexico or Canada. We have very strong presence in all three countries, but over the long term, Americas is a very big region for us. We'll see where that goes.

[Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets]

Okay then, last one, if I could. I guess you've been in the seat for a little while now and I.

[Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets]

Guess our.

[Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets]

Perception was that you wanted to focus a little bit more on the commercial strategy at Quaker Houghton. Maybe could you just share your thoughts on how you're approaching that and if there's been any major changes or do you foresee any major changes, and what does that kind of. Could you describe what that could potentially be, if possible? Thanks a lot.

[Joseph Berquist, President and CEO at Quaker Houghton]

Yeah. Look, we're very happy. I think that we've seen our churn reduce and get back to historical levels. That's allowing us to really take advantage of this share gain that we're getting. How have we done that? We have made some changes in our org structure. I wouldn't call them anything major or radical. It's more how we're organized around our product line management, how we're deploying in the different sales regions. These are things that are more operational. They're not transformational. We're very happy about our position right now. We're really happy, I think in competitive markets like Asia PAC and seeing growth with some of the new winners over there, which is going to be essential for the long term. We've taken a lot of steps. Part of the cost actions that have occurred have helped us reduce our complexity.

[Joseph Berquist, President and CEO at Quaker Houghton]

I think in turn that has enabled growth and that should continue as we go forward. We also continue to be very strategic and prudent with our capital deployment, making acquisitions. We repurchased some shares in the second quarter. We couldn't do that in the first quarter, so got back in and did that. We raised our dividend, feel really, really optimistic about our position right now. As I said earlier, no matter what the markets do, we're confident that we're going to continue to grow and take share.

[Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets]

Thanks a lot.

[Joseph Berquist, President and CEO at Quaker Houghton]

Thank you.

[Operator]

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Berquist for any closing comments.

[Joseph Berquist, President and CEO at Quaker Houghton]

Thank you. Before closing, I just want to acknowledge the collective team at Quaker Houghton for their hard work and commitment to our strategy. We really appreciate all of you and your continued interest in our company. If you have any questions, please reach out to Jeff, and we'd be happy to follow up. Thank you.

[Operator]

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Joseph Berquist, President and CEO
• Jeffrey Schnell, VP of Investor Relations
• Tom Koler, EVP and CFO

Analysts

• crosstalk
• Arun Viswanathan, Senior Equity Analyst at RBC Capital Markets
• Mike Harrison, Managing Director and Senior Chemicals Analyst at Seaport Research Partners
• Jonathan Tanwanteng, Managing Director at CJS securities