Quaker Houghton Q1 Earnings Call Highlights

Key Points

• Strong Q1 performance: Quaker Houghton reported organic volumes up 3%, net sales of $480 million (+8% YoY) and adjusted EBITDA of $73 million (+5%), with gross margin near the high end at 36.8% and double-digit organic growth in Asia Pacific driving results.
• Near-term margin headwinds: Management warned that hostilities in the Strait of Hormuz are inflating raw material and shipping costs, expecting Q2 gross margins to be down about 200–300 basis points sequentially despite pricing actions, with recovery targeted within 1–2 quarters.
• Cost-savings and liquidity moves: The company launched a transformation program targeting adjusted EBITDA margins at/above 18% with ~$10M of run-rate savings in 2026 and $20–30M over three years, and extended its credit facility to April 2031 while increasing revolving availability by about $300M to support growth and capital allocation flexibility.

Quaker Houghton NYSE: KWR reported what management described as a “strong” first quarter of 2026, driven by organic volume growth, continued market share gains, and contributions from acquisitions, while also warning that higher raw material and shipping costs tied to hostilities in the Strait of Hormuz are expected to pressure margins in the second quarter.

First-quarter performance: volume growth and improved gross margin

President and CEO Joseph A. Berquist said the company delivered organic volumes up 3% year-over-year, marking its “third consecutive quarter of adjusted EBITDA growth.” He attributed the performance to “new business wins in all regions,” with Asia Pacific posting double-digit organic volume growth.

Berquist said Quaker Houghton estimates its end markets declined about 1% in the quarter, but the company outperformed due to what he called “net share gains.” He added that gross margins improved from the fourth quarter, rising 150 basis points sequentially and 40 basis points year-over-year, helped by “higher utilization of fixed assets and improved operational performance.”

Executive Vice President and CFO Tom Coler reported Q1 net sales of $480 million, up 8% from the prior year. Coler said the increase reflected:

• Organic volume growth of 3%, supported by “global net share gains of 4% across all regions”
• Acquisitions contributing 4% to net sales, “primarily related to Dipsol,” which will move into the organic base in Q2
• Favorable foreign currency translation adding 4%, “primarily due to the euro strengthening against the U.S. dollar”

Those items were partially offset by “unfavorable selling price and product mix,” which Coler said was down 3% year-over-year, tied to “lower index pricing” and regional and geographic mix.

Coler said gross margin was 36.8%, “near the high end of our target range,” driven by product margin improvement and more favorable manufacturing absorption.

Segment results: Asia Pacific leads; Americas pressured by outage and uncertainty

Management highlighted continued strength in Asia Pacific. Coler said Asia Pacific sales increased 25% year-over-year, with Dipsol complementing 10% organic volume growth and a 3% currency benefit, partially offset by a 2% decline from price/mix. Segment earnings in the region rose about $8 million, or 32%, on higher sales and improved margins and absorption.

In EMEA, Coler said net sales increased 10% year-over-year, aided by favorable foreign currency impacts. Organic volume growth and acquisitions were offset by lower price/mix, while segment earnings rose about $2 million, or 9%.

The Americas were more mixed. Berquist said volumes declined slightly year-over-year due to “a lingering customer outage, tariff uncertainty, and weather-related disruptions,” though he noted March was the highest volume month in the region in the past 16 months. Coler said net sales in the Americas were flat year-over-year as acquisition and currency benefits were offset by lower organic volumes and lower selling price and product mix. Segment earnings declined approximately $5 million, or 8%, driven by higher SG&A and unfavorable product mix.

Costs, earnings, and cash flow

Coler said adjusted EBITDA was $73 million, up 5% year-over-year, but adjusted EBITDA margin fell to 15.1%, reflecting higher SG&A. SG&A rose about $16 million, or 14%, on a non-GAAP basis, primarily due to acquisitions and foreign currency. Excluding those items, Coler said “organic SG&A was approximately 6% higher,” mainly from higher incentive compensation and accelerated depreciation related to a corporate headquarters and lab consolidation in the Philadelphia area.

For earnings, Coler reported GAAP diluted EPS of $1.13 and non-GAAP diluted EPS of $1.63, which he said was up 3% year-over-year due to improved operating performance.

Operating cash flow was $4 million in Q1, improving from a $3 million use of cash in the prior year. Coler noted the first quarter is typically seasonally the lowest for cash generation due to incentive compensation payments, working capital needs, and seasonality. Restructuring cash costs were $4 million in Q1.

Capital expenditures were about $11 million, primarily for construction of a new facility in China. Coler said capex is expected to rise in subsequent quarters as the China construction progresses and the company completes the build-out of its new corporate headquarters in Pennsylvania. Full-year 2026 capex is still expected to be about 2.5% to 3.5% of sales. The company paid about $9 million in dividends during the quarter.

Middle East conflict: inflation pressure expected to hit Q2 margins

Berquist said hostilities in the Strait of Hormuz are creating inflationary pressure on raw materials and input costs, though he said the conflict had not caused a significant demand impact so far. He said the company formed an executive-level task force immediately after the conflict began, prioritizing employee safety and supply continuity.

Berquist said direct sales exposure to North Africa and the Middle East remains limited, noting that sales to those regions in 2025 were “less than 2% of total company net sales.”

However, he warned of higher raw material and shipping costs in the second quarter. The company implemented pricing actions across all regions, with some effective in April, but Berquist said pricing typically lags costs, likely creating “temporary gross margin pressures” in Q2. He said the company expects to recover margins within 1–2 quarters.

On the Q&A, Berquist broke raw materials into “three buckets”—base oils, additives, and oleochemicals—and said inflation is being driven broadly by crude. He said the company has not experienced raw material availability issues, citing supply chain flexibility and its “local for local” approach.

Berquist reiterated expectations that Q2 gross margins will be down 200–300 basis points sequentially versus Q1, and said further price increases are being implemented with the goal of returning to the company’s 36%–37% gross margin target range by year-end.

Transformation program and facility actions aimed at lifting EBITDA margins

Berquist announced a new transformation program intended to reduce cost and complexity, optimize the manufacturing network, strengthen sales and technical capabilities, and simplify global processes. He said the program is central to reaching adjusted EBITDA margins “at or above” the company’s 18% target and that Quaker Houghton expects to exit 2026 with about $10 million in new run-rate savings.

Over the next three years, he said the company sees “a clear path” to at least $20 million to $30 million of sustainable structural cost improvement. In response to an analyst question, Berquist said the initiative is not a reaction to the Middle East conflict and is not centered on a “big new ERP system,” adding that investment will be paced over time.

Berquist also provided updates on manufacturing network actions already in progress. The closure of the Dortmund, Germany facility remains on track, and he said the company still expects about $2 million in cost savings in 2026 and $5 million in annual run-rate savings beginning in 2027. The company also plans to close its Songjiang, China facility as its new Zhangjiagang facility comes online later this summer, which Berquist said will support more efficient operations and strengthen Asia-Pacific capabilities.

Looking ahead, Berquist said the company’s macro view is consistent with prior expectations: flat end markets for the full year with normal seasonal improvement and “a slightly better demand environment in the second half.” Despite expected Q2 margin pressure, he said the company continues to expect revenue and adjusted EBITDA growth in 2026, assuming no significant end-market deterioration tied to the Middle East conflict. When asked about Q2 adjusted EBITDA, Berquist said it was “fair” to expect a result “within range” of Q1 as higher volumes and seasonal improvement are offset by margin headwinds.

Separately, Coler said the company amended its credit agreement in April, extending the nearest maturity from June 2027 to April 2031 and increasing revolving credit facility availability by about $300 million, with an additional incremental option. Berquist and Coler said the added flexibility supports capital allocation priorities, including investment in growth, potential M&A, dividends, and opportunistic share repurchases.

About Quaker Houghton NYSE: KWR

Quaker Houghton is a global provider of process fluids, chemical specialties and sustainable solutions for industrial applications. The company develops and supplies metalworking fluids, coatings, and corrosion inhibitors, as well as heat transfer, lubrication and additive products designed to improve productivity and extend equipment life. Its portfolio addresses a range of end markets including automotive, aerospace, defense, energy, mining, agriculture and heavy industry.

The company traces its roots back to the founding of Quaker Chemical Corporation in 1918 and Houghton International in 1865.

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