Quaker Houghton Q3 Earnings Call Highlights

Key Points

• Strong third-quarter performance: Net sales rose 10% year over year to $545 million, while adjusted EBITDA reached a record $90 million and adjusted EPS increased 15% to $2.39.
• Market-share gains despite muted demand: Quaker Houghton achieved mid-single-digit net share gains even as underlying end markets were flat to slightly down, with growth led by the Americas and continued expansion in Asia Pacific.
• Cost and cash-flow pressures remain: Higher raw-material inflation reduced gross margin to 35.5%, while operating cash flow fell to $14 million due mainly to increased receivables and inventory investment. Management expects seasonal volume declines in Q4 but still forecasts high-single-digit adjusted EBITDA growth for the full year.

Quaker Houghton NYSE: KWR reported third-quarter results marked by double-digit sales growth, continued market-share gains and a second consecutive quarter of record adjusted EBITDA, while higher raw-material costs and working-capital investment continued to pressure margins and cash generation.

Net sales rose 10% year over year to $545 million. Sales volumes increased 3%, while selling price and product mix added 7% as the company pursued pricing actions to offset inflation. President and Chief Executive Officer Joe Berquist said the company recorded its fifth consecutive quarter of year-over-year profitability growth and its 12th consecutive quarter of positive net share gains.

Adjusted EBITDA reached $90 million, with an adjusted EBITDA margin of 16.5%, up 50 basis points sequentially. Non-GAAP diluted earnings per share increased 15% from a year earlier to $2.39, while GAAP diluted EPS was $1.73.

Share Gains Outpace Mixed End Markets

Berquist said Quaker Houghton estimated that its underlying end markets were flat to slightly down in aggregate during the quarter, while the company achieved net share gains in the mid-single digits. All three geographic regions reached or exceeded the upper end of the company’s target range for share gains, he said.

The Americas led volume growth, supported by customer production restarts, new metals capacity and cross-selling efforts. Sales in the region increased 14% year over year, including 6% volume growth and an 8% contribution from price and mix. Segment earnings increased $7 million, or 11%, from the prior-year quarter.

Berquist said North American steel production increased about 4% during the quarter and aluminum production also improved, even as automotive production declined 2%. He said the company believes some strength in metals demand may be related to data centers, infrastructure and electrical-grid investment.

Asia Pacific sales increased 9% year over year, driven by solid volume growth, favorable pricing and a 1% foreign-currency benefit. The company said it continued to win business in India, Vietnam and with electric-vehicle original equipment manufacturers and component producers. Berquist said the company has broadened its customer base in China toward domestic automotive manufacturers, helping it grow despite a roughly 20% year-to-date decline in Chinese internal-combustion-engine vehicle production.

EMEA sales increased 6%, as a 10% gain from price and mix offset a 2% volume decline and a 2% foreign-currency headwind. The volume decline reflected the reversal of customer pre-buying activity in the second quarter and normal summer seasonality. Excluding the timing effect, management estimated volumes would have been flat year over year in the region.

Margins Hold Despite Input-Cost Pressure

Gross margin was 35.5%, flat sequentially but down 130 basis points from a year earlier as higher raw-material costs pressured product margins. Berquist said raw-material inflation accelerated during the third quarter and is expected to remain elevated in the fourth quarter.

The company expects stable product margins in the fourth quarter as targeted pricing actions and index adjustments offset some inflation. However, seasonally lower volume and reduced fixed-cost absorption during the holiday period are expected to create downward pressure on gross margins.

Chief Financial Officer Tom Coler said Quaker Houghton’s long-term objective is to maintain gross margins above 36%, with a 36% to 37% target range. Management said price increases and index-based contract resets typically lag inflation by one to two quarters, and it expects to work toward its target range during 2027.

In EMEA, segment earnings rose $5 million, or 18%, as manufacturing costs declined following the closure of the company’s Dortmund, Germany, facility, while product margin and mix improved. Berquist said additional restructuring, network actions and more disciplined contract selection have also supported profitability in the region.

Non-GAAP SG&A expense increased about $7 million, or 5%, year over year, reflecting higher incentive compensation and accelerated depreciation related to the company’s global-headquarters move. Still, management said SG&A declined sequentially and as a percentage of sales. Berquist said the company aims to sustain SG&A in the low-to-mid-20% range as a percentage of sales.

Cash Flow, Capital Allocation and Outlook

Cash generated from operations totaled $14 million in the third quarter, compared with $51 million a year earlier. Through the first nine months, operating cash flow was $48 million. Management attributed the decline primarily to higher receivables from increased sales and pricing, as well as inventory built to support the opening of a new China production facility and the Dortmund closure.

Quaker Houghton expects to unwind some of that inventory as it closes 2026 and enters the first quarter of 2027. Capital expenditures were $11 million in the quarter, primarily for the China facility, and the company now expects full-year capital expenditures equal to about 2% to 2.5% of sales.

The company repurchased about $3 million of stock and paid about $9 million in dividends during the quarter. It said approximately $226 million remained under its repurchase authorization at the end of the third quarter. Following quarter-end, Quaker Houghton completed its first Term Loan B transaction, replacing its previous U.S.-dollar-denominated term loan and extending debt maturities. The company also reported approximately $708 million undrawn on its revolving credit facility.

For the fourth quarter, management expects normal seasonal volume declines, historically averaging about 4% sequentially from the third quarter. Berquist said demand in the Americas appears relatively resilient, while softer industrial activity in China could make the seasonal decline in Asia Pacific somewhat more pronounced. The company expects fourth-quarter revenue and profitability to exceed prior-year levels and forecasts full-year adjusted EBITDA growth in the high-single-digit percentage range versus 2025.

About Quaker Houghton (NYSE:KWR)

Quaker Houghton NYSE: KWR is a global provider of industrial process fluids and chemical products used in manufacturing and other heavy industries. The company develops, produces and supplies fluids, lubricants, cleaners, corrosion preventives and specialty chemical solutions designed to support metalworking, forming, treating and finishing processes.

Its products are used by customers in industries including steel, aluminum, automotive, aerospace, mining, machinery, metal packaging and other general manufacturing markets.

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