Q4 2023 Quaker Chemical Corp Earnings Call
Greetings and welcome to Quaker Houghton fourth quarter and full year 2023 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.
Operator: in the fourth quarter and full year will follow, which require Press star zero on your telephone. As a reminder, President.
This conference is being recorded I would now like to turn the call over to Jeffrey Schnell, Vice President of Investor Relations. Mr. Shaw you may begin.
Operator: Thank you, good morning, and welcome to our fourth quarter and full year 2023 earnings conference. On the call today are Andy Tometich, our President and Chief Executive Officer; Shane Hostetter, our Executive Vice President and Chief Financial Officer; and Robert Traub, our General Counsel.
Thank you good morning, and welcome to our fourth quarter and full year 2023 earnings conference call on.
On the call today are Andy Thomas our President and Chief Executive Officer.
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Jeff: Our comments relate to the financial information released after the close of the U.S. markets yesterday, February 29, 2024. Our press release and accompanying slides can be found on our investor 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 and financial 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.
Our comments relate to the financial information released after the close of the U S markets Yesterday February 29 2024.
Our press release and accompanying slides can be found on our investor 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 effects of Quaker houghton's operating and financial performance.
These statements involve uncertainties and risks, which may cause actual results to differ.
Company is under no obligation to provide subsequent updates to these forward looking statements.
Jeff: 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 measures 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 the call over to Andy.
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 measures 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, the call over to Andy.
Andrew E. Tometich: Thank you, Jeff, and good morning, everyone. Quaker Houghton finished 2023 strong. For the full year, we generated record net sales of $1.5 billion, adjusted EBITDA of $320 million, and non-GAAP earnings per share of $7.65. We also showcased the cash generation capabilities of the enterprise, generating a record $280 million of operating cash flow for the full year, strengthening our financial position. Our performance was empowered by the team's ongoing execution on our margin initiatives aimed at improving the profitability of our business, and our focus on the future never wavers. In 2023, we made considerable progress advancing our enterprise strategy and enhancing our customer intimacy model, delivering valuable services and solutions to our customers. Together, we successfully managed through the significant macroeconomic headwinds that our company and our customers have faced, and I am proud of our collective accomplishments in 2020. Our results in the fourth quarter were in line with our expectations. Fourth quarter net sales were $467 million, 4% lower than the prior year, but with stable volume. Net sales were down 5% compared to the third quarter, but largely in line with our expectations, and the fourth quarter normally has seasonal impact, primarily in the Americas, and he may have.
Thank you, Jeff and good morning, everyone.
Quaker Houghton finished 2023 strong.
For the full year, we generated record net sales of $1 $5 billion.
Adjusted EBITDA of $320 million and non-GAAP earnings per share of $7 65.
We also showcased the cash generation capabilities of the enterprise.
Generating a record $280 million of operating cash flow for the full year strengthening.
Our financial position.
Our performance was empowered by the team's ongoing execution on our margin initiatives aimed at improving the profitability of our business.
And our focus on the future never wavered.
In 2023, we made considerable progress advancing our enterprise strategy and enhancing our customer intimate model.
Delivering valuable services and solutions to our customers.
Together, we successfully managed through significant macroeconomic headwinds that our company and our customers have faced and I are proud of our collective accomplishments in 2023.
Our results in the fourth quarter were in line with our expectations.
Fourth quarter, net sales were $467 million, 4% lower than the prior year, but with stable volumes.
Net sales were down 5% compared to the third quarter, but largely in line with our expectations.
In the fourth quarter normally has seasonal impacts primarily in the Americas and EMEA segments.
Andrew E. Tometich: The fourth quarter and the full year highlighted the resilience of our business. In fact, our volumes in 2023 have remained stable sequentially throughout the entire year, despite the challenging end market conditions in all regions. In 2023, we focused on our top financial priority of recovering our margin profile while balancing customer relations and the long-term aspirations of our team. Gross margins in the fourth quarter were 36.6%, nearly four and a half percentage points higher than the prior year and near our long-term target range in a seasonally lower quarter.
The fourth quarter and the full year highlighted the resilience of our business.
In fact, our volumes in 2023 have remained stable sequentially throughout the entire year. Despite the challenging end market conditions in all regions.
In 2023, we focused on our top financial priority of recovering our margin profile, while balancing customer relationships and the long term aspiration of our business.
Our team delivered.
Gross margins in the fourth quarter were 36, 6% nearly four and a half percentage point higher than the prior year and near our long term target range in a seasonally lower quarter.
Andrew E. Tometich: This improvement reflects successful execution on our Margin Recovery Initiative, as well as moderating raw material costs, which remain at historically elevated levels. In the fourth quarter, we also generated adjusted EBITDA of $77 million, a 13% increase year over year, and $1.78 of non-GAAP diluted earnings per share, a 28% increase compared to the prior year. These results were a function of our clear focus on providing the best solutions for our customers as we worked together to manage the complexities of the market environment. Cash flow was a highlight once again in the fourth quarter. We generated an additional $81 million of operating cash flow in the fourth quarter.
This improvement reflects successful execution on our margin recovery initiatives as well as moderating raw material costs, which remain at historically elevated levels.
In the fourth quarter, we also generated adjusted EBITDA of $77 million.
A 13% increase year over year.
And $1 78 of non-GAAP diluted earnings per share of 28% increase compared to the prior year.
These were adult results were a function of our clear focus on providing the best solutions for our customers as we work together managing the complexities of the market environment.
Cash flow was a highlight once again in the fourth quarter, we generated an additional $81 million of operating cash flow in the fourth quarter and in total we generated $279 million of operating cash flow in 2023, driven by our improved operating performance and active working cap.
Andrew E. Tometich: And in total, we generated $279 million of operating cash flow in 2023, driven by our improved operating performance and active working capital management. In addition, our strong cash generation enabled us to reduce our variable rate debt by approximately $200 million in 2020. Our net leverage ratio also improved and is now 1.8 times adjusted EBITDA, the lowest level since the combination in 2019. Our strong cash flow and strong financial position continue to provide significant optionality for the enterprise to generate long-term value. Turning to our segments, we once again delivered improved earnings and margin performance in all our segments on a year-over-year basis. As expected, in the fourth quarter, market conditions remained soft in both metals and metalworking, and our volumes largely reflected our underlying markets in each region.
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In addition, our strong cash generation enabled us to reduce our variable rate debt by approximately $200 million in 2023.
Our net leverage ratio also improved and is now at one eight times adjusted EBITDA the lowest level since the combination in 2019.
Our strong cash flow and strong financial position continues to provide significant optionality for the enterprise to generate long term value.
Turning to our segments. We once again delivered improved earnings and margin performance in all our segments on a year over year basis as expected in the fourth quarter market conditions remained soft in both metals and metal working and our volumes largely reflected our underlying markets in each region.
Andrew E. Tometich: Volumes in the Asia-Pacific and EMEA segments increased compared to the prior year's same quarter. Our increase in the EMEA segment was due to the timing of orders and new business wins. However, while EMEA volumes improved slightly in the fourth quarter, volumes in this segment remain significantly below normalized levels, as industrial activity remains constrained in the region.
Volumes in the Asia Pacific and EMEA segments increased compared to the prior years same quarter.
Our increase in the EMEA segment was due to the timing of orders and new business wins.
And while EMEA volumes improved slightly in the fourth quarter volumes in this segment remains significantly below normalized levels as industrial activity remains constrained in the region.
Andrew E. Tometich: The year-over-year increase in our volumes in the Asia-Pacific segment in the quarter was due to improved demand for both metals and metalworking across the globe. China itself was consistent with the prior year period, which was a solid result considering the Lunar New Year was more of a benefit in the fourth quarter of 2022. Volumes in the Americas segment declined compared to the prior year, largely reflecting the softer overall demand environment, especially in industrial applications. However, our metals business saw improved volumes in the US market. On a sequential basis, overall volumes in the quarter declined approximately 3%. This was comprised of increases in EMEA and Asia-Pacific and a decline in the Americas, primarily relating to normal seasonal patterns.
The year over year increase in our volumes in Asia Pacific segment in the quarter was due to an improved demand in both metals and metalworking across Asia.
China itself was consistent with the prior year period, which was a solid result, considering the lunar new year was more of a benefit to the fourth quarter of 2022.
Yeah.
Volumes in the Americas segment declined compared to the prior year, largely reflecting the softer overall demand environment, especially in industrial applications.
Our metals business saw improved volume in the Americas.
On a sequential basis overall volumes in the quarter declined approximately 3%. This was comprised of increases in EMEA and Asia Pacific and a decline in the Americas, primarily relating to normal seasonal patterns.
Andrew E. Tometich: I am pleased that we continue to perform in line or better than our underlying markets while also taking actions to better position the company for long-term profitable growth. I expect we will continue to grow from these low levels as we move through 2020. Switching to the full year, 2023 was a successful year for Quaker Health.
I am pleased that we continued to perform in line or better than our underlying markets. While also taking actions to better position the company for long term profitable growth.
I expect we will continue to grow from these low levels as we move through 2024.
Yeah.
Switching to the full year 2023 was a successful year for Quaker Houghton.
Andrew E. Tometich: We are encouraged that volumes have remained stable throughout 2023, despite soft underlying end market conditions and our Prudent Margin Improvement Initiative. Importantly, we continue to gain additional business, and these gains are trending within our expected long-term rate. We remain focused on earning appropriate value for the product and service solutions we provide. In 2023, price and product mix increased approximately 7% year over year.
We are encouraged that volumes have remained stable throughout 2023, despite soft underlying end market conditions, and our prudent margin improvement initiatives.
Importantly, we continue to gain additional business and these gains are trending within our expected long term range.
We remain focused on earning appropriate value for the product and service solutions, we provide in.
In 2023 price and product mix increased approximately 7% year over year.
Andrew E. Tometich: Combined with a moderate improvement in raw material costs, we drove a 460 basis point improvement in gross margin and a 25% increase in adjusted EBITDA, while continuing to invest in our people and our growth pillar. And, as I mentioned previously, we also generated record cash flow in 2020, strengthening our balance. In summary, our 2023 performance positions us to invest in and capitalize on the opportunities ahead. Switching to the outlook, we expect another solid year for Quaker Houghton in 2024. Building on the accomplishments we have already achieved, beginning with the first quarter, we anticipate that the current difficult market conditions and uncertainty will persist. We expect a seasonal improvement in demand led by the Americas and, to a lesser extent, the EMEA sector, which will, in turn, drive an increase in net sales compared to the fourth quarter of 2023. And while trends in the Asia-Pacific segment appear to be improving, growth in that region will be tempered in the first quarter compared to the fourth quarter due to the Lunar New Year holiday.
Combined with a moderate improvement in raw material costs, we drove a 460 basis point improvement in gross margin and a 25% increase in adjusted EBITDA, while continuing to invest in our people and our growth pillars.
And as I mentioned previously we also generated record cash flow in 2023.
Strengthening our balance sheet.
In summary, our 2023 performance positions us to invest in and capitalize on the opportunities ahead.
Switching to the outlook, we expect another solid year for Quaker Houghton and 2024 building on the accomplishments we have already achieved.
Beginning with the first quarter, we anticipate that the current difficult market conditions and uncertainty will persist.
We expect a seasonal improvement in demand led by the Americas and to a lesser extent, the EMEA segment, which will in turn drive an increase in net sales compared to the fourth quarter of 2023.
And while trends in Asia Pacific segment appear to be improving growth in that region will be tempered in the first quarter compared to the fourth quarter due to the lunar new year holiday.
Okay.
Andrew E. Tometich: We remain encouraged by the demand outlook in the aerospace and primary metals markets, as well as our China and greater Asia-Pacific business partners. Raw material costs have stabilized, and we expect gross margins will be similar to the fourth quarter level. Therefore, we expect adjusted EBITDA growth on a sequential and year-over-year basis in the first quarter of 2024. For the full year, we expect the current end market environment will likely persist throughout the first half of 2024. We are cautiously optimistic on end market and raw material cost outlooks, and we expect to continue benefiting from the diversification of our portfolio, leading to volume growth in 2024. Our team is highly focused on executing on our priorities, and controlling what we can control.
We remain encouraged by the demand outlook in aerospace and primary metals markets as well as our China and greater Asia Pacific businesses.
Raw material costs have stabilized and we expect gross margins will be similar to fourth quarter levels.
Therefore, we expect adjusted EBITDA growth on a sequential and year over year basis in the first quarter of 2024.
For the full year, we expect the current end market environment will likely persist throughout the first half of 2024.
We are cautiously optimistic on end market and raw material cost outlooks, and we expect to continue benefiting from the diversification of our portfolio leading to volume growth in 2024.
Our team is highly focused on executing on our priorities controlling what we can control.
Andrew E. Tometich: We have demonstrated considerable progress on our margin recovery journey, and we have more to do. We also anticipate making further progress on our enterprise strategy, investing in our foundation, advancing our growth pillars, and contemporizing our organization. We will continue investing in our talented people, as well as our internal systems and processes, building our capabilities, and advancing our customer intimacy model for the. Taken together, we expect to deliver another year of earnings growth in 2024. And consistent with our history, we also forecast another strong year of cash generation. We remain committed to our capital allocation priority, investing in our organic growth, paying dividends, advancing our bolt-on M&A strategy, and strengthening our balance sheet Additionally, while we intend on prioritizing growth... Consistent with our commitment to enhancing shareholder value, our board has also approved a new $150 million share repurchase authorization. Quaker Houghton is fully committed to our growth strategy.
We have demonstrated considerable progress on our margin recovery journey, and we have more opportunity.
We also anticipate making further progress on our enterprise strategy investing in our foundation advancing our growth pillars and contemporary rising our organization.
We will continue investing in our talented people as well as our internal systems and processes built.
Building, our capabilities and advancing our customer intimate model for the future.
Taken together, we expect to deliver another year of earnings growth in 2024.
And consistent with our history, we also forecast another strong year of cash generation.
We remain committed to our capital allocation priorities investing in our organic growth paying dividends advancing our bolt on M&A strategy and strengthening our balance sheet through debt repayment.
Additionally, while we intend on prioritizing growth investments.
With our commitment to enhancing shareholder value. Our board has also approved a new $150 million share repurchase authorization.
Quaker Houghton is fully committed to our growth strategy. The end market environment has continued to test our resolve but our team has not lost focus on our priorities centered on enhancing the value we provide to our customers.
Andrew E. Tometich: The end market environment has continued to test our resolve, but our team has not lost focus on our priorities, centered on enhancing the value we provide to our customers. We have managed through the immediate challenges our business has faced while maintaining our focus on the future. We have also improved our foundation. We are driving efficiencies, and we are optimizing our processes and offering, augmenting the durability of our differentiated customer-focused business. Our strategic pillars remain centered on leveraging our global scale, deploying digital capabilities, and leading in sustainability. These pillars are positioned within Quaker Houghton to continue to meet the current and long-term needs of our customers and deliver value for our company and our shareholders.
We have managed through the immediate challenges our businesses face, while maintaining our focus on the future.
We have also improved our foundation, we are driving efficiencies and we are optimizing our processes and offerings augmenting the durability of our differentiated customer intimate business model.
Our strategic pillars remain centered on leveraging our global scale deploying digital capabilities and leading in sustainability.
These pillars are positioning Quaker Houghton to continue to meet the current and long term needs of our customers and deliver value for our company and our shareholders.
Andrew E. Tometich: Leveraging our scale remains a critical way to advance and optimize the intimacy of our model, including with our direct and indirect channel strategy. We initially embarked on this improvement area in the U.S., and we expect to make further progress on this work in 2024, expanding into Europe. Leveraging our global scale also helps to drive new business wins. We do so by deploying, reinforcing, and expanding the full capabilities of our technology portfolio. Consistent with this, in the first quarter, we bolstered our portfolio of specialty greases with the acquisition of IKV Tribology in Europe.
Leveraging our scale remains a critical way to advance and optimize intimacy of our model, including with our direct and indirect channel strategy.
We initially embarked on this improvement area in the U S and we expect to make further progress on this work in 2020 for expanding into Europe.
Leveraging our global scale also helps to drive new business wins, we do so by deploying reinforcing and expanding the full capabilities of our technology portfolio.
Consistent with this in the first quarter, we bolstered our portfolio of specialty greases with the acquisition of eye kv Tribology in Europe.
Andrew E. Tometich: This acquisition complements our portfolio of advanced and operating solutions and will help accelerate our growth in these areas. We also continue making progress on our digital transformation. We successfully completed a phased launch of the latest iteration of our FluidTrend platform, which was a significant milestone in our multi-year digitization journey.
This acquisition complements our portfolio of advanced and operating solutions and will help accelerate our growth in these areas.
Yeah.
We also continue making progress on our digital transformation, we successfully completed a phased launch of the latest iteration of our fluid trend platform, which was a significant milestone in our multiyear digitization journey.
Andrew E. Tometich: This, as well as our more general focus on data and internal process improvements, will help transform how we effectively and efficiently deliver customer intimacy in the future. And we are also well underway to leading in sustainability and committed to achieving our short, medium, and long-term objectives. As an example, the electrification of the automobile is providing several nascent but real and meaningful opportunities for us to accelerate our growth. These new opportunities have tremendous challenges and complexities, which is exactly the space where we are. We are working diligently to develop and drive leadership with value-added solutions in these areas for our customers. These are just some of the examples of the important initiatives that we are advancing at Quaker House.
As well as our more general focus on data and internal process improvements will help transform how we effectively and efficiently deliver customer intimacy in the future.
And we are also well underway, leading in sustainability and committed to achieving our short medium and long term objectives.
As an example, the electrification of the automobile is providing several nascent but real and meaningful opportunities for us to accelerate our growth.
These new opportunities have tremendous challenges and complexities, which is exactly the space, where we thrive.
We are working diligently to develop and drive leadership with value, adding solutions in these areas for our customers.
These are just some of the examples of the important initiatives that we are advancing at Quaker Houghton.
Andrew E. Tometich: They are natural extensions of our differentiated customer intimacy approach and are additive to our potential as we position the company for the decades of growth ahead. Overall, we remain focused on and committed to capitalizing on the positive momentum we have built with our enterprise strategy to further unlock our potential. Our industry has attractive long-term growth characteristics, and we have earned a leading position, gaining the trust of our customers by providing them with the best services and solutions. We are well positioned from a financial and operational perspective, having improved our profitability, strengthened our balance sheet, and restored the cash generation capabilities of the organization. We will never lose sight of our mission, driving success for and with our customers.
Our natural extensions of our differentiated customer intimate approach and are additive to our potential as we position the company for the decades of growth ahead.
Overall, we remain focused on and committed to capitalizing on the positive momentum we have built with our enterprise strategy to further unlock our potential.
Our industry is attractive long term growth characteristics and we have earned our leading position gaining the trust of our customers by providing them with the best services and solutions.
We are well positioned from a financial and operational perspective, having improved our profitability strengthened our balance sheet and restored the cash generation capabilities of the organization.
We will never lose sight of our mission driving success for and with our customers.
Operator: This partnership fuels our ability to earn new business as we support our customers, helping them to manage complexity and enabling them to pursue new opportunities. We will continue to prudently invest to advance our growth initiatives. It is through our strategic pillars, our leading portfolio of products and services, and our customer-centric solution-based business model that we will achieve profitable above market growth. And we remain committed to our balanced capital allocation strategy as we focus on maximizing shareholder value. I am proud of the execution and performance throughout 2023, and I am confident in our ability to move forward together for our customers and our company. With that, I'd like to pass it over to Shane to discuss finance. Thank you, Andy, and good morning, everyone.
This partnership fuels, our ability to earn new business as we support our customers, helping them to manage complexity and enabling them to pursue new opportunities.
We will continue to prudently invest to advance our growth initiatives. It is through our strategic pillars, our leading portfolio of products and services and our customer intimate solution based business model that we will achieve profitable above market growth.
And we remain committed to our balanced capital allocation strategy as we focus on maximizing shareholder value.
I am proud of the execution and performance throughout 2023 and <unk>.
I am confident in our ability to move forward together for our customers and our company.
With that I'd like to pass it over to Shane to discuss the financials.
Thank you Andy and good morning, everyone.
Operator: The fourth quarter was another solid quarter for Quaker Health. However, as expected, our net sales declined approximately 4% from the prior year to $467 million. The main drivers of the change were lower price and mix of approximately 4%, as well as a 1% decline in sales volumes, which were partially offset by a favorable impact from foreign currency translation of 1%. However, while volumes were largely consistent with the prior year, they also reflect softer global industrial activity, as well as the direct and indirect impacts of the UAW strikes in the Americas, which primarily impacted our metalworking. Customer order patterns are also, for example, in China, related to the timing of the Lunar New Year in 2023.
The fourth quarter was another solid quarter for Quaker Houghton as.
As expected our net sales declined approximately 4% from the prior year to $467 million.
The main drivers of the change were lower price and mix of approximately 4% as well as a 1% decline in sales volumes, which were partially offset by unfavorable impact from foreign currency translation of 1%.
While volumes were largely consistent with the prior year. They also reflect softer global industrial activity as well as the direct and indirect impacts of the UAW strikes in the Americas, which primarily impacted our metalworking businesses.
Customer order patterns also impact.
For example, in China related to the timing of the lunar new year in 2023.
These headwinds were partially offset by new business wins improvements in our metals businesses globally as well as an improved performance in our greater Asia Pacific region.
Operator: These headwinds were partially offset by new business winds, improvements in our metals businesses globally, as well as an improved performance in our greater Asia-Pacific region. However, though we continue to implement targeted actions, our price and product mix did decline compared to the prior year. This primarily reflects our index-based contracts, which represent approximately a quarter of our overall volumes, as well as impacts due to product. Sequentially, net sales declined approximately 5%. This was primarily driven by a volume decline of approximately 3%.
Though we continue to implement targeted actions, our price and product mix did decline compared to the prior year.
This primarily reflects our index based contracts, which represent approximately a quarter of our overall volumes as well as impacts due to product mix.
Sequentially net sales declined approximately 5%.
This was primarily driven by a volume decline of approximately 3%.
Afflicting normal seasonal patterns in the Americas business, which was muted by improvements in EMEA and Asia Pacific segments.
First margins in the third quarter were 36, 6%, which represents an increase of 440 basis points compared to 32, 2% in the prior year.
Operator: Reflecting normal seasonal patterns in the Americas business, which was muted by improvements in the India and Asia-Pacific sectors, first margins in the third quarter were 36.6%, which represents an increase of 440 basis points compared to 32.2% in the prior year. This improvement reflects the continued execution on our margin improvement, as well as a moderate decline in our raw materials. However, sequentially, gross margins declined by approximately 80 basis points due to the impact of the seasonally lower production volume. Excluding one-time items.
This improvement reflects the continued execution on our margin improvement initiatives as well as a moderate decline in our raw material costs.
Sequentially gross margins declined by approximately 80 basis points due to the impact of the seasonally lower production volumes.
Excluding one time items, SG&A increased $13 million or 11% compared to the prior year, but declined $1 million or 1% sequentially.
The increase compared to the prior year reflects inflationary impacts on our labor and related costs as well as impacts due to foreign exchange.
Operator: SG&A increased 13 million, or 11%, compared to the prior year, but declined 1 million, or 1%, sequentially. The increase, compared to the prior year, reflects inflationary impacts on our labor and related costs, as well as impacts due to foreign exchange. Overall, we delivered $77 million of adjusted EBITDA in the fourth quarter, which represents an increase of 13% compared to the prior year. Our adjusted EBITDA margins were 16.5% in the quarter, or 250 basis points higher than the prior year. These improvements reflect the progress we've made advancing our strategy while balancing our near-term priorities with our long-term profitable growth initiatives. America's net sales and volumes declined due to normal seasonal patterns, which we previously anticipated.
Overall, we delivered 77 million of adjusted EBITDA in the fourth quarter, which represents an increase of 13% compared to the prior year.
Our adjusted EBITDA margins were 16, 5% in the quarter or 250 basis points higher than the prior year.
These improvements reflect the progress we've made advancing our strategy, while balancing our near term priorities with our long term profitable growth initiatives.
Switching to our segments.
Net sales in the Americas declined 7% year over year, driven by softer end market activity, primarily in our metalworking businesses and to a lesser extent selling price and product mix.
On a sequential basis.
<unk> net sales and volumes declined due to normal seasonal patterns, which we previously anticipated.
Americas had consistent price and product mix with the prior quarter.
Americas segment earnings increased approximately 4% compared to the prior year, primarily reflecting our margin improvement initiatives.
For the full year Americas margins increased 360 basis points, which drove segment earnings higher by 19% year over year.
Operator: America's head consistent price and product. [inaudible] America's segment earnings increased approximately 4% compared to the prior year, primarily reflecting our margin improvement. For the full year, America's margins increased 360 basis points, driving segment earnings higher by 19% year-over-year. Net sales in our EMEA segment were consistent with the prior year, as higher sales volumes and a favorable impact from foreign currency trading were all set by lower selling prices and products. Our AMEA volumes have stabilized, but they still remain at low levels, as we continue to contend with very soft end-market conditions in most product categories. Sequentially, EMEA's net sales declined 3%.
Net sales in our EMEA segment were consistent with the prior year as higher sales volumes and a favorable impact from foreign currency translation were offset by lower selling price and product mix.
Our EMEA volumes have stabilized, but they still remain at low levels as we continue to contend with very soft end market conditions in most product categories.
Sequentially EMEA net sales declined 3% a sequential.
Sequential increases in sales volumes were offset by price and product mix and the unfavorable impact of foreign currency translation.
EMEA segment earnings increased approximately 35% in the fourth quarter compared to the prior year.
This increase reflects our margin improvement initiatives as well as overall cost actions.
Similarly full year earnings in the EMEA segment increased approximately 37% compared to 2022.
Net sales in Asia Pacific were consistent with the prior year as an increase in volumes were offset by both price and product mix as well as an unfavorable impact from foreign currency exchange.
Operator: As sequential increases in sales volumes were offset by price and product mix and the unfavorable impact of foreign currency trade, Amoeus segment earnings increased approximately 35% in the fourth quarter compared to the prior year. This increase reflects our margin improvement initiatives as well as overall costs. Similarly, four-year earnings in the EMEA segment increased approximately 37%, and the entire team. Net sales in Asia-Pacific were consistent with the prior, as an increase in volumes was offset by both price and product mix, as well as an unfavorable impact from foreign currency exchanges. However, increased sales volumes were driven predominantly by demand improvements and new business wins, primarily in Greater Asia and also widely across metals and metalworking. Subsequently, Net Sales in Asia Pacific were also consistent with the third.
Increased sales volumes were driven predominantly by demand improvements in new business wins, primarily in greater Asia, and also broadly across metals and minerals.
Sequentially net sales in Asia Pacific were also consistent with the third quarter.
Asia Pacific segment earnings increased approximately 7% compared to the prior year, which was largely driven by gross margin improvement.
For the full year Asia Pacific segment margins increased approximately 490 basis points, which drove a 12% increase in earnings compared to 2022.
Overall, we have made considerable progress in 2023, improving the financial profile of all of our segments, which positions us well heading into 2020.
Below the line our interest expense was slightly lower in the fourth quarter compared to both the prior year and prior quarter, which reflects our commitment to debt reduction.
Operator: Asia-Pacific segment earnings increased approximately 7% compared to the prior year, which was largely driven by gross margin and fruit. For the full year, Asia-Pacific segment margins increased approximately 490 basis points, which drove a 12% increase in earnings compared to 2015. Overall, we have made considerable progress in 2023, improving the financial profile of all of our businesses, which positions us well heading into 2020. Below the line, our interest expense was slightly lower in the fourth quarter compared to both the prior year and the prior quarter, which reflects our commitment to debt reduction. Our cost of debt in the fourth quarter was approximately 6.2%, which is in line with where we exited the prior quarter. Our effective tax rate, excluding non-recurring and non-core items, was approximately 30% and 28% for the full year.
Our cost of debt in the fourth quarter was approximately six 2%, which is in line with where we exited the prior quarter.
Our effective tax rate, excluding nonrecurring and non core items was approximately 30% in the fourth quarter and 28% for the full year.
We expect our effective tax rate in 2024 to be approximately 29%.
Our GAAP diluted earnings per share were $1 12.
And our non-GAAP diluted earnings per share were $1 78.
This represents a 28% year over year increase in earnings per share, which was driven by an improvement in operating earnings.
Switching to liquidity, we generated an additional $81 million of cash from operations in the fourth quarter.
For the full year, we generated a record 279 million of operating cash flow.
Our cash flow improvements reflect higher earnings as well as our focus on improving our overall working capital efficiency.
Capital expenditures for the full year 2023 were $39 million, which includes $13 million in the fourth quarter.
Also we paid an additional $8 million of dividends to shareholders in the quarter, increasing total dividends paid to $32 million for the full year.
Operator: We expect our effective tax rate in 2024 to be approximately $29,000. Our GAAP Diluted Earnings Per Share, or $1.25, and our non-GAAP diluted earnings per share, or $1.78. This represents a 28% year-over-year increase in earnings per share, which was driven by an improvement in operations. (Inaudible) We generated an additional $81 million of cash from operations in the fourth quarter. For the full year, we generated a record 279 notes of operating cash flow. Our cash flow improvements reflect higher earnings as well as our focus on improving our overall working capital. Capital expenditures for the full year 2023 were $39 million, which included $13 million in the fourth quarter.
In addition, we reduced our variable rate debt by 204 million 2023, including a repayment of $78 million in the fourth quarter, which will reduce our interest expense in 2024.
Our balance sheet and liquidity are strong our net debt at the end of the fourth quarter was $561 million and our net leverage ratio improved to one eight times our adjusted EBITDA.
This represents the lowest level of leverage for the company since the combination occurred in 2019 and is a testament to the legacy of the strong cash generation capabilities of our Coke.
Looking to 2024, we expect another strong year of cash generation supported by earnings growth as well as our ongoing working capital efficiency efforts.
Operator: Also, we paid an additional $8 million of dividends to shareholders in the quarter, increasing total dividends paid to $32 million for the full year. In addition, we reduced our variable rate debt by $204 million in 2023, including a repayment of $78 million in the fourth quarter, which will reduce our interest expense in 2021. Our balance sheet and liquidity are strong. Our net debt at the end of the fourth quarter was $561 million, and our net leverage ratio improved to 1.8 times our adjusted EBITDA.
Our capital allocation priorities remain unchanged.
We will continue to prioritize investments in our company.
For full year 2024, we anticipate the range of our Capex spend to remain unchanged at approximately one five to two 5% of net sales we will continue to build on our long history of dividends.
We'll continue to advance our M&A pipeline with attractive and accretive transactions that support our enterprise strategy.
And while we will prioritize growth, we will also be opportunistic including potentially through share repurchases to enhance shareholder value.
Operator: This represents the lowest level of leverage for the company since the combination occurred in 2019 and is a testament to the legacy of the strong cash generation capabilities of our company. Looking to 2024, we expect another strong year of cash generation, supported by earnings growth, as well as our ongoing working capital efficiency. Our capital allocation priorities remain unchanged.
In summary, 2023 was a very successful year for Quaker out we.
We executed on our margin improvement initiatives, which increased segment margins by 400 basis points across all of our segments. Despite significant end market challenges.
We delivered record results and cash flow generation, and we remained disciplined with our capital allocation priorities.
We are committed to our growth strategy and we remain confident in the earnings power and cash generation capabilities of this company and we believe we are well positioned to continue to deliver long term shareholder value.
Operator: We will continue to prioritize investments in our company throughout the whole year 2020. We anticipate the range of our CapEx spend to remain unchanged at approximately 1.5% to 2.5% of net spend. We will continue to build on our long history of. We will continue to advance our M&A pipeline with attractive and accretive transactions that support our enterprise strategy. And while we will prioritize growth, we will also be opportunistic, including potentially through share repurchase, to enhance shareholder value. In summary, 2023 was a very successful year for Quaker Health.
With that I'll turn it back over to Andy.
Thank you Shane.
<unk> thousand 23 was a very successful year for Quaker Houghton and we're excited about the opportunities ahead.
I'd like to thank the entire organization for their commitment to our company and our customers and for living our core values every day.
With that we'd be happy to address your questions.
Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad.
Tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
Operator: We executed on our margin improvement initiatives, which increased segment margins by 400 basis points across all of our segments despite significant and marked challenges. We delivered record results and cash flow generation, and we remain disciplined with our capital allocation priorities. We are committed to our growth strategy, and we remain confident in the earnings power and cash generation capabilities of this company. Additionally, we believe we are well positioned to continue to deliver long-term shareholder value. With that, I'll turn it back over to you. Thank you, Shane.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment please poll for questions.
Our first question is from Mike Harrison with Seaport Research partners. Please proceed.
Hi, good morning, Congrats on a nice finish to the year.
Good morning, Mike Thanks.
Just looking at this price mix number down 4% year over year.
Mentioned that about.
About a quarter of that was related to the index contracts, but I get a sense that mix was negative but just curious if you can provide any color on the mix component. There is that regional is that dynamic within some particular end market or a particular product line and do you expect that to normalize.
Andrew E. Tometich: 2023 was a very successful year for Quaker Health, and we're excited about the opportunities ahead. I'd like to thank the entire organization for their commitment to our company and our customers and for living our core values every day. With that, we'd be happy to address your questions. Thank you. We will now be conducting, and David Begleiter.
And as we get into 2024, just trying to get a sense of kind of what the underlying pricing and the mix component could look like into next year.
Yes, Thanks, Mike.
Really good question. So yes, we did highlight that price and mix declined in the fourth quarter on a year over year basis, and actually the split is about half and half.
Operator: Star 1, I'm your tele.., for, our first question... Hi, good morning, congrats on a nice finish to the year. More to Mike, thanks. Just looking at this price mix number down 4% year-over-year, you mentioned that about a quarter of that was related to the index contracts, but I get a sense that mix, with negatives, but just curious if you can provide any color on the mix component there. Is that regional?
Between price and product mix on the mix side as it relates to order patterns.
Temporary typically temporary situation not not any main pattern.
But I would highlight when you think about the price piece of we're lapping prior year price increases when we look on a year over year basis kind of as expected.
Then we did have raw materials declined modestly in the second half of the year and we have about 25% of our.
Andrew E. Tometich: Is that dynamic within some particular end market or particular product line? And do you expect that to normalize as we get into 2024? Just trying to get a sense of kind of what the underlying pricing and the mix component could look like? Yeah, thanks, Mike. A really good question.
<unk> business Thats on index contracts so.
Those will have impacts, but largely we've seen stable stable pricing throughout the year and I would still highlight two we improved 7% in 2023, and so we're going to continue to work with customers on earning the value for the things that we do to help them solve problems and unprofitable business.
Alright, and just switching over to capital allocation. It seems like you're well positioned to have some nice flexibility here given.
Andrew E. Tometich: So, yeah, we did highlight that price and mix declined in the fourth quarter on a year-over-year basis, and actually, the split is about half and half between price and product mix. On the mix side, it relates to order patterns, and you know, it's a typically temporary situation, not any main pattern that I would highlight. When we think about the price piece of it, you know, we're lapping prior-year price increases when we look on a year-over-year basis, kind of as expected. And then we did have raw material prices decline modestly in the second half of the year, and we have about 25% of our entire business that's on index contracts. So, those were impacts, but largely, we've seen stable pricing throughout the year, and I would still highlight, too, that we improved 7% in 2023.
The balance sheet and the cash flow, but maybe just help us understand if anything has really changed in terms of your priorities give.
Given this share repurchase authorization.
How should we think about prioritizing repurchases against bolt on acquisitions.
And I guess, if theres any color you can share on kind of your approach and potential timing.
Bond repurchases, it's Ben.
Several years since you guys are done.
Any meaningful share repurchases. So just curious.
To get your thoughts on Canada.
<unk> in the approach.
Sure. Thanks, Mike.
Andrew E. Tometich: And so, we're going to continue to work with customers on earning value for the things that we do to help them solve problems and earn profitability. Alright, and just switching over to capital allocation, it seems like you're well-positioned to have some nice flexibility here given the balance sheet and the cash flow, but maybe just help us understand if anything's really changed in terms of your priorities given this share repurchase authorization. How should we think about prioritizing repurchases against bolt-on acquisitions?
First and foremost we will focus on growing the business and the way we do that is by supporting customers and in turn then you generate shareholder value and we've got ample opportunities to do that some some of which I've highlighted and we'll continue to focus on that.
Then the capital allocation strategy that supports that has not changed it is unchanged and remains what we've talked about before so we have been focused on some debt repayment here recently, which really has put us in a strong financial position to enable us to continue to do.
Two our focus on value creation.
Andrew E. Tometich: And I guess if there's any color you can share on kind of your approach and potential timing for repurchases. It's been, It's been several years since you guys have done any meaningful share repurchases, so just curious to get your thoughts on kind of the philosophy and the approach to enable us to continue to focus on value creation. We've been committed to dividends. Last year, we increased our dividend by approximately 5%, and now, for 47 out of 50 years, we have increased our dividend.
Been committed the dividend last year, we increased approximately 5% now we're at 47 out of 50 years have increased our dividend and then M&A is a key part of our growth levers to unlock value in our pipeline there is really healthy.
We're continuing to move opportunities, along and evaluate new opportunities and the timing is not always predictable, but we are advancing that portfolio and we were really happy completing the <unk> acquisition here recently that we highlighted so we're going to continue to prioritize organic and inorganic investments for.
For the business, but we did put in place this active.
Andrew E. Tometich: And then M&A is a key part of our growth levers to unlock value, and our pipeline there is really healthy. But the key thing here is that we have a balanced approach to our capital allocation. Nothing has changed, and we believe we have the right levers that will allow us to add shareholder value. All right, thanks for that.
Purchase authorization, but allows us to be opportunistic.
But the key thing here is we have a balanced approach to our capital allocation nothing has changed and we believe we have great leaders that will allow us to add shareholder value.
Yeah.
Alright, thanks for that and then.
Andrew E. Tometich: And then, last question for me is just, you know, in terms of the outlook, you guys are fairly encouraged on volume starting to recover and continuing down this path of margin recovery. But just curious, you know, any additional modeling assumptions you can provide around volume, price, cost, and maybe kind of incremental margin leverage? As we start to see these volumes turn around, any other puts and takes that maybe we should keep in mind when trying to model EBITDA growth? Yeah, great. I'm happy to happy to do that, Mike.
Last question for me.
In terms of the outlook.
You guys are fairly encouraged.
On volume starting to recover and continuing down this path of margin recovery.
But just curious any any additional modeling assumptions you can provide around volume price cost and maybe kind of incremental margin leverage as we start to see these volumes turn around any other puts and takes that maybe we should keep in mind is we're trying to model EBITDA.
In 2024.
Yeah, Great I'm happy to happy to do that Mike. So when I think about our outlook in total I anticipate we're going to have another good year for Quaker out in 2024, so starting with the first quarter the.
Andrew E. Tometich: So when I think about our outlook in total, I anticipate we're going to have another good year for Quaker out in 2024. So starting with the first quarter, you know, the underlying markets, we don't think are going to change tremendously from the fourth quarter. There could be some benefit of seasonality in the Americas as we come off the fourth quarter.
Underlying markets. We don't think are going to change tremendously from the fourth quarter, there could be some benefit of seasonality in the Americas as we come off the fourth quarter and our gross margins are going to be similar or even maybe even slightly improved to the prior quarter. So in the first quarter, we anticipate EBIT growth on a year over year in <unk>.
Andrew E. Tometich: And our gross margins are going to be similar or maybe even slightly improved from the prior quarter. So in the first quarter, we anticipate growth on a year-over-year and sequential basis. Then transitioning to the full year, you know, the visibility with some of the macro uncertainties makes it a challenge.
<unk> basis then.
Then transitioning to the full year the visibility with some of the macro uncertainties makes it a challenge, but we anticipate underlying markets and kind of the current business.
Andrew E. Tometich: But we anticipate underlying markets and the kind of current business to remain similar through the first half of 2024. But all along, we're going to be continuing to focus on what we do extremely well, which is earning new business by solving customer problems and driving value, profitable, excuse me, profitable volumes as we continue to do that. For gross margin, we're not yet at our targeted levels.
<unk> remained similar through the first half of 2024, but all along we're going to be continuing to focus on what we do extremely well, which is earning new business by solving customer problems and driving value profitable box you may profitable volumes.
As we continue to do that.
For gross margin, we're not yet at our targeted levels. We made a lot of progress last year, but we still have some opportunities and we will continue to move towards our targeted range through cycle for SG&A. We will continue to make investments in this business to be able to grow and there will be some inflationary impacts although the pace of that we believe is going to be.
Andrew E. Tometich: We made a lot of progress last year, but we still have some opportunities, and we'll continue to move towards our targeted range through the cycle. For SG&A, we'll continue to make investments in this business to be able to grow, and there will be some inflationary impacts, although the pace of that, we believe, is gonna be lower than what we've seen more recently. So taken together, another solid year for Quaker Houghton. It's gonna be driven by volume growth and margin improvement that translates into earnings growth for the enterprise. And then last, I don't wanna miss out on cash generation.
Lower than what we've seen more recently so taken together another solid year for Quaker Houghton, it's going to be driven by volume growth and margin improvement that translates into earnings growth for the for the enterprise and then lastly, I don't want to don't want to Miss out on cash generation, we're going to continue being a solid cash generator with our model.
Using that as part of our disciplined capital allocation strategy again, where I just highlighted we will prioritize growth.
And on covering ways to add the most value for our shareholders.
All right sounds good thanks very much.
Andrew E. Tometich: We're gonna continue being a solid cash generator with our model, using that as part of our disabled capital allocation strategy, again, as I just highlighted, we'll prioritize growth and uncover ways to add the most value for our shareholders. All right. Sounds good.
Thanks, Mike.
Our next question is from Jon <unk> with CJS Securities. Please proceed.
Hi, Good morning, Thank you for taking my questions and congrats on the nice quarter and margin and cash flow.
I was wondering if you could first talk a little bit about <unk> I know, it's fairly small but maybe.
Maybe a little more details on what you paid for it and if there's any tangible accretion and.
Andrew E. Tometich: Thanks very much. Thanks, Mike. Good morning. Thank you for taking the time to talk to me. I was wondering if you could first talk a little bit about... Maybe a little more detail than what you paid for it. Hey, John.
What capabilities or opportunities does it bring to Quaker.
Hey, John Thanks, Thanks for the question good morning by the way.
We're excited this is another opportunity to advance our position in our advanced and operating solutions, specifically with specialty Greece's now.
Andrew E. Tometich: Thanks for the question. Good morning, by the way. You know, we're excited. This is another opportunity to advance our position and our advanced and operating solutions, specifically with specialty greases. Now, the size of the business is less than 1% of our total sales, but it has some excellent growth opportunities. And consistent with our bullpup strategy, we've been very successful as we take advantage of our customer intimacy model. When we can add technology or a customer access channel to the market or shore up some geographic positions, it works out extremely well for us. IKD does all those things for us, got it.
Size of the business is less than 1% of our total sales, but it has some excellent growth opportunities and consistent with our bolt on strategy that we've been very successful as we take advantage of our customer intimate model. When we can add technology or customer access channel to market or shore up some geographic position.
Out extremely well for us ITV does all of those things for us.
Got it that's helpful. Thank you and then it looks like you had some modest deflation in Q4 I was wondering if you could talk about what youre seeing input so far in Q1 and does that give you some tailwind and driving incremental margin you hold on a price or should we be expecting something different there.
Andrew E. Tometich: That's helpful. Thank you. And it looks like you had some, I was wondering if you could... What you're seeing in input so far in Q1, and does that give you some tailwinds in driving incremental margin as you hold on to the price? Yeah, so.
Yeah. So.
We're anticipating.
Your question about raw materials or I, just want to clarify John Yes, yes.
And how that.
High margin yes.
Andrew E. Tometich: We're anticipating...was your question about raw materials or...I just want to clarify, John. Yes, yes, and how that relates to... Yeah, okay. We've seen them stabilize at this point in time, and we're not anticipating any real changes as we go forward into 2024. Remember, we've got a very complicated basket of goods. But overall, at that high historic rate, I think we believe it will be relatively stable going forward. And then finally, could you talk a little bit more about your fluid monitoring products and the kind of how much? on that family of technology?
Yes. Thanks, Thanks for that yeah. So for sure there was some modest declines in the second half of last year, but I wouldn't highlight raw materials are still very high on a historic basis we.
We've seen them stabilize at this point in time.
We're not anticipating any real changes as we go forward into 2024 remember we've got a very complicated basket of goods.
But overall at that high historic rate I think we believe it will be relatively stable going forward.
Okay, Great and then finally could you talk a little bit more about your your fluid monitoring products and kind of how much contribution you're expecting from from that family of technologies and solutions in coming years.
Yeah. Thanks, Jon I mean, we don't provide the granularity on how much it's contributing but we're continuing to make progress on our fluid intelligence.
Andrew E. Tometich: Yeah, thanks, Sean. I mean, we don't provide the granularity on how much it's contributing, but we're continuing to make progress with our intelligence. You know, this is a multi-year approach with phases where we really want to continue to add customer value in the way we're helping them to monitor their operations and control and ultimately optimize those things. So we are making great progress with the activities we're doing with customers now, which is helping to refine where we go next. And we'll continue to characterize that as we go forward. Bye. Lawrence Alexander, with Jeffrey Schnell.
This is a multi year approach with phases, where we really want to continue to add customer value and the way we are helping them to monitor their operations.
Control and ultimately optimize those things so we were making great progress with the activities, we're doing with customers now which is helping to refine where we go next and we'll continue to characterize that as we go forward.
Okay, great. Thank you.
Alright.
Our next question is from Laurence Alexander with Jefferies. Please proceed.
Good morning can you it's been a while since we've had like a fairly normal year could you characterize what you think seasonality should be going forward.
Yeah, Laurence you are right.
I can't recall, what normal looks like anymore. So it's a fair point, but.
Operator: Good morning. It's been a while since we've had a fairly normal year. Can you characterize what these analyses should be going forward? Yeah, Lawrence. You're right. I can't recall what normal looks like anymore.
I think we've seen.
Some stability over the last year or two but.
Just a very low levels, but we tend to see.
<unk> as we move through the middle part of the year and I would anticipate that it's going to be a continuation.
Andrew E. Tometich: So it's a fair point. But I think we've seen, you know, kind of some stability over the last year or two that this is at very low levels. But we tend to see, you know, improvement as we move through the middle part of the year. And I would anticipate that it's going to be a continuation, you know, low to mid single digits lower in the first quarter.
Low to mid single digits lower than the first quarter, but things improve as we move to the middle of the year.
And then as you talk to your customers about your digitalization efforts and kind of types of processes and programs we're working on.
Is there any change.
Look farther out cycled through cycles.
Andrew E. Tometich: But things improve as we move to the middle of the year and then as you talk to your customers about your digitalization efforts and the kinds of types of processes and programs you're working on. Is there any change, as you look farther out, you know, a cycle, two cycles, are there expectations in the industry of a change in the value capture, in which we expect gross margins to sort of step up to a new level over, say, 10 years or so? How does the industry think about this all, in terms of how it changes the financial structure of you versus your customers? longer term. Yeah, so, Lawrence, I think the way our customers and the way we think about it is that there are opportunities here to develop that efficiency in the things that we're doing today to help them to monitor, control, and optimize their processes. And it allows us to do it more effectively as well.
Their expectations of the industry or a change in the value capture of each we expect gross margins to sort of step up to a new level of over.
Having 10 years or.
How does the industry think about this so in terms of how it changes the financial structure view versus your customers.
Longer term.
Yeah, So I think the way our customers and the way we think about it is theres opportunities here about that efficiency to the things that we're doing today to to help them to monitor control and optimize their processes.
It allows us to do it more effectively as well so.
I wouldn't say, it's been quantify it at this stage, but we fully anticipate that it's going to add to the benefits of both the efficiency and the effectiveness in the way that we deliver that intimate service model to help them be the most successful.
Andrew E. Tometich: So I wouldn't say it's been quantified at this stage, but we fully anticipate that it's going to add to the benefits of both efficiency and effectiveness in the way that we deliver that intimate service model to help them be the most successful. And what has been the feedback in terms of how different what you're doing is compared to your smaller regional competitors? Yeah, I mean, we have a more comprehensive ability to cover more parts of customer operations. Many of our customers have multiple operations. And so our ability to be able to help with tools and capabilities that go across those different units of operation is really a key thing that helps to differentiate us. And I think our know-how in the way that our products interact and the breadth of our products also creates differentiation for us. Thank you. Thanks, from our family to yours. Thanks. Good morning, everyone.
And what has been the feedback in terms of how different point door doing against compared to your smaller regional competitors.
Yes.
We have a more comprehensive ability to.
A couple of more parts of customer operations.
Many of our customers have multiple operations and so our ability to be able to help with tools and capabilities that go across those different with different units of operation is really a key thing that helps to differentiate us and I think our knowhow in the way that our products interact and the breadth of our products.
<unk> creates a.
<unk> for us.
Thank you.
Thanks.
Our next question is from Vincent Anderson with Stifel. Please proceed.
Hi, Thanks, Good morning, everyone. So I just wanted to ask Hey, I wanted to ask real quickly just how our supply chain is looking for let's call. It some of your more esoteric inputs in terms of your ability to really lean into capturing new business. This year.
Yes, I think there are extending.
Operator: So I just wanted to ask, hey, I wanted to ask real quickly just, you know, how are supply chains looking for some of your more esoteric inputs in terms of your ability to really lean into capturing new business this year? Yeah, I think, you know... Yeah, things have stabilized. Again, you know, back to our portfolio of materials we work with, you know, over 3000 different raw materials. And so, compared to where we were maybe a year or two ago, where there were a significant number of supply chain issues, those have, for the most part, been mitigated. There are always anecdotal situations, but that is not a constraint for us going forward. It's good to hear. And then I just wanted to revisit a couple of things that have already been raised.
Yes things have stabilized again back to our portfolio of materials, we work with over 3000 different different raw materials, and so compared to where we had been maybe a year or two ago, where they were a significant number of supply chain issues.
For the most part mitigated there's always there's always anecdotal situations, but that is not a constraint for us going forward.
Alright, thats good to hear.
And then I just wanted to revisit a couple of things that were brought up already but if if I remember correctly you had launched a fairly robust pilot program for your fluid intelligence system at a select customer too I was curious if you would be willing to go into any specific milestones related to that program.
Youre looking for in 2024, right. So if it's just going to be another learning here or if you have goals to expand the platform.
Andrew E. Tometich: But if I remember correctly, you launched a fairly robust pilot program for your fluid intelligence system at a select customer or two. I was curious if you would be willing to go into any specific milestones related to that program that you're looking for in 2024, right? So, if it's just going to be another learning year, or if you have goals to expand the platform or the number of customer trials in 2024.
Or the number of customer trials in 2024.
Yes.
That would be the level of detail that we would go through our continue the bolt on I think as.
As I highlighted last year, we had implemented our tools and capabilities within all of our own internal laboratories and operations and we've extended that to a group of targeted customers within those targeted customers. We're developing new applications again to cover more of these unit ops that I referenced a few minutes ago and we're also.
Lending into additional customers. So we're going to continue on the journey that.
Andrew E. Tometich: Yeah, that would be the level of detail that we would go to. We're continuing to build on, I think, as I highlighted last year, we implemented our tools and capabilities within all of our own internal laboratories and operations, and we'd extended that to a group of targeted customers. Within those targeted customers, we're developing new applications, again, to cover more of these unit operations that I referenced a few minutes ago, and we're also extending into additional customers. So, we're going to continue on the journey that started on this bus. Excellent, thanks.
He started on this process.
Excellent. Thanks, and then just one last quick one again just following up on some of the questions around seasonality just looking at the chart in your deck you called out seasonality again this quarter, but obviously in 2023 it hasn't been it hasn't been as drastic was there anything in the fourth quarter that was maybe offsetting some of that seasonality.
City, whether it was much better than expected share gains or maybe there was some underlying demand improvements that helped kind of smooth things out this year.
Yes, so the americas' kind of had the seasonality that we would have would have anticipated as well what would be the impact of the UAW situation yes.
Andrew E. Tometich: And then just one last quick one, again, just following up on some of the questions around seasonality. Just looking at the chart in your deck, you called out seasonality again this quarter, but obviously, in 2023, it hadn't been as drastic. Was there anything in the fourth quarter that was maybe offsetting some of that seasonality, whether it was, you know, much better than expected share gains, or maybe there were some underlying demand improvements that helped kind of smooth things out this year? Yeah, so the Americas kind of had the seasonality that we would have anticipated as well as the impact of the UAW situation. You know, APAC was relatively relatively stable. We didn't see a big adjustment there, and typically, the fourth quarter is not a big mover with respect to that. The mayor was actually a little bit stronger than we would have expected from the seasonality.
APAC was relatively relatively stable, we didn't see a big adjustment there and typically the fourth quarter is not a big mover with respect to that EMEA was actually a little bit stronger than we would've expected from a seasonality perspective.
Alright very helpful. Thanks, guys I appreciate it.
Thanks.
Okay.
Our next question is from David Begleiter with Deutsche Bank. Please proceed.
Thank you and good morning.
Andy Hi, David about talking.
Talking about demand trends you've seen in the first two months of year and what you're seeing in your order books for March.
Yes.
What I had kind of indicated was we obtained claims are going to be relatively stable not a lot of movements relative to the fourth quarter EMEA.
And then of course all of these numbers are well down versus pre tax pre pandemic levels, but EMEA continues to kind of bounce around the bottom, although as I indicated fourth quarter was a little bit better from a seasonality perspective, the normal Americas continues to be resilient and we would expect some seasonality benefit as we're moving into the new.
Andrew E. Tometich: All right, very helpful. Thanks, guys. Our next question... David Begleiter, Thank you, good morning. Andy, talk about the man trend, for his two months a year. Order books for March.
Year off of the fourth quarter.
Pat.
Relatively consistent.
Operator: Yeah, well, what we, you know, what I kind of indicated was we assume things are going to be relatively stable, not a lot of movements relative to the fourth quarter. EMEA, and of course, all of these numbers are well down versus pre-pandemic levels, but EMEA, you know, continues to kind of bounce around the bottom, although, as I indicated, the fourth quarter was a little bit better from a seasonality perspective America continues to be resilient, and we would expect some seasonality benefits as we're moving into the new year off of the fourth quarter. And APAC is relatively consistent.
We've seen an improvement.
In the back half of the year across APAC, both in metals and metalworking. So we're hopeful that that trend continues.
Very good and at that time and pricing.
Excluding the contractual pass throughs do you expect underlying pricing to be up in 'twenty four.
So how much of that is a new pricing versus carryover carryover pricing.
Yes, well the team's done a great job on really managing our.
Our margin improvement initiatives as we move through the last several quarters and balancing customer relationships with that primarily we're focused on that total cost of ownership and earning the value for what we provide.
Andrew E. Tometich: We've seen improvement, you know, in the back half of the year across APAC, both in metals and metalworking, so we're hopeful that that trend continues. Very good. And back on price and pricing, excluding the contractual pass-through. Do you expect underlying pricing to be up? If so, how much of that is new pricing versus carryover?
We of course always have to balance against the cost to serve.
As we are working with customers on that basis, but we do still have the 25% of our business that index based.
And given some of the raw material trends in the in the last half of the year, although now things have stabilized.
Could be some minor pressure in 2024 as that rolls through predominantly in the first half.
Andrew E. Tometich: Yeah, well, the team's done a great job managing our margin improvement initiatives as we move through the last several quarters and balancing customer relationships with that. And primarily, we're focused on that total cost of ownership and earning the value for what we provide. We, of course, always have to balance against the cost to serve as we're working with customers on that basis.
The important message is we expect to maintain or grow our margins as we move through 2024 and were committed to earnings growth.
Great and then last thing just on raws, Andy should how much should rise would you expect to always be down in 'twenty four 'twenty three.
Yes, as I indicated was we're anticipating is going to be relatively stable.
In 2024, there was a <unk>.
Low to mid single digit wrap effect.
That comes from the decline in the last half of last year and that impact will be mostly in the first half of this year.
Andrew E. Tometich: But we do still have the 25% of our business that's index-based, and given some of the raw material trends in the last half of the year, although now things have stabilized, there could be some minor pressure in 2024 as that rolls through predominantly in the first half. But the important message is we expect to maintain or grow our margins as we move through 2024, and we're committed to earnings growth. Great, and Leslie, good to turn to Raw.
Thank you.
Thanks.
As a reminder, this star one on your telephone keypad, if he would like to ask a question. Our next question is from.
Since Swanson with RBC capital markets. Please proceed.
Hey, Thanks for taking my question Congrats on a pretty strong 23 there.
So thanks.
Andy and so just yeah, I wanted to I guess get a little bit more.
Have your thoughts on on how EBITDA involve evolve from here.
Andrew E. Tometich: How much should RISE or do you expect RISE to be down? Yeah, as I indicated, RAWs we're anticipating are going to be relatively stable in 2024. There was a low to mid single-digit wrap effect that comes from the decline in the last half of last year, and that impact will be mostly in the first half. Thanks. As a reminder, this is Star 1.
So you know the last couple of years, you've had the benefits of those price increases.
Which appear to be.
Waning and then you know, but now you do have maybe volume kind of coming back.
So when you think about moving into Q1, I think you called for EBITA growth last year. If you look at your results. It looks like you did about 45 or 48% of your earnings in Q1, and Q4 and the remainder in Q2 Q3. So are you looking for like a similar split them.
Operator: If you would like to ask... Our next question, and many more. Thanks for taking my question. Congratulations on a pretty strong 23 there. Hey, Andy.
Andrew E. Tometich: So just, yeah, I wanted to, I guess, get a little bit more of your thoughts on how UBITDA should evolve from here. So, you know, the last couple years, you've had the benefits of those price increases, which appear to be, you know, waning, and then, you know, but now you do have maybe volume kind of coming back. So when you think about moving into Q1, I think you called for EBITDA growth. Last year, if you look at your results, it looks like you made about 45 or 48% of your earnings in Q1 and Q4, and the remainder in Q2, Q3. So are you looking for a similar split in 24?
And in and are in 'twenty, four and that would kind of imply maybe low eighties on the EBITDA line in Q1, and maybe some growth from there in Q2 Q3, and then Q4 it looks closer to Q1.
Just wanted to get a little bit more detail on that.
Sure. Thanks, Arun So I think I commented a little bit already on the seasonality there is a little bit of a Q1 Q4 impact.
Your statement of historical rates, we don't anticipate anything major shifting on that I would highlight the key thing is.
Our volume growth is going to be driven as well by new business wins and those new business wins are very much focused on adding higher value to customers and then to earn that value and the way that we work with them and we're going to continue to work on our efficiencies as well.
Andrew E. Tometich: And that would kind of imply maybe the low 80s on the EBITDA line in Q1 and maybe some growth from there in Q2, Q3. And then Q4 looks closer to Q1. Just wanna get a little bit more detail on that. Sure, thanks, Arun.
We move forward here so.
Net of that but that's how we believe the volume growth and the margin expansion will help us to drive earnings growth in 2012.
Great. Thanks, and then as a follow up.
Andrew E. Tometich: So, you know, I think I commented a little bit already on the seasonality. There's a little bit of a Q1, Q4 impact on your statement of historical rates. We don't anticipate anything major shifting on that. I would highlight, you know, the key thing is that our volume growth is going to be driven as well by new business wins. And those new business wins are very much focused on adding higher value to customers and then earning that value in the way that we work with them. And we're going to continue to work on our efficiencies as well as we move forward here. So, you know, net of that, that's how we believe the volume growth and the margin expansion will help us to drive earnings growth in 2014. Great, thanks.
Yeah, what what are you seeing I guess on the M&A front. It looks like you know that that maybe is an area of opportunity for you guys.
Some of your other parents, who are potentially not as financially healthy.
Is there and you know if there are any opportunities of the large variety that would make sense for you guys in and would you consider taking out all of it more leverage at this point to complete those deals or is the interest rate environment still I'm not necessarily constructive for that kind of move.
Yes, well the capital allocation strategy still remains it has not changed and as I highlighted a big way for us to increase shareholder value is to grow.
And one of those levers is through mergers and acquisitions and that really reinforces reinforces our ability we've been very successful on bolt ons.
Andrew E. Tometich: And then, as a follow-up, yeah, what are you seeing, I guess, on the M&A front? It looks like, you know, that maybe is an area of opportunity for you guys relative to some of your other peers who are potentially not as financially healthy. Is there, you know, any opportunities of a large variety that would make sense for you guys? And would you consider, you know, taking on a little bit more leverage at this point to complete those deals? Or is the interstate environment still not necessarily constructive for that kind of move? Yeah, well, the capital allocation strategy still remains. It has not changed.
Have a very active pipeline, we just completed the <unk> deal we are going to continue to cultivate all sizes of deals as we move forward that can take advantage of our customer intimate model and allow us to generate value through our expertise and again, we'll look at places, where theres technology channel or geography.
That'll be able to help us so well.
We are encouraged by the opportunities that remain we feel like we're in a good financial position of strength and our capital allocation strategy supports is continuing to move forward there.
Great and just as a follow up there so we.
We shouldn't necessarily think that theres been any change or or a re prioritization to share buybacks being ahead of M&A and it's still very balanced as far as your approach and you just consider all opportunities to increase share holder value is that the message basically yes.
Andrew E. Tometich: And as I highlighted, you know, a big way for us to increase shareholder value is to grow. And one of those levers is through mergers and acquisitions, and that really reinforces our ability. And again, we'll look at places where there's a technology channel or geography that'll be able to help us.
Yes, we're very very disciplined and focused on creating shareholder value. We believe growth will help us to drive that but opportunistically. We have the tools available. If there are other opportunities to add shareholder value.
Andrew E. Tometich: So we're encouraged by the opportunities that remain. We feel like we're in a good financial position of strength, and our capital allocation strategy supports us continuing to move forward there. Great, and just as a follow-up there, so we shouldn't necessarily think that there's been any change or reprioritization to share buybacks being ahead of M&A. It's still very balanced as far as your approach, and you would just consider all opportunities to increase shareholder values. Is that the message, basically? Yes, we're very disciplined and focused on creating shareholder value. We believe growth will help us to drive that, but opportunistically, we have the tools available if there are other opportunities to add shareholder value.
Thanks.
Thank you.
With no further questions at this time I would like to turn.
The floor back over to Andy for closing comments.
Yes, I just want to thank everybody for joining our call today and your continued interest in Quaker Houghton. Please your job to jump if you have any follow up questions.
Have a great day.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Okay.
Andrew E. Tometich: If there are no further questions at this time, I would like to turn the floor back to Yes, I just want to thank everybody for joining our call today and your continued interest in Quaker Health. Please do your job to Jeff if you have any follow-up questions, and thank you. Have a great day.
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