Q1 2024 Quaker Chemical Corp Earnings Call
Operator: Greetings. Welcome to the Quaker Houghton First Quarter 2024 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 from your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Jeffrey Schnell, Vice President of Investor Relations.
Greetings and welcome to the Quaker Houghton and first quarter 2024 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 from your telephone keypad.
This conference is being recorded.
I would now like to turn the call over to Jeffrey Schnell, Vice President of Investor Relations. Mr. Stanley You May now begin.
Jeffrey Michael Schnell: Thank you, good morning, and welcome to our first quarter 2024 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. Our comments relate to the financial information released after the close of U.S. markets yesterday, May 2, 2024. Our press release and accompanying slides can be found on our Investor Relations website. Both the prepared commentary and discussion during the call may contain forward-looking statements.
Jeffrey Michael Schnell: Thank you good morning, and welcome to our first quarter 2024 earnings Conference call.
Jeffrey Michael Schnell: On the call today are Andy Thomas our President and Chief Executive Officer, Shane Hostetter, Our executive Vice President and Chief Financial Officer, and Robert Traub, Our General Counsel.
Jeffrey Michael Schnell: and the company's current view of future events and their potential effect on Quaker health.
Jeffrey Michael Schnell: Our comments relate to the financial information released after the close of the U S markets yesterday made back in 2024, our press release and accompanying slides can be found on our Investor Relations website.
Jeffrey Michael Schnell: Both the prepared commentary and discussion during the 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.
Jeffrey Michael Schnell: The Potential Effects of 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.
These statements involve uncertainties and risks, which may cause actual results to differ the company is under no obligation to provide subsequent updates to these forward looking statements.
Jeffrey Michael Schnell: 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's my pleasure to hand the call over to Andrew.
Jeffrey Michael Schnell: 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.
Jeffrey Michael Schnell: For information please refer to our filings with the SEC.
Speaker Change: Now, it's my pleasure to hand, the call over to him.
Andrew E. Tometich: Thank you, Jeff, and good morning, everyone. Quaker Hountain delivered a strong performance again in the first quarter of 2024. We advanced our enterprise strategy, further expanded our margins, grew earnings, and delivered another quarter of solid operating cash. I am proud of these results, which highlight our ongoing execution, as well as the resilience of our people and our business as we continue to successfully navigate the persistent and dynamic end market conditions. Our disciplined approach to managing our business is working to better position the company to perform well in any environment for years to come. First quarter net sales were $470 million.
Speaker Change: Thank you, Jeff and good morning, everyone.
Speaker Change: Quaker Houghton delivered a strong performance again in the first quarter of 2024, we.
Speaker Change: We advanced our enterprise strategy further expanded our margins earnings and delivered another quarter of solid operating cash flow.
Speaker Change: I am proud of these results, which highlight our ongoing execution as.
Speaker Change: As well as the resilience of our people and our business as we continue to successfully navigate the persistent and dynamic end market conditions.
Speaker Change: Our disciplined approach to managing our business is working.
Speaker Change: Better positioning the company performed well in any environment for years to come.
Speaker Change: Okay.
Speaker Change: First quarter net sales were $470 million, 6% below the prior year's record result.
Andrew E. Tometich: 6% below the prior year's record result and 1% higher than the fourth quarter of 2023. However, total reported volumes were once again stable on a year-over-year basis and were 2% higher sequentially. This is a result of us earning new business with our valued customers through our differentiated, customer-intimate model as we and our customers endure through the sustained, soft macroeconomic conditions. Gross margins in the first quarter were 38.7%, 400 basis points higher than the prior year, and 200 basis points higher compared to the prior period.
Speaker Change: And 1% higher than the fourth quarter of 2023.
Speaker Change: Total reported volumes once again stable on a year over year basis, and was 2% higher sequentially.
Speaker Change: This is a result of us, earning new business with our valued customers.
Speaker Change: Differentiated customer intimate model as we and our customers endure through the sustained soft macroeconomic conditions.
Speaker Change: Gross margins in the first quarter was 38, 7% 400 basis points higher than the prior year and 200 basis points higher compared to the prior year period.
Andrew E. Tometich: We have benefited from active execution on our margin improvement initiatives, including driving efficiencies in areas like supply chain and procurement, as well as taking appropriate steps to enhance our overall operational performance. We have also benefited from a modest decline in raw material costs from their peak levels, which have since stabilized, and we maintain a disciplined approach with our customer-driven total cost of ownership. We generated adjusted EBITDA of $83 million in the first quarter, a 6% increase year-over-year, and $2.09 of non-GAAP diluted earnings per share, an 11% increase compared to the prior year.
Speaker Change: We have benefited from the active execution on our margin improvement initiatives, including driving efficiencies in areas like supply chain and procurement.
Speaker Change: As well as taking appropriate steps to enhance our overall operational performance.
We also benefited from a modest decline in raw material costs from their peak levels, which have since stabilized and we maintain a disciplined approach with our customer driven total cost of ownership model.
Speaker Change: We generated adjusted EBITDA of $83 million in the first quarter, a 6% increase year over year and $2 and nine of non-GAAP diluted earnings per share, an 11% increase compared to the prior year.
Andrew E. Tometich: These strong financial results underscore the progress on our profitable growth initiatives and our commitment to driving success for and with our customers while continuing to invest in our people, our growth pillars, and our enablers. In the first quarter, we generated approximately $27 million of operating cash flow, continuing our momentum in 2023. This was primarily driven by our improved operating performance, despite a modest working capital loss. We expect to build on these levels of cash flow in the coming quarters. Quaker Helton's balance sheet is strong, supported by our cash generation capabilities and our disciplined capital allocation strategy.
Speaker Change: These strong financial results underscore the progress on our profitable growth initiatives and our commitment to driving success for and with our customers, while continuing to invest in our people our growth pillars and our enablers.
Speaker Change: In the first quarter, we generated approximately $27 million of operating cash flow continuing our momentum from 2023.
Speaker Change: This was primarily driven by our improved operating performance. Despite a modest working capital we expect.
Speaker Change: To build on these levels of cash flow in the coming quarters.
Speaker Change: Quaker Houghton's balance sheet is strong supported by our cash generation capabilities and our disciplined capital allocation strategy.
Andrew E. Tometich: Our net leverage ratio remains at 1.8 times our adjusted EBITDA and provides significant optionality to invest in opportunities to accelerate our growth and support our framework for long-term value creation. I'm excited by the opportunities ahead to continue to unlock our growth potential. Turning to our segments, we once again delivered improved earnings and margin performance in all of our segments on a year-over-year basis. I am proud of the team's execution driving these results, especially considering the mixed end market conditions we encountered.
Speaker Change: Our net leverage ratio remains at one eight times, our adjusted EBITDA and provides significant optionality to invest in opportunities to accelerate our growth and support our framework for long term value creation.
Speaker Change: I'm excited about the opportunities ahead to continue to unlock our growth potential.
Speaker Change: Turning to our segments. We once again delivered improved earnings and margin performance in all of our segments on a year over year basis.
Speaker Change: I'm proud of the team's execution driving these results, especially considering the mixed end market conditions, we have encountered.
Andrew E. Tometich: Volumes in the Asia-Pacific segment increased by a mid-teens percentage compared to the prior year. This was primarily the result of an improvement in China in both metals and metalworking that began to materialize in the back half of 2023 and has continued into 2024.
Speaker Change: Volumes in the Asia Pacific segment increased by a mid teens percentage compared to the prior year.
Speaker Change: This is primarily the result of an improvement in China in both metals and metalworking that began to materialize in the back half of 2023 and has continued into 2024.
Andrew E. Tometich: We've also been encouraged by our growth in greater Asia. New business wins are a key driver of the improvements in our Asia-Pacific segment, complemented by an increase in underlying demand in the region. Volumes in the EMEA segment were consistent with the prior quarter, but declined compared to the prior year.
Speaker Change: We've also been encouraged by our growth in greater Asia.
Speaker Change: New business wins are a key driver to the improvements in our Asia Pacific segment complemented by the increase in underlying demand in the region.
Speaker Change: Volumes in the EMEA segment were consistent with the prior quarter, but declined compared to the prior year.
Andrew E. Tometich: This reflects a continuation of the volatile end-market activity in the region, across both metals and metalworking, which was partially offset by our new business. Volumes in the EMEA segment remain well below normalized levels, and we expect industrial activity will likely remain constrained in the region through at least the first half of 2020. That said, we continue to improve the profitability of the EMEA segment, and our execution on price-cost management drove more than 300 basis points of improvement in segment margins on both a year-over-year and sequential basis in the first quarter. Volumes in the Americas segment declined compared to the prior year, but improved sequentially.
Speaker Change: This reflects a continuation of the volatile end market activity in the region across both metals and metalworking, which was partially offset by our new business wins.
Speaker Change: Volumes in the EMEA segment remained well below normalized levels and we expect industrial activity will likely remain constrained in the region.
Speaker Change: At least the first half of 2024.
That said, we continue to improve the profitability of the EMEA segment, and our execution on price cost management drove more than 300 basis points of improvement in segment margins on both a year over year and sequential basis in the first quarter.
Speaker Change: Volumes in the Americas segment declined compared to the prior year, but improved sequentially.
Andrew E. Tometich: Demand for metals has continued to improve, whereas in-market activity in metalworking has been more restrained, especially in industrial applications and packaging. However, new business wins were positive in the quarter in the Americas segment, despite the underlying soft market conditions, reflecting the value we provide to our customers with our services and solutions. Segment earnings in the Americas increased on both a year-over-year and a sequential basis, driven by further improvement in this segment's margin.
Speaker Change: Demand in metals has continued to improve whereas end market activity and metalworking has been more restrained, especially in industrial applications and packaging containers.
Speaker Change: New business wins were positive in the quarter in the Americas segment, despite the underlying soft market conditions, reflecting the value we provide to our customers with our services and solutions.
Speaker Change: Segment earnings in the Americas increased on both a year over year and a sequential basis driven by a further improvement in this segment's margins.
Andrew E. Tometich: Volume growth continues to be in line or better than our underlying markets in the respective regions we operate in. We expect to build on our foundation and believe that we will further demonstrate the value embedded in our model as we progress through 2024 and as market rates improve from these low levels. Switching to the outlook, beginning with the second quarter, we expect a modest seasonal improvement in demand across all of our regional segments, but to varying degrees. We expect the positive momentum in metals to continue, and while we expect growth in metalworking, it will likely remain more tepid and mixed by end market.
Speaker Change: Our volume growth continues to be inline or better than our underlying markets in the respective regions we operate.
We expect to build on our foundation and believe that we will further demonstrate the value embedded in our model as we progress through 2024 and as market rates improve from these low levels.
Speaker Change: Switching to the outlook beginning with the second quarter, we expect a modest seasonal improvement in demand across all of our regional segments, but at varying degrees.
Speaker Change: We expect the positive momentum in metals to continue and while we expect growth in metalworking it will likely remain more tepid and mixed by end market.
Andrew E. Tometich: We expect these seasonal improvements in underlying market growth rates will continue to be complemented by our new business wins across all regions. Additionally, margins are expected to be in a similar range to that of the first quarter as we balance our customer relationships and our value pricing with our total cost to serve. Taken together, we expect to deliver another quarter of year-over-year and sequential growth in adjusted EBITDA in the second quarter of 2024. Switching to the full year, our expectations for 2024 remain unchanged from our fourth quarter earnings call.
Speaker Change: We expect these seasonal improvements in underlying market growth rates will continue to be complemented by our new business wins across all regions.
Speaker Change: Gross margins are expected to be in a similar range to that of the first quarter as we balance our customer relationships and our value pricing with our total cost to serve.
Speaker Change: Taken together, we expect to deliver another quarter of year over year and sequential growth in adjusted EBITDA in the second quarter of 2024.
Speaker Change: Switching to the full year, our expectations for 2024 remained unchanged from our fourth quarter earnings call.
Andrew E. Tometich: The current end market environment remains uncertain, and we expect the limited visibility and dynamic market conditions to persist at least through the first half of 2024. However, we are cautiously optimistic that underlying conditions will improve as we progress through the year. Our diversified portfolio and customer intimacy model are core features driving the strength of our customer relationships and the resilience of our business. We have and continue to take actions to effectively manage the factors within our control while positioning the company for profitable growth.
Speaker Change: The current end market environment remains uncertain, and we expect the limited visibility and dynamic market conditions will persist at least through the first half of 2024.
Speaker Change: However, we are cautiously optimistic the underlying conditions will improve as we progress through the year.
Speaker Change: Our diversified portfolio and customer intimate model, our core features driving the strength of our customer relationships and the resilience of our business.
Speaker Change: We have and continued to take actions to effectively manage the factors within our control while positioning the company for profitable growth.
Andrew E. Tometich: To that end, we are further advancing our growth pillars as part of our enterprise strategy, investing in our foundational enablers as we contemporize the organization. These enablers will support Quaker Houghton's ability to continue to outpace our underlying markets, leading to volume growth in 2024 and beyond. Through all of this, the team continues to be hyper-focused on executing on our objectives, including our expectation of delivering another year of earnings growth in 2024.
Speaker Change: To that end, we are further advancing our growth pillars as part of our enterprise strategy investing in our foundational enablers as we can temporize the organization.
Speaker Change: These enablers will support Quaker houghton's ability to continue to outpace our underlying markets leading to volume growth in 2024 and beyond.
Through all of this the team continues to be hyper focused on executing on our objectives, including our expectation of delivering another year of earnings growth in 2024.
Andrew E. Tometich: We also anticipate another strong year of cash generation, building on the momentum of 2023, while supporting our disciplined capital allocation priorities of investing in our organic growth, paying dividends, advancing our bolt-on M&A strategy, strengthening our balance sheet through debt repayment, and being opportunistic with share repurchase, consistent with our commitment to enhancing shareholder value. Quaker Health remains fully committed to its enterprise growth strategy, which is centered on enhancing value for our customers. The initiatives underway are gaining traction both internally and externally.
Speaker Change: We also anticipate another strong year of cash generation building on the momentum of 2023.
Speaker Change: Supporting our disciplined capital allocation priorities.
Speaker Change: Investing in our organic growth paying.
Speaker Change: Paying dividends advancing our bolt on M&A strategy.
Speaker Change: Strengthening our balance sheet through debt repayment and being opportunistic with share repurchases consistent with our commitment to enhancing shareholder value.
Speaker Change: Quaker Houghton remains wholly committed to our enterprise growth strategy, which is centered on enhancing value for our customers.
Speaker Change: The initiatives underway are gaining traction both internally and externally.
Andrew E. Tometich: We continue to be prudent with our growth-related investments, supporting initiatives that will deliver volume gains going forward. A benefit for us in the first quarter was our growth in Asia Pacific, while trying to improve from low levels in 2020. We also benefited from growth in Greater Asia, capitalizing on the benefits of deploying, reinforcing, and expanding the full capabilities of our technology portfolio in that region. Our teams are also focused on simplifying the organization to deliver customer-valued solutions effectively and efficiently.
Speaker Change: We continue to be prudent with our growth related investments supporting initiatives that will deliver volume gains going forward.
I bet, it's a benefit for us in the first quarter was our growth in Asia Pacific.
Speaker Change: While China improved from low levels in 2023, we also benefited in growth in greater Asia capitalizing on the benefits of deploying reinforcing and expanding the full capabilities of our technology portfolio in that region.
Speaker Change: Our teams are also focused on simplifying the organization to deliver customer valued solutions effectively and efficiently.
Andrew E. Tometich: This includes strengthening the cross-functional capabilities between our global functions, to work together to reduce complexity, for example, through product rationalization, which drives efficiency for our company and our customers as we continue to leverage our global scale and accelerate our growth by generating new business wins. We're also making additional progress to advance and optimize the intimacy of our model, including with digital capabilities, for our direct and indirect channel strategies. We are now also expanding our refined channel strategies into Europe, which will further tailor the value of our differentiated customer-centric business model to the specific needs of our customers.
Speaker Change: This includes strengthening the cross functional capabilities between our global functions.
Speaker Change: To work together to reduce complexity for example through product rationalization, which drives efficiency for our company and our customers as we continue to leverage our global scale and accelerate our growth by generating new business wins.
Speaker Change: We're also making additional progress to advance and optimize the intimacy of our model, including with digital capabilities for our direct and indirect channel strategy.
Speaker Change: We are now also expanding our refined channel strategies into Europe, which will further tailor the value of our differentiated customer intimate business model to the specific needs of our customers.
Andrew E. Tometich: We're also pleased with the initial contributions from the acquisition of IKV, which has been performing in line with our expectations and will help accelerate our growth in our advanced and operating solutions in Europe and globally. Sustainability is another enabler of our enterprise strategy. We recently published the latest iteration of our sustainability report, which details the progress made leading our industry towards a better future. I am proud to note that we have achieved all of our 2023 interim milestones ahead of schedule and have launched new 2025 milestones, while we also continue to prioritize the foundational investment necessary to enable us to deliver on our 2030 goal.
Speaker Change: We're also pleased with the initial contributions from the acquisition of <unk>, which has been performing in line with our expectations and we will help accelerate our growth and our advanced and operating solutions in Europe and globally.
Sustainability is another enabler of our enterprise strategy.
Speaker Change: We recently published the latest iteration of our sustainability report, which details the progress made leading our industry towards a better future.
Speaker Change: I am proud to note that we have achieved all of our 2023 interim milestones ahead of schedule and have launched new 2025 milestones. While we also continue to prioritize the foundational investments necessary to enable us to deliver on our 2030 goals.
Andrew E. Tometich: Additionally, we believe a more sustainable future presents challenges that we are uniquely positioned to help our customers address. For instance, a growth pillar for Quaker Housing is capitalizing on the shift to e-mobility. The new opportunities in this space have tremendous challenges, and we are working diligently to develop and drive leadership with value-adding solutions in these areas with and for our customers. All of our initiatives underway are a natural extension, building upon the strong foundation that Quaker Houghton has developed over time.
Speaker Change: Additionally, we believe a more sustainable future presents challenges that we are uniquely positioned to help our customers pursue.
Speaker Change: For instance, our growth pillar for Quaker Houghton is capitalizing on the shift to E mobility.
Speaker Change: The new opportunities in this space have tremendous challenges and we are working diligently to develop and drive leadership with value, adding solutions in these areas with and for our customers.
Speaker Change: All of our initiatives underway are natural extensions.
Building upon the strong foundation that Quaker Houghton has developed over time.
Andrew E. Tometich: They're aimed at driving a more productive, responsive, and innovative organization, growing the company to deliver on the long-term needs of our customers and our industry, and ultimately continuing to enhance value for shareholders. Stepping back, we remain committed to our financial and operational priorities, and we have made meaningful progress toward our goal. In the first quarter, we delivered our fifth consecutive quarter of stable volumes in a very dynamic market, highlighting our new business generation, and delivered our seventh consecutive quarter of year-over-year gross margin expenditure.
Speaker Change: They are aimed at driving a more productive responsive and innovative organization.
Speaker Change: Growing the company to deliver on the long term needs of our customers and our industry and ultimately continue to enhance value for shareholders.
Speaker Change: Stepping back we remain committed to our financial and operational priorities and have made meaningful progress towards our goals.
Speaker Change: In the first quarter, we delivered our fifth quarter of stable volumes in a very dynamic market.
Speaker Change: Highlighting our new business generation and delivered our seventh consecutive quarter of year over year gross margin expansion.
Andrew E. Tometich: We are dedicated to furthering our leading position in this attractive industry, which is supported by long-term secular growth drivers, earning the partnership of our customers by providing the best services and solutions tailored to their specific needs. We do this by capitalizing on the positive momentum we have built with our enterprise strategy to further unlock our potential. We will continue to aggressively invest to advance our growth initiative. We will enhance our customer intimacy model and cost position to ensure Quaker Houghton is the partner of choice for our customers, enabling us to achieve above market growth in 2024 and beyond.
Speaker Change: We are dedicated to furthering our leading position in this attractive industry.
Speaker Change: <unk> is supported by long term secular growth drivers.
Speaker Change: The partnership of our customers by providing the best services and solutions tailored to their specific needs.
Speaker Change: We do this by capitalizing on the positive momentum we have built with our enterprise strategy to further unlock our potential.
Speaker Change: We will continue to prudently invest to advance our growth initiatives.
Speaker Change: We will enhance our customer intimate model and cost position to ensure Quaker Houghton is the partner of choice for our customers.
Speaker Change: Enabling us to achieve above market growth in 2024 and beyond.
Andrew E. Tometich: The balance sheet is strong, supported by the cash generation capabilities of the organization, and supports our balanced capital allocation strategy, which remains focused on maximizing shareholder value. On behalf of the management team, I want to thank our 4,400 colleagues around the globe for their dedication to our customers and our company and for living our core values. With that, I'd like to pass it over to Shane to discuss the financials. Thank you, Andy, and good morning, everyone.
Our balance sheet is strong supported by the cash generation capabilities of the organization and supports our balanced capital allocation strategy, which remains focused on maximizing shareholder value.
Speaker Change: On behalf of the management team I want to thank our 4400 colleagues around the globe for their dedication to our customers and our company and for living our core values.
Speaker Change: With that I'd like to pass it over to Shane to discuss the financials.
Shane W. Hostetter: Thank you Amy and good morning, everyone.
Operator: Quaker Houghton once again performed well in the first quarter. However, our net sales declined approximately 6% from the prior year to $470 million. The primary drivers of the year-over-year change, or lower selling price and product mix of approximately 5%, which primarily reflects the impact of our index-based contracts and lower sales volumes of approximately 1%. Our sales volumes, which have remained largely consistent sequentially for the fifth consecutive quarter, reflected softer industrial activity, primarily in the Americas and EMEA cycle.
Shane W. Hostetter: Quaker Houghton once again performed well in the first quarter.
Shane W. Hostetter: Our net sales declined approximately 6% from the prior year to $470 million.
Shane W. Hostetter: The primary drivers of the year over year change or lower selling price and product mix of approximately 5%, which primarily reflects the impact of our index based contracts and lower sales volumes of approximately 1%.
Shane W. Hostetter: Our sales volumes, which have remained largely consistent sequentially for the fifth consecutive quarter reflected softer industrial activity, primarily in the Americas and EMEA segments.
Operator: These impacts were partially offset by an improvement in our Asia-Pacific segment, as well as new business wins, which were a net benefit across all segments. The question is, did net sales increase by approximately 1%? This was driven by an increase in volumes of 2%, reflecting a seasonal improvement in demand, which was partially offset by a decline of approximately 1% in selling price and product.
Shane W. Hostetter: These impacts were partially offset by an improvement in our Asia Pacific segment, as well as new business wins, which were a net benefit across all segments.
Shane W. Hostetter: Sequentially, our net sales decreased approximately 1%. This was driven by an increase in volumes and 2%, reflecting a seasonal improvement in demand, which was partially offset by a decline of approximately 1% in selling price and product mix.
Operator: Gross margins in the first quarter were $38.73, which represents an increase of 400 basis points compared to 34.7% in the prior year and an improvement of approximately 200 basis points sequentially, compared to 36.6% in the fourth quarter. Our execution, capturing the value for our services and solutions, coupled with some modest raw material cost reduction and efficiency, have been the primary drivers of restoring our gross margins back within our targeted range. SG&A increased $5 million, or 4%, compared to the prior year and $2 million, or 2%, sequentially.
Shane W. Hostetter: Gross margins in the first quarter with 38, 7%, which represents a decrease of 400 basis points compared to 34, 7% in the prior year.
Shane W. Hostetter: And an improvement of approximately 200 basis points.
Shane W. Hostetter: Compared to 36, 6% in the fourth quarter.
Shane W. Hostetter: Our execution, capturing the value for our services and solutions, coupled with some modest raw material cost reduction and efficiency actions have been the primary drivers of restoring our gross margins back within our targeted range.
Shane W. Hostetter: Excluding one time items.
Shane W. Hostetter: SG&A increased $5 million or 4% compared to the prior year and $2 million or 2% sequentially.
Operator: The increase compared to the prior year and prior quarter reflects inflationary impacts on our labor and related costs. We delivered $83 million of adjusted EBIT in the first quarter, which represents an increase of $4 million, or 6%, compared to the prior year, and an increase of $6 million, or 8%, compared to the prior quarter. Our adjusted EBITDA margin was 17.7% in the first quarter, an increase compared to both the first quarter of 2023 of 15.8% and 16.5% in the prior quarter.
Shane W. Hostetter: The increase compared to the prior year and prior quarter reflects inflationary impacts on our labor and related costs.
We delivered 83 million of adjusted EBIT in the first quarter, which represents an increase of 4 million or 6% compared to the prior year, and an increase of $6 million or 8% compared to the prior quarter.
Shane W. Hostetter: Our adjusted EBIT margin was 17, 7% in the first quarter, an increase compared to both the first quarter of 2023 up 15, 8% and 16, 5% in the prior quarter.
Operator: These improvements primarily reflect the progress we've made advancing our profitable growth initiatives while also balancing our near-term financial and operational priorities. Moving to our segment, net sales in the Americas declined 9% year over year due to lower sales volumes and selling price impacts. Volumes in the Americas primarily reflect lower industrial activity, primarily impacting our metalworking business.
Shane W. Hostetter: These improvements primarily reflect the progress we've made advancing our profitable growth initiatives, while also balancing our near term financial and operational priorities.
Shane W. Hostetter: Switching to our segments.
Shane W. Hostetter: Net sales in the Americas declined 9% year over year, due to lower sales volumes and selling price and product mix.
Shane W. Hostetter: Volumes in the Americas, primarily reflect lower industrial activity in the region, primarily impacting our metalworking business.
Operator: Our selling price largely reflects the impact of our index-based product. On a sequential basis, America's net sales and volumes increased, reflecting normal seasonal patterns, as well as new business wins across both metals and metalworking. America's segment earnings increased approximately 1% compared to the prior year, primarily reflecting our margin improvement initiatives, which led to an increase of approximately 280 basis points year-over-year. Segment earnings and margins also increased on a sequential basis. Reflecting Power Volumes and an Improvement in Price and Cost Dynamics. Net sales in EMEA were 9% lower year-over-year due to a decline in both sales volume, end-selling price, and product quality.
Shane W. Hostetter: Our selling price largely reflects the impact of our index based contracts.
A sequential basis America's net sales and volumes increased reflecting normal seasonal patterns as well as new business wins across both metals and network.
Americas segment earnings increased approximately 1% compared to the prior year, primarily reflecting our margin improvement initiatives, which led to an increase of approximately 280 basis points year over year.
Shane W. Hostetter: Segment earnings and margins also increased on sequential basis.
Shane W. Hostetter: Reflecting higher volumes and an improvement in price and cost dynamics.
Shane W. Hostetter: Net sales in EMEA were 9% lower year over year due to a decline in both sales volume and selling price and product mix.
Shane W. Hostetter: Overall market conditions remain challenged in the second across most product categories.
Shane W. Hostetter: EMEA sales did increase on a sequential basis and while volume trends were uneven through most of 2023, we believe a largely stable.
Operator: Overall market conditions remain challenging across most products. However, the media sales volume did increase on a sequential basis, and while volume trends were uneven through most of 2023, we believe they are largely stable. AMEA segment earnings increased approximately 6% in the first quarter compared to the prior year. This increase reflects our margin improvement and cost savings initiatives, which resulted in a 330 basis point improvement. Similarly, Amida segment earnings and margins both increased compared to the prior quarter.
Shane W. Hostetter: <unk> segment earnings increased approximately 6% in the first quarter compared to the prior year.
Shane W. Hostetter: This increase reflects our margin improvement and cost savings initiatives, which drove a 330 basis point improvement.
Shane W. Hostetter: Similarly, EMEA segment earnings and margins, both increased compared to the prior quarter.
Operator: Net sales in the Asia-Pacific increased 6% compared to the prior year, driven by a double-digit increase in sales, which was partially offset by lower selling prices and product. The volume increase reflects a broad improvement in underlying demand compared to the softer economic conditions in China in the prior year. It also reflects an improvement in greater Asia, as well as overall new business.
Shane W. Hostetter: Net sales in Asia Pacific increased 6% compared to the prior year driven by a double digit increase in sales volumes, which was partially offset by lower selling price and product mix.
Shane W. Hostetter: The volume increase reflects a broad improvement in underlying demand compared to the softer economic conditions in China in the prior year.
Shane W. Hostetter: It also reflects the improvement in greater Asia, as well as overall new business.
Shane W. Hostetter: Segment earnings in Asia Pacific increased 10% compared to the prior year driven by an improvement in gross margin.
Operator: Markets in Asia Pacific have been very resilient, and we will continue to balance our customer relationships with the value we provide compared to the cost served. Overall, we have made considerable progress improving our financial profile in all our sectors, and we are well positioned to benefit from an improvement in underlying market conditions. Below the line, our interest expense was approximately $2 million lower in the first quarter compared to the prior year and $1 million lower compared to the fourth quarter of 2023, which reflects the significant reduction in our variable cost debt in 2023.
Margins in Asia Pacific has been very resilient and we will continue to balance our customer relationships with the value, we provide compared to the cost to serve.
Shane W. Hostetter: Overall, we have made considerable progress improving our financial profile in all our segments.
Shane W. Hostetter: And we are well positioned to benefit from an improvement in underlying market conditions.
Shane W. Hostetter: Below the line our interest expense was approximately 2 million lower in the first quarter compared to the prior year and 1 million lower compared to the fourth quarter 2023, which reflects the significant reduction in our variable cost debt in 2023.
Operator: Our cost of debt in the first quarter was approximately 6.4 percent, which is in line with where we exited the prior quarter. Our effective tax rate, excluding non-recurring and non-core items, was approximately 27% in the first quarter. We continue to expect our effective tax rate in 2024 to be approximately 29%. Our GAAP diluted earnings per share were $1.95, and our non-GAAP diluted earnings per share were $2.97.
Shane W. Hostetter: Our cost of debt in the first quarter was approximately six 4%, which is in line with where we exited the prior quarter.
Shane W. Hostetter: Our effective tax rate, excluding nonrecurring and non core items was approximately 27% in the first quarter. We continue to expect our effective tax rate in 2024 to be approximately 29%.
Shane W. Hostetter: Our GAAP diluted earnings per share were $1 95, and our non-GAAP diluted earnings per share were $2 nine.
Operator: This strong result represents an 11% year-over-year increase in earnings per share, which was driven by an improvement in operating earnings and lower income. Switching to a currently... We generated $27 million of cash from operations in the first quarter, which has historically been our lowest quarter for cash generation. We expect to continue to improve our working capital efficiency as we progress through 2024 and expect another strong year of operations. Capital expenditures in the first quarter were approximately $4 million, and we also paid approximately $8 million in dividends in the quarter.
Shane W. Hostetter: This strong result represented an 11% year over year, increasing earnings per share, which was driven by an improvement in operating earnings and lower interest costs.
Shane W. Hostetter: Switching to liquidity, we generated $27 million of cash from operations in the first quarter, which has historically been our lowest quarter for cash generation.
Shane W. Hostetter: We expect to continue to improve our working capital efficiency as we progressed through 2024 and expect another strong year of operating cash flow.
Shane W. Hostetter: Capital expenditures in the first quarter were approximately 4 million and we also paid approximately $8 million dividend in the quarter.
Operator: We continue to expect that capital expenditures will be between one and a half and two and a half percent of sales in 2020. Our balance sheet and liquidity remain strong. Our net debt at the end of the first quarter was $574 million, and our net leverage ratio remains at 1.8 times our adjusted interest rate.
Shane W. Hostetter: We continue to expect our capital expenditures will be between one five and two 5% of sales in 2000 <unk>.
Shane W. Hostetter: Our balance sheet and liquidity remained strong.
Shane W. Hostetter: Net debt at the end of the first quarter was $574 million and our net leverage ratio remains at one eight times our adjusted EBITDA.
Operator: Our financial position and cash flow generation capabilities continue to enable us to execute on our disciplined capital allocation strategy aimed at value creation. We have started 2024 with another solid quarter for Quaker Health. We continue to demonstrate the earnings power of the organization despite the persistent and challenging end market environment. We remain focused on delivering our long-term targets while investing in our growth enablers as part of our enterprise strategy, which are expected to support and accelerate our profitable growth initiative.
Shane W. Hostetter: Our financial position and cash flow generation capabilities continue to enable us to execute on our disciplined capital allocation strategy aimed at value creation.
Shane W. Hostetter: We have started 2024 with another solid quarter for Quaker Houghton.
Shane W. Hostetter: We continue to demonstrate the earnings power of the organization, despite the persistent and challenging end market environment.
We remain focused on delivering our long term targets, while investing in our growth enablers as part of our enterprise strategy, which are expected to support and accelerate our profitable growth initiatives. This combined with our disciplined capital allocation strategy positions us well to deliver significant value creation.
Operator: This, combined with our disciplined capital allocation strategy, positions us well to deliver significant value creation. With that, I'll turn it back over to you. Thank you, Shane. Our team has executed well, and I'm excited by the opportunities ahead for Quaker Health. With that, we'll be glad to address your questions.
Shane W. Hostetter: With that I'll turn it back over to Andy.
Andrew E. Tometich: Thank you Shane our team has executed well and I am excited by the opportunities ahead for Quaker Houghton.
Andrew E. Tometich: With that we'll be glad to address your questions.
Speaker Change: Thank you at this time, we'll be conducting a question and answer session.
Operator: At this time, we'll be conducting a question and answer session. If you would like to ask a question at this time, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to withdraw your question from the queue. One moment, please, while we poll for questions. Once again, that's Star One. Thank you. Our first question this morning is from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.
Speaker Change: I'd like to ask a question at this time. Please press star one from your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two he would like to withdraw your question from the queue.
Speaker Change: One moment, please poll for questions once again Thats star one.
Speaker Change: Yes.
Speaker Change: Our first question. This morning is from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.
Michael Joseph Harrison: Hi, good morning; congratulations on a nice start to the year. Good morning, Mike.
Michael Joseph Harrison: Hi, good morning, Congrats on a nice start to the year.
Michael Joseph Harrison: Thanks.
Andrew E. Tometich: Thanks. I was hoping that we could maybe start off by getting a little bit more background on what's going on in NIA. Obviously, very nice operating margin improvement, and you've kind of gotten back to where you were, you know, maybe a few years ago, kind of in that low 20s type of operating margin level. Maybe just help us understand kind of what actions have taken place already that have enabled you to get to that level, what other actions are yet to come, and I guess if we have a view that volumes are kind of bouncing along the bottom there and Yeah, thanks. Thanks, Mike. I appreciate you asking the question.
Michael Joseph Harrison: Was hoping we could maybe start off by getting a little bit more color on what's going on.
Speaker Change: Obviously very nice.
Michael Joseph Harrison: Operating margin improvement and you've kind of gotten back to where you were.
Michael Joseph Harrison: Maybe a few years ago kind of in that low twenties.
Michael Joseph Harrison: Type of operating margin level.
Michael Joseph Harrison: Maybe just help us understand kind of what actions that have taken place already that have enabled you to to get to that level.
Michael Joseph Harrison: What other actions are yet to come and I guess, if if we have a view that volumes are kind of bouncing along the bottom there and maybe positioned to improve over time.
Michael Joseph Harrison: Where could operating margin go from this low 20 ish level.
Andrew E. Tometich: And, you know, our regions, in general, are moving towards the right range from a segment margin perspective. But, as you highlight, EMEA still has some challenges. The macro situation there persists, and we're continuing to deal with that. But we have now reached our highest level since the first quarter of 21 on a segment margin basis, and even on a year-over-year basis, it went up 300 basis points. And it's really a combination of managing the spread on price costs, on the value we're adding for our customers and the cost to serve them, as well as some self-help on some of our cost efficiencies within the region.
Speaker Change: Yeah. Thanks, Thanks, Mike.
Speaker Change: I appreciate you asking the question in our regions in general are moving towards the right range from a segment margin perspective, but as you highlight.
Speaker Change: <unk> still has some challenges the macro situation there persists.
Speaker Change: We're continuing to deal with that but we have now reached our highest level since the first quarter of 'twenty one.
Speaker Change: On a segment margin basis, and even on a year over year basis went up 300 basis points and it's really a combination of managing the spread on price costs on the value, we're adding for our customers and the cost to serve them as well as some self help on some of our cost efficiencies within the region.
Andrew E. Tometich: It's a journey. We're not there yet, and it's not always going to be linear, but we're going to continue to stay focused on that, working on self-help, as well as positioning that region when the recovery does come from the underlying markets that benefits us beyond the new business we're winning. We're going to really leverage some success there.
Speaker Change: It's a journey, we're not there yet and it's not always going to be linear, but we're going to continue to stay focused on that working on self help.
As well as positioning that region when the recovery does come from the underlying markets that that benefits us beyond the new business, we're winning.
And we're going to really leverage some success there.
Andrew E. Tometich: All right, great. And then you commented a few times that you're seeing good.
Speaker Change: Alright, great and then.
Speaker Change: Commented a few times that you are seeing good performance not just in China, but within greater Asia with.
Andrew E. Tometich: that you're seeing good performance, not just in China but within greater Asia. I was curious if you could maybe talk a little bit about how you feel about your position from a competitive standpoint in both China and greater Asia. Are those areas maybe the best opportunities for you guys to gain new business and benefit from your enterprise growth strategy? And maybe just talk a little bit about, I guess, demand trends, if there are any differences between what you're seeing in China and in greater Asia? Yeah, thanks, Mike.
Speaker Change: Was curious if you could maybe talk a little bit about how you feel like you're positioned from a competitive.
Speaker Change: Standpoint in both China and greater Asia.
Speaker Change: <unk>.
Speaker Change: Are those areas.
Speaker Change: The best opportunities for you guys too.
Speaker Change: Gain new business and benefit from your enterprise growth strategy, and maybe just talk a little bit about I guess demand trends.
Speaker Change: If there are any differences between what you're seeing in China and greater Asia.
Andrew E. Tometich: You know, we see good opportunities for new business wins really across all of our business units. But in particular, in Asia, you know, I'd highlight on a year-over-year basis, in China, we grew double-digit percentages and realized that a year ago, there was the COVID situation, we still outperformed that with new business wins. So while things improved in China, we then, I think, did an even better job. And we've continued to see sequential improvement in China through 2023, and we expect that to continue.
Speaker Change: Yeah. Thanks, Mike.
Speaker Change: We see good opportunities for new business wins really across all of our regions.
Speaker Change: But in particular in Asia I'd highlight on a year over year basis in China, we grew double digit.
Speaker Change: Percentages and realizing that a year ago, there was with the Covid situation we.
We still outperformed that with new business wins, so while things improved in China. We then I think even did an even better job.
Speaker Change: We've continued to see sequential improvement in China through 2023, and we expect that to continue but broader Asia, we're doing really well, especially in India and southeast Asia, a lot of opportunities that our strong performance.
Andrew E. Tometich: But broader Asia, we're doing really well, especially in India and Southeast Asia, a lot of opportunities there, and strong performance on both a year-over-year and quarter-over-quarter basis. And again, that's a combination of the opportunities that are existing in the market, as well as our ability to continue to find new opportunities for value and serve those in new business wins with our customers. All right, and then the last question for me is just about the outlook.
Speaker Change: On both a year over year and quarter over quarter basis, and again Thats a combination of the opportunities that are existing in the market as well as our ability to continue to find new opportunities for value and serve those in new business wins with our customers.
Speaker Change: Alright.
Speaker Change: Last question for me is just on the outlook.
Andrew E. Tometich: You mentioned that you expect to see volume growth, and it sounds like, at least on gross margin, you expect that to kind of be stable quarter on quarter. I was curious if maybe you could give us some kind of modeling assumptions on how much volume growth we might wanna bake in for the remainder of the year. And as we think about not just gross margin but EBITDA margin, do you expect to see some improvement from the 17.7 percent level that you delivered in the first quarter? Yeah, thanks, Mike.
Speaker Change: You had mentioned that you expect to see volume growth and.
It sounds like at least on gross margin you expect that to kind of be stable on a quarter on quarter. I was curious if maybe you could give us some kind of modeling assumptions on how much volume growth, we might want to bake into the remainder of the year.
And as we think about not just gross margin, but EBIT margin.
Speaker Change: Do you expect to see some improvement from the 17, 7% level that you delivered in the first quarter.
Andrew E. Tometich: So, you know, when we think about the outlook, I want to start with where we started so far in 2024. You know, in the first quarter, we increased our volume sequentially, we expanded our margins, we grew earnings, and we generated positive cash flows. And we expect that we're going to get some further momentum as we move into the second quarter. However, the underlying markets are a little hard to predict.
Speaker Change: Yes, thanks, Mike So when we think about the outlook on start with where we started so far in 2024 and the first quarter, we increased our volume sequentially. We expanded our margins. We grew earnings and we generated positive cash flows and we expect that we're going to get some further momentum as we move into the second quarter.
Andrew E. Tometich: We're kind of viewing those as potentially similar with maybe a little bit of seasonality benefit in the Americas and APAC as we move into the second quarter. We know we're going to continue to stay focused on our new business wins across all of our regions, and that's really going to drive some additional volume growth, not just in the second quarter, but as we go forward. You know, gross margins are now in the expected range that we had communicated, and we anticipate we'll be in a similar range in the second quarter.
Speaker Change: Underlying markets are a little hard to predict we're kind of viewing those as potentially similar with maybe a little bit of seasonality benefit in the Americas and APAC as we move into the second quarter. We know we're going to continue to stay focused on our new business wins across all of our regions and Thats really going to drive some additional volume growth not just in the second quarter, but as we go.
Speaker Change: Forward gross.
Speaker Change: Gross margins now are in the expected range.
That we had communicated and we anticipate will be in the similar range.
Speaker Change: In the second quarter and Thats, a combination of our assumption on raw material prices now stabilizing maybe even with a little bit of pressure as.
Andrew E. Tometich: That's a combination of our assumption on raw material prices now stabilizing, maybe even with a little bit of pressure as we go forward, and relatively stable prices for us against the value we're providing for our customers. So, net for the second quarter, we're expecting EBITDA growth on both a year-over-year and sequential basis, driven by some of that volume that will win with new business. And then on a year-over-year, or excuse me, on a full-year basis, you know, as I highlighted in the prepared remarks, it's still a pretty dynamic macro environment, so visibility is always a little bit challenging.
Speaker Change: As we go forward and relatively stable prices for us against the value, we're providing for our customers. So net for the second quarter, we're expecting EBITDA growth on both a year over year and sequential basis, driven by some of that volume.
Speaker Change: We'll win with new business and then.
Speaker Change: On a year over year or excuse me on a full year basis as I highlighted in the prepared remarks. It is still a pretty dynamic macro environment. So the visibility is always a little bit challenging.
Speaker Change: We're cautiously optimistic that the underlying markets will begin to improve especially as we think about the second half of the year, we're hyper focused on new business wins.
Andrew E. Tometich: We're cautiously optimistic that the underlying markets will begin to improve, especially as we think about the second half of the year. We're hyper-focused on new business wins, you know, and everything that we're doing, and that's really going to be key to driving our improvements in volumes as we move through 2024. Gross margins You know, we started 2024 very strong, and all else equal, we expect to be kind of in our communicated range, our target range that we've talked about multiple times, which would lead us on a year-over-year basis to some expansion compared to 2023.
Speaker Change: And everything that were doing and thats really going to be key to driving our improvements in volumes as we move through 2024.
Speaker Change: Gross margins we.
Speaker Change: We started 2024 very strong and all else equal we expect to be kind of in our communicated range our target range that we've talked about multiple times.
Speaker Change: Which would lead us on a year over year basis to some expansion compared to 2023. So we think we're gonna have a solid year for Quaker Houghton grow volumes grow our earnings and build on the record results that we delivered in 2023 and last I don't want to Miss the opportunity to highlight too we anticipate.
Andrew E. Tometich: So we think we're going to have a solid year for Quaker Houghton, grow volumes, grow our earnings, and build on the record results that we delivered in 2023. And last, I don't want to miss the opportunity to highlight, too, that we anticipate good cash generation continuing. So we can use that in our disciplined capital allocation strategy, where we're continuing to prioritize growth opportunities and really maximize returns for our shareholders. Yeah, just to add, too, Mike, as I look at Q1 to Q2, normal seasonality usually is in the range of low single digits, just to put a little bit more of a qualification to it. All right, thanks very much.
Speaker Change: Cash generation continuing so we can use that in our disciplined capital allocation strategy, where we're continuing to prioritize growth opportunities and really maximize returns for our shareholders. Yes, just to add to Mike as I look at.
Speaker Change: Q1 to Q2 normal seasonality usually is in a range of low single digits, just to put a little bit more of a qualification to it.
Yeah.
Speaker Change: Alright, thanks very much.
Speaker Change: Thanks, Mike.
David L. Begleiter: Our next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
Speaker Change: Our next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your questions.
David L. Begleiter: Very strong gross margins in the first quarter, so congrats on that. But now that you're at, you're actually above your long-term target. Where can you go from here? Thank you.
David L. Begleiter: Thank you.
David L. Begleiter: Very strong gross margins in the first quarter. So congrats on that but now that you're at you're actually above your long term target where it can go from here. Thank you.
Andrew E. Tometich: Yeah, thanks, David. Yeah, the team did a great job, really, not just in the first quarter, but in a number of quarters here as we've been improving this area, as we're focused on profitable growth across our entire portfolio. As I previously indicated, our target is to be in that 37% to 38% gross margin range consistently through the cycle. And it won't always be linear, and there could be moments where we undershoot or overshoot just based on timing.
David L. Begleiter: Yes, Thanks, David.
Speaker Change: The team did a great job really not just in the first quarter, but but in a number of quarters here as we have been improving in this area as we are focused on profitable growth across our entire portfolio.
As I previously indicated our target is to be in that 37% to 38% gross margin range consistently through the cycle.
Speaker Change: And it won't always be linear and there could be moments.
Speaker Change: Where we undershoot, our overshoot just based on timing.
Speaker Change: We do have some index contracts and raw materials that the timing changes there and when we actually convert that into pricing. So in Q2, we think we're going to be in the range of what we had in the first quarter, we expect more stability as we work to operate consistently and are in our target range with.
Andrew E. Tometich: We do have some index contracts and raw materials where the timing changes there and when we actually convert that into pricing. So in Q2, we think we're going to be in the range of what we had in the first quarter. We expect more stability as we work to operate consistently in our target range with fewer price swings. And we'll be managing that price-cost balance, and we believe that, along with some of our volume growth, will help us to generate earnings growth for the full year.
Speaker Change: Fuel price swings and we will be managing that price cost balance.
Speaker Change: And we believe that's going to along with some of our volume growth help us to generate earnings growth for the full year.
Andrew E. Tometich: Thank you, Andrew. So just in Q2, do you expect volumes for the entire company to be positive in Q2?
Speaker Change: Thank you Andrew.
Speaker Change: In Q2 do you expect volumes for the entire company to be positive in Q2.
Andrew E. Tometich: Yeah, I mean, I think we should expect some seasonality as we move forward, in particular in the Americas and in Asia. You know, Europe is a little more dynamic. We would normally expect a little more seasonality there, and it's still quite volatile. So it's a little more difficult to predict there, but we would anticipate a little bit of a bump in the second quarter from a volume perspective. And, of course, we're going to continue to stay focused on those new business wins as well.
Yes, I mean, I think we expect some seasonality.
Andrew: As we move forward in particular in the Americas and in Asia.
Andrew: Europe is a little more dynamic we would normally expect a little more seasonality there and it's still quite volatile.
Andrew: It's a little a little more difficult to predict there, but we would anticipate a little bit of a bump in the second quarter from a volume perspective and of course, we're going to continue to stay focused on those new business wins as well.
Speaker Change: Thank you.
Speaker Change: Thanks.
Jonathan E. Tanwanteng: The next question is from the line of Jon Tanwanteng with CJS Securities; please answer your question.
Speaker Change: Next question is from the line of John Tan with hang with CJS Securities. Please proceed with your questions.
Jonathan E. Tanwanteng: Hi, this is Justin on behalf of Jon. Can you give us an update on what kind of headwind you expect from FX at current rates, if any, in 2023?
Speaker Change: Hi, This is Justin on for John can you give us an update on what kind of headwind you expect from FX at current rates if any versus 2023.
Operator: Yeah, thanks, Justin. You know, as we sit here, I don't expect much headwind, you know, not from a majority perspective. So, you know, give or take 1% on that side.
Speaker Change: Yes, Thanks, Jeff.
Speaker Change: As we sit here I don't expect much headwinds.
Speaker Change: From a maturity perspective, so you know give or take 1%.
Operator: Thanks. That's helpful. And then the second, if I can, I know you touched on it in the prepared remarks, but on capital allocation priorities, can you give us an update on the pipeline for M&A and how you balance paying down debt versus share repurchases?
Speaker Change: Thanks, that's helpful and then the second if I can.
Speaker Change: I know you touched on it in the prepared remarks, but on capital allocation priorities can you give us an update on the pipeline for M&A and how you balance paying down debt versus share repurchases.
Operator: Yeah, sure. So capital allocation, you know, the strategy remains as it has been. We're very disciplined around generating shareholder value there. So, of course, we're spending money on CapEx to support some of our organic growth, both for innovation and efficiency, and we'll continue to be a dividend payer. But on the inorganic side, we have a very healthy portfolio from an M&A standpoint, and we know that's a strong lever to unlock shareholder value. So we're going to continue to move forward on that.
Speaker Change: Yes, sure so capital allocation strategy.
Speaker Change: Our strategy remains as it has been we're very disciplined around generating shareholder value. There. So of course, we're spending money on capex to support some of our organic growth both for innovation and efficiencies and we will continue being a dividend payer, but on the inorganic side, we have a very healthy portfolio from an M&A standpoint.
Speaker Change: And we know Thats, a strong lever to unlock shareholder value. So we're going to continue to move forward on that we've got a strong balance sheet to be able to support us on that as we've highlighted though in the absence or just timing of when opportunities come along we're not going to just let cash build.
Operator: We've got a strong balance sheet to be able to support us on that. But as we've highlighted, though, in the absence or just timing of when opportunities come along, we're not going to just let cash build. So we have continued to, you know, we paid down debt in 2023, and now we have the tool available to opportunistically if share buybacks were to make sense. But we'll continue to follow a strategy that typically results in the highest shareholder value by growing the business and making sure we're maximizing their return. I appreciate the...
So we have continued to we paid down debt in 2023, and now we have the tool available to opportunistically of share buybacks for to make sense. So we will continue to follow a strategy that typically results in the highest shareholder value on growing the business and making sure we're maximizing their returns.
Operator: I appreciate the color. Thanks for taking the questions.
Speaker Change: I appreciate the color thanks for taking the questions.
Speaker Change: Yes. Thank you.
Laurence Alexander: The next question is from the line of Lawrence Alexander with Jeffreys. Please proceed with your questions.
Speaker Change: The next question is from the line of Laurence Alexander with Jefferies. Please proceed with your questions.
Daniel Dalton Rizzo: Good morning. It's Dan Rizzo on for Lawrence. Given the cost cutting you guys have done and how you've kind of improved productivity, is there a difference in incremental margins for the different regions or in the different end markets? Or do, I don't know, does one outperform the other?
Speaker Change: Good morning, it's Dan Rizzo on for Laurence.
Daniel Dalton Rizzo: Given the cost cutting you guys have done and how you've kind of improve productivity is there a difference in incremental margins for the different regions or in a different end markets.
Daniel Dalton Rizzo: 200, <unk> just want to outperform the other.
Andrew E. Tometich: Yeah, I mean, there's always a little bit of variation, but in general, all of our regions and end markets are at a similar level. We focus on the value we're adding for customers, and we target appropriate levels kind of across end markets and across geographies. As I commented a few minutes ago, we have some opportunities to continue to manage the price-cost balance in Europe, which we'll continue to work on, and we're always going to look for efficiencies in how we can improve things, but, generally speaking, we've got similar profiles across the portfolio.
Speaker Change: Yes, I mean, theres always a little bit of variation, but in general all of all of our regions and end markets are in a similar level, we focus on the value we're adding for customers.
Speaker Change: And we target appropriate levels kind of across end markets and across geographies as I commented a few minutes ago. We had some opportunities to continue to manage the price cost balance in Europe, which will continue to work on and we're always going to look for efficiencies and how we can improve things, but generally speaking we've got some.
Speaker Change: Profiles across the portfolio.
Daniel Dalton Rizzo: And as volume growth potentially ramps up, have you ever quantified what you think incremental margins are for you guys, just kind of on a broad basis?
Speaker Change: And as volume grow gross potentially ramps up how have you ever quantified. What you think incremental margins are for you guys just kind of on a broad spread basis.
Operator: Yeah, Dan, we've not quantified that. I just, you know, remind you that from a perspective of manufacturing costs, it's not a heavy component of our cost of goods sold, right? It's more raw materials, the majority on that side. There will be a benefit as volumes ramp up, but we have not quantified that.
Speaker Change: And then we've not quantified that.
Speaker Change: <unk> your instrument from a perspective of manufacturing cost is not a heavy component of our cost of goods sold its more raw materials with the majority of that side, there will be a benefit as volumes ramp up but we have not quantified that.
Daniel Dalton Rizzo: Okay, and then my other question, you mentioned electric vehicles as a tailwind, but I was wondering if it's just like EV or if it's EV and hybrid, or is there, I mean, is there a difference between the two? Because I've been reading that, you know, hybrid cells are now outpacing EV cells, and I was wondering if that matters to you guys at all.
Speaker Change: And then.
Speaker Change: My other question you mentioned, Alex Appeals is a tailwind, but I was wondering if it's just like EV or with EV and hybrid or is there a difference between the two because.
Speaker Change: To ensure meeting that hybrid sales are now outpacing EV sales I was wondering if that matters to you guys at all.
Andrew E. Tometich: Yeah, it's a great question. You know, just dealing with pure EV, it's pretty nascent at the moment, but it's evolving pretty quickly with a lot of complexities. And as customers have more complexities, that's better for us because we can help them by adding value and solving some of their challenges. And whether that's new materials, new designs, new processes, and we're investing with them to be in the right position in this space.
Speaker Change: Yes, it's a great question.
Speaker Change: Just dealing with pure EV, it's pretty nascent at the moment, but it is evolving pretty quickly with a lot of complexities and as customers have more complexities that's better for us because we can help them by adding value in solving some of their challenges and whether thats new materials, new designs new processes.
Speaker Change: And we're investing with them to be in the right. The right position in this space. When you think about hybrid theres the opportunities not only with the electric side, but also with the standard ice engine, where we already help customers pretty significantly. So we're going to continue to stay partnered with them customer intimate and help them meet their challenges were gone.
Andrew E. Tometich: Then when you think about hybrid, there are opportunities not only with the electric side but also with the standard ICE engine, where we already help customers pretty significantly. So we're going to continue to stay partnered with them, customer-focused, and help them meet their challenges regardless of the powertrain that they're planning to put into their vehicle. Thank you very much.
The list of the powertrain that they're planning to put into their vehicles.
Daniel Dalton Rizzo: Thank you very much. Thank you.
Speaker Change: Thank you very much.
Speaker Change: Thanks.
Arun Shankar Viswanathan: Our next question comes from the line of Arun Viswanathan with RBC. Please proceed with your question.
Speaker Change: Our next question comes from the line of Arun Viswanathan with RBC. Please proceed with your question.
Arun Shankar Viswanathan: Sorry about that; that was on me. Yeah, so looking at the volume trend, looks like you've kind of stayed a little bit kind of consistent here and flattish. Maybe you can just kind of go through some of your end markets, specifically kind of automotive, and you know obviously metal and metal build working, maybe aluminum as well. What you're seeing in some of those end markets, it seems like things are kind of stable but maybe a little bit of slowing, especially given the rate environment. Thanks. Yeah, sure. So...
Sorry about that I was on mute.
Arun Shankar Viswanathan: Yes, so looking at the volume trend it looks like you've kind of.
Arun Shankar Viswanathan: Kind of stayed a little bit kind of consistent here and flattish.
Arun Shankar Viswanathan: Maybe you can just kind of go through some of your end markets.
Specifically kind of automotive and obviously metal on metal belt are working maybe aluminum as well.
Arun Shankar Viswanathan: Maybe what youre seeing in some of those end markets it seems like things.
Speaker Change: Things are kind of stable, but maybe a little bit of slowing, especially given the rate environment. Thanks.
Arun Shankar Viswanathan: Thanks.
Andrew E. Tometich: Yeah, sure. So, I would like to highlight, you know, even beyond what's going on in the markets, we're continuing to find new opportunities with customers, and we continue to do that. But, yeah, markets in general are clearly soft, especially when you compare back to 2019 and earlier levels, really, across. And when you think about our primary metals, we've seen some improvement, especially as we move through 2023. There is still a lot of room to go, though, to get back to previous levels.
Arun Shankar Viswanathan: Yes, sure so I always like to highlight even beyond what's going on in the markets. We're continuing to find new opportunities with customers and we continue to do that but yes markets in general are clearly softer, especially when you compare back to the 2019 and earlier levels really are crossed.
Arun Shankar Viswanathan: And when you think about our primary metals, we have seen some improvement, especially as we move through 2023 still a lot of room to go though to get back to the previous levels and then in metalworking, which has more end markets a little bit of a mixed bag. So there's been some challenges in the industrial some of the industrial.
Andrew E. Tometich: And then in metalworking, which has more end markets, a little bit of a mixed bag. So, you know, there's been some challenges in the industrial sector, some of the industrial applications and packaging containers. Whereas we've continued, you know, it's not as fast as we'd like to see it, but we've seen some improvements in the automotive and in aerospace, and we believe that the demand opportunities are still there. So, we're optimistic that those will start to balance out as we move forward.
Arun Shankar Viswanathan: Patients and packaging container, whereas we've continued its not as fast as we'd like to see it but we've seen some improvements in automotive and aerospace and we believe that the demand opportunities are still there. So we're optimistic that those will start to balance out.
Arun Shankar Viswanathan: As we move forward.
Arun Shankar Viswanathan: <unk> seen some positive signs, but I wouldn't call them trends yet.
Andrew E. Tometich: We've seen some positive signs, but I wouldn't call them trends yet. And that leaves us a little bit cautiously optimistic about the back half of what the underlying markets can do for us. But we're going to control what we can control, and we're very focused on new business wins regardless of what those end markets are doing.
Arun Shankar Viswanathan: And that leaves us a little bit cautiously optimistic about the back half on what the underlying markets can can do for us, but we're going to control. We can control and we're very focused on new business wins, regardless of what those end markets are doing.
Arun Shankar Viswanathan: Great. Thanks for that.
Speaker Change: Great. Thanks, Rick Thanks for that.
Arun Shankar Viswanathan: And then, just as a follow-up, maybe you can just give us some color on the M&A environment. I know, you know, that may be an area of focus, maybe in technology or geography. So how are you thinking about some of the opportunities that you're seeing there? Thanks. Yeah, sure. Yeah. And again, I mean, this is a key component of our capital.
Speaker Change: And then just as a follow up maybe you can just give us some color on the M&A environment.
Speaker Change: I know.
Speaker Change: Yeah that may be an area of focus maybe in technology or geographies. So how are you thinking about some of the opportunities that youre seeing there yes.
Andrew E. Tometich: Yeah, sure. Yeah, and again, I mean, this is a key component of our capital allocation strategy to add shareholder value. We know when we take advantage of our customer intimacy model and build growth, we add value for our shareholders, and M&A is a key part of that. We've got a range of sizes of deals, types of deals, and geographies for each of them. There are a lot of opportunities in our pipeline. We're moving forward.
Rick: Yes, sure Yeah, and again I mean, this is a key component of our capital allocation strategy to add shareholder value. We know when we take advantage of our customer intimate model.
Rick: And build growth, we add value for our for our shareholders and M&A is a key part of that we've got a range of sizes of deals types of deals in geographies.
Rick: For each of them there is a lot of opportunities in our pipeline. We're moving forward. We just executed on one last quarter that we talked about with <unk>, which we just gave a little bit of an update there.
Andrew E. Tometich: We just executed on one last quarter that we talked about with IKV, which we just gave a little bit of an update on. And they're all focused on how we take advantage of our customer intimacy model. And typically, there's one or more of the three angles we always look for, channel to market, geographic player, and technology. And as I mentioned last quarter, the IKV acquisition checked all three of those boxes for us.
Rick: All focused on how we take advantage of our customer intimate model and typically there is one or more of the three angles. We always look for channel channel to market geographic play our technology and as I mentioned last quarter. The <unk> acquisition checked all three of those boxes for US we've got a great.
Andrew E. Tometich: We got a great, you know, a really improved balance sheet, and we continue to generate cash. So we'll continue to evaluate the options that are available. We'll keep moving those forward, and we believe we'll continue to add shareholder value by utilizing inorganic growth as part of our capital allocation.
Rick: Our really improved balance sheet.
Rick: And we continue to generate cash.
Rick: So we will continue to evaluate the options that are available we will keep moving those forward and we believe we will continue to add shareholder value by utilizing inorganic growth as part of our capital allocation.
Speaker Change: Thanks, a lot.
Speaker Change: Thank you Andrew.
Andrew E. Tometich: Thank you. At this time, we've reached the end of our question and answer session. I'll turn the floor back to Andy Tometich for closing remarks.
Speaker Change: Thank you at this time, we've reached the end of our question and answer session I will turn the floor back to Andy Thomas for closing remarks.
Andrew E. Tometich: Yeah, thanks very much. We really appreciate the continued interest in Quaker Houghton, and I ask you to please reach out to Jeff if you have any additional follow-up questions. Thanks, and have a great day!
Andrew E. Tometich: Yes, thanks very much we really appreciate the continued interest interest in Quaker Houghton and ask you to please reach out to Jeff. If you have any additional follow up questions. Thanks and have a great day.
Speaker Change: Yeah.
Operator: This will conclude today's conference. We will disconnect your lines at this time. Thank you for your participation.
Speaker Change: This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.