Q4 2024 Quaker Chemical Corp Earnings Call
Speaker Change: Greetings and welcome to Quaker Houghton fourth quarter and full year 2024 earnings conference call. A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Speaker Change: I would now like to turn the call over to Jeffrey Schnell, Vice President Investor Relations. Mr. Schnell, you may begin.
Jeffrey Schnell: Thank you. Good morning, and welcome to our fourth quarter and full year 2024 earnings conference call. On the call today are Joe Berkwist, our President and Chief Executive Officer, Tom Kohler, our Executive Vice President and Chief Financial Officer, and Robert Traub, our General Counsel.
Speaker Change: Our comments relate to the financial information released after the close of U.S. markets yesterday, February 24, 2025. Our press release and accompanying slides can be found on our Investor Relations website.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: This presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measure in the appendix of the presentation materials, which are available on our website.
Speaker Change: Thank you, Jeff and I'd like to welcome everyone to Quaker Houghton's fourth quarter and full year 2024 earnings call.
Speaker Change: Quaker Houghton interest 2025 in a strong position.
Speaker Change: We made progress on our enterprise strategy last year, despite some contraction across our end markets and regions.
Speaker Change: Our team delivered a solid performance due to the strength of our portfolio and our focused commitment to improve our customers' operations and productivity.
Speaker Change: We also continued to manage items within our control we.
Speaker Change: We further improved our margin profile and generated strong operating cash flow.
We have the right long term strategy, which will build our competitive advantage and drive value for our shareholders.
Speaker Change: I will say a few words about the quarter then provide comments about my vision for the path forward in the outlook for 2025.
Speaker Change: Then I will hand, the call over to Tom to discuss our financials in more detail.
Speaker Change: Fourth quarter net sales were $444 million, 5% below the prior year or 3% lower on a constant currency basis.
Speaker Change: I'd like to highlight that while market conditions were persistently soft throughout the entirety of 2024.
Speaker Change: Our ability to gain new pieces of business continued to contribute to our positive performance.
Speaker Change: Our volumes in the fourth quarter were consistent with the prior year due to market share gains.
Speaker Change: Despite an estimated low to mid single digit decline in the aggregate end markets we serve.
Speaker Change: We continue to outperform these difficult end markets.
Speaker Change: For the past nine quarters volumes have been stable on both a year over year and sequential basis due to the strength of our business model and net new business wins.
Which continued to trend within our targeted 2% to 4% range on a global basis.
Speaker Change: We feel good about our ability to continue to consistently deliver above market performance, regardless of the end market environment.
Speaker Change: Gross margins were 35, 2% in the fourth quarter, reflecting manufacturing absorption the timing of raw material cost increases and mix impacts related to customer production levels, especially in the Americas and EMEA.
These bladder issues have largely resolved themselves in January.
Speaker Change: We generated adjusted EBITDA of $65 million in the fourth quarter and $311 million for the full year through solid execution and disciplined cost management.
Speaker Change: And we generated $205 million of operating cash flow in 2024.
Tabling us to execute on all levers of our capital allocation priorities.
Speaker Change: Including investing in our organic growth.
Speaker Change: Increasing our dividend paying down debt.
Speaker Change: <unk>, two acquisitions and repurchasing approximately $50 million of shares.
Speaker Change: These results considering the macroeconomic challenges impacting our end markets.
Speaker Change: Demonstrate our focus on positioning the company for long term outperformance.
Speaker Change: At Quaker Houghton our mission is clear.
Speaker Change: To be the trusted partner to the world's leading manufacturers, who rely on our process fluid solutions and services to advance the world safely and sustainably.
Speaker Change: Dropped by nearly 28 year tenure at Quaker Houghton.
Speaker Change: Our talented global team has delivered on that mission driving value for our customers.
Speaker Change: The newest innovating to help customers achieve their desired outcomes.
Speaker Change: Stay ahead of evolving trends.
I am confident that our capabilities and our commitment to our customers is enduring and.
Speaker Change: We will continue to be a point of strength and differentiation in our markets.
Speaker Change: Since becoming CEO in November I have taken a renewed look at our strategy and our execution against it.
Speaker Change: What is most evident is that since the combination in 2019.
Speaker Change: Quaker Houghton has managed through significant external volatility and internal change.
Speaker Change: We have the right strategic plan, we need to refocus on growth in partnership with our customers.
Speaker Change: We manage through a prolonged period of declining end market conditions, a global pandemic supply chain constraints and inflation in our raw materials and other costs.
Speaker Change: These challenges have made it difficult to fully realize the value of our portfolio and untap the full potential of our company.
Speaker Change: With more stability on the horizon.
Speaker Change: We are focused on restoring the trademarks of Quaker Houghton.
Speaker Change: Returning to growth and driving the company forward together.
Speaker Change: Since completing the integration of Quaker and Houghton, we have made many internal improvements that are exciting for the organization.
Speaker Change: Our global functional teams have executed well against a demanding but necessary transformation agenda.
Speaker Change: Looking ahead there.
Speaker Change: It is imperative that we better leverage our technical expertise and industry knowledge financial strength and global scale.
Speaker Change: And continue to invest in our future.
Speaker Change: My priorities are straightforward.
Speaker Change: First we will return to growth.
Speaker Change: Second.
Speaker Change: We will reduce complexity and unlock the leverage in our model.
Speaker Change: And third we will let disciplined and prudent manner.
Speaker Change: Boy capital to enhance value for shareholders.
Speaker Change: These priorities are intertwined.
Speaker Change: It will be accomplished by globalizing Quaker Houghton and.
Speaker Change: And deploying a sharper focus on customer intimacy.
Speaker Change: I'd like to provide some context first growth.
Speaker Change: Over the past few years, our markets have declined as evidenced by the prolonged contraction in global PMI and lower production in industrial and automotive applications.
Speaker Change: Our volumes have fared better than the market rates, even when considering our exit of Russia.
Speaker Change: Termination of the tolling business in the Americas, and EMEA that was part of the required asset divestment to close the combination.
Speaker Change: And rationalization of industry capacity in certain regions.
Our study volume performance reflects the team's ability to gain share with new and existing customers regardless of the operating environment.
Speaker Change: These gains have been most notable in our metals business.
Speaker Change: We are in industries that are tied to markets with historically consistent growth trends.
Speaker Change: As a company, we will capitalize on our leading market position and long heritage of being innovative responsive and going above and beyond to meet or exceed our customers expectations.
Speaker Change: Globalizing Quaker Houghton is occurring on many fronts.
Speaker Change: First we are aligning our resources with faster growing regions, including India Southeast Asia, Japan, Eastern Europe, the Middle East and Africa.
Speaker Change: We will continue to make prudent investments to build our capabilities in these regions like our new plant in China.
Speaker Change: We are also globalizing, our product portfolio and technical expertise.
Speaker Change: For example, we are excited by the momentum in our advance and operating portfolio.
Speaker Change: These are product applications that demand differentiated performance capabilities.
Speaker Change: And are a natural complement to our metals and metalworking process fluids.
Speaker Change: They also have differentiated growth characteristics.
Speaker Change: Second.
Speaker Change: As part of the next phase of our transformation, we will simplify and refocus the organization on value enhancing activities.
Shifting the center of gravity back to our customers.
Speaker Change: From an internal perspective, we are creating efficiencies via harmonizing, our business processes and organizing our broad portfolio of products and services to streamline our brands into one Quaker Houghton.
Speaker Change: We will continue to implement our new multichannel approach to better serve customers.
Speaker Change: To create space for commercial teams to more effectively pursue growth.
Speaker Change: We will make it easier for customers to do business with us.
Speaker Change: And we will provide enhanced services through digitization and innovative sensor technology.
Speaker Change: Refocusing on customer intimacy will support our organic growth.
Speaker Change: With our previous emphasis on gross margin restoration, we experienced elevated churn copper comparable to historical levels.
Speaker Change: Some of this was intentional.
Speaker Change: As we decided to exit unprofitable business.
Speaker Change: Through better execution, and leveraging our vast network of internal expertise, we will streamline decision, making shorten lead times and improve our responsiveness and customer service levels.
Speaker Change: While we have made progress we have more optimization opportunities ahead of us.
Speaker Change: We will take a closer look at our footprint and manufacturing capabilities, especially in Europe.
Speaker Change: There is opportunity to drive out costs, and inefficiencies and leverage our scale and logistics procurement and manufacturing.
Speaker Change: These actions all support our ability to respond to customer needs and advance our strategy.
Speaker Change: I am very passionate about our fluid intelligence offering.
Speaker Change: We are now prioritizing R&D resources to this technology in a more targeted way.
Speaker Change: Which has the opportunity to revolutionize our fluid care offering.
Speaker Change: Defend and drive new business.
Speaker Change: Provide a step change in automation efficiency for our customers.
Speaker Change: We are in the early innings is seeing early success on.
Speaker Change: This powerful longer term tool for value creation.
Speaker Change: To support these objectives and to align with the current market environment.
Speaker Change: We have identified an additional $20 million of cost actions.
Speaker Change: These new actions are expected to be substantially complete by the end of the first half of 2025.
Speaker Change: It will drive approximately $15 million of in year savings.
Speaker Change: Lastly capital deployment.
Speaker Change: Quaker Houghton has a long history of healthy and consistent cash generation and our balance sheet is strong.
Speaker Change: We will continue to fund organic growth initiatives and pay dividends.
Speaker Change: We will also prioritize cash flow to support our growth primarily through M&A.
Speaker Change: In 2024, we acquired I kv, and Sue tie and recently acquired chemical solutions and innovations or CSI is South Africa.
Speaker Change: We will remain disciplined and we will use excess cash to maintain a strong balance sheet and return cash to our shareholders.
Speaker Change: In 2024, we returned more than $80 million to shareholders through dividends and share repurchases.
Speaker Change: Yeah.
Speaker Change: Quaker Houghton has a very strong foundation in our legacy of driving growth, we are focused on driving commercial and operational improvements.
Speaker Change: Getting back to basics and executing on these enablers, which we believe will advance our strategy and drive value for shareholders.
Speaker Change: Before turning the call to Tom I want to provide some commentary on our outlook.
Tom Kohler: Looking ahead after.
Tom Kohler: After several years of contraction we.
Tom Kohler: We expect our end markets will grow approximately 1% to 2% in 2025.
Tom Kohler: This will be primarily weighted to the second half of the year and driven by increased production at new steel and aluminum mills.
Tom Kohler: And stability or modest growth in most other end markets.
Tom Kohler: It also excludes potential effects of tariffs or other unforeseen geopolitical events that could negatively impact growth.
Tom Kohler: We have a pipeline of new opportunities in several trials underway across our products and regions.
Tom Kohler: Which will support our above market performance.
Tom Kohler: We are making progress reducing churn, which has impacted both volume and mix and expect to make further progress in 2025.
Tom Kohler: We also expect gross margins to be comparable to 2024 levels.
Tom Kohler: Therefore, we expect to deliver revenue adjusted EBITDA and earnings growth in 2025, and another strong year of cash flow generation.
Tom Kohler: The long term fundamentals of our industry are positive.
Tom Kohler: We are effectively managing what we can control while investing in our capabilities to strengthen our business.
Tom Kohler: Switching to the first quarter.
Tom Kohler: We expect a seasonal improvement in demand primarily in the Americas, and EMEA segments, whereas Asia Pacific will contend with the lunar new year.
Tom Kohler: Gross margins are all are also expected to improve sequentially.
Tom Kohler: As some of the items that impacted the fourth quarter have resolved.
Tom Kohler: We expect a modest improvement in adjusted EBITDA from fourth quarter levels in both demand and earnings are expected to improve as we progress through the year.
Tom Kohler: With that I'd like to pass it to Tom to discuss the financials in more detail.
Thank you Joe and good morning, everyone.
Tom Kohler: Fourth quarter net sales were $444 million a decline of approximately 5% from the prior year or 3% on a constant currency basis.
Tom Kohler: Selling price and product mix was approximately 4% lower primarily reflecting the impact of our index based contracts and mix of products and services.
Tom Kohler: Organic sales volumes were approximately 1% lower but were more than offset by a contribution from acquisitions of approximately 2%.
Tom Kohler: Foreign exchange had a 2% unfavorable impact to net sales in the quarter.
Tom Kohler: And market conditions were persistently soft in 2024 in the fourth quarter underlying conditions, we can further, especially in the Americas and EMEA segments.
Tom Kohler: New business wins across all segments, especially in Asia Pacific were the primary driver to the stability in our organic sales volumes on a year over year and sequential basis, despite the challenging market conditions.
Tom Kohler: Lower selling price and product mix was due to the rap effect of index based contracts and the mix of products and services, which primarily reflects lower service related revenue as customers balance their operations to the external environment, particularly in EMEA.
Tom Kohler: Gross margins in the fourth quarter were 35, 2%.
Tom Kohler: There were several factors that occurred in the fourth quarter impacting margins, including manufacturing absorption on lower volumes and the impact of higher raw material costs in our Asia Pacific and EMEA businesses.
Tom Kohler: Mix also impacted margins.
Tom Kohler: As expected, we had lower sales into aerospace applications and experienced reduced production levels and customer downtime in the fourth quarter.
Tom Kohler: These secondary items have largely resolved themselves in January.
Tom Kohler: Excluding one time items, SG&A decreased $4 million or 4% compared to the prior year and $2 million or 2% sequentially.
Tom Kohler: The decrease reflects our cost management efforts, partially offset by costs on boarded related to our acquisitions in 2024.
SG&A declined in 2024, as we executed on our prior cost and optimization actions.
Tom Kohler: We delivered $65 million of adjusted EBITDA in the fourth quarter adjust.
Tom Kohler: Adjusted EBITDA margins were 14, 6%, reflecting the impacts on gross margins in the quarter.
Tom Kohler: Switching to our segment results.
Tom Kohler: Net sales in our Asia Pacific segment increased approximately 5% compared to the prior year.
Tom Kohler: Driven by a 5% increase in sales volumes, a 3% contribution from the <unk> acquisition, and partially offset by a 3% decrease in selling price and product mix.
Tom Kohler: Volumes in the Asia Pacific segment increased 7% in 2024, driven by new business wins.
Tom Kohler: Growth was consistent in both China and other Asia.
Tom Kohler: The Asia Pacific market is highly competitive selling price and product mix reflected some selective incentives first fills on new business wins and the impact of index based contracts.
Tom Kohler: Net sales in Asia Pacific also increased compared to the third quarter driven by higher volumes.
Tom Kohler: Segment earnings in Asia Pacific declined approximately $1 million compared to the prior year.
Tom Kohler: Segment margins were impacted by higher raw material costs, we continue to be pleased with the performance in the Asia Pacific region as they effectively manage through the dynamic market environment delivering segment margins consistent with 2023 levels.
Tom Kohler: Yeah.
Tom Kohler: Net sales in EMEA were 7% lower year over year in the fourth quarter selling.
Tom Kohler: Selling price and product mix declined 3% due to lower service revenues as well as the impact of index based contracts.
Tom Kohler: Sales volumes inclusive of the benefit from the <unk> acquisition declined approximately 4% compared to the prior year.
Tom Kohler: They are manufacturing PMI remain in contraction and overall conditions weaken further in the fourth quarter.
Segment earnings in EMEA decreased by approximately $5 million compared to the prior year.
Tom Kohler: This was due to lower sales and a decline in segment margins.
Tom Kohler: <unk> segment margins were impacted by manufacturing absorption due to softer volumes sales mix, primarily lower revenues in the core in the current period related to service revenue and.
Tom Kohler: And higher raw material costs.
Tom Kohler: We expect to deliver further productivity improvements and efficiencies in the EMEA segment in 2025.
Tom Kohler: Net sales in the Americas declined 8% year over year, due to lower selling price and product mix of approximately 3% and.
Tom Kohler: An unfavorable foreign exchange impact of 4% and a 1% decline in total sales volumes.
Tom Kohler: Industrial activity in the Americas declined further in the fourth quarter highlighted by broadly lower production rates.
We were also impacted by lower sales into aerospace applications.
Tom Kohler: The new business wins were strong in the quarter equally in metals, and metalworking, helping to offset the challenging market conditions and customer order patterns into year end.
Tom Kohler: Segment earnings in the Americas declined by $11 million in the quarter compared to the prior year, driven by lower sales and segment margins manufacturing.
Tom Kohler: During absorption as well as the mix of product and services for instance, lower aerospace and specialty grease sales impacted margins in the quarter.
Tom Kohler: The fourth quarter was very dynamic, especially in the EMEA and Americas segments as industrial activity weakened further.
Tom Kohler: We expect demand and margins to improve in the first quarter from these lows and believe we are entering 2025, well positioned with our customers to capitalize on an improvement in underlying market conditions.
Turning to non operating costs, our interest expense of $9 million was $3 million lower in the fourth quarter compared to the prior year.
Tom Kohler: This reflects the ongoing reduction in our variable cost debt, which is currently yielding approximately 6%.
Tom Kohler: Our effective tax rate, excluding nonrecurring and non core items was approximately 34% in the fourth quarter or 29% for the full year.
Tom Kohler: We expect our expected tax rate in 2025 will be approximately 29%.
Tom Kohler: In the fourth quarter, our GAAP diluted earnings per share were <unk> 81.
Tom Kohler: And our non-GAAP diluted earnings per share were $1 33.
Tom Kohler: For the full year, GAAP and non-GAAP diluted earnings per share were $6 51.
Tom Kohler: And $7 44, respectively.
Tom Kohler: Switching to liquidity, we generated $63 million of cash from operations in the fourth quarter and $205 million in 2024.
Tom Kohler: Cash flow conversion was at the high end of our targeted range.
Tom Kohler: We remain focused on driving working capital efficiencies, while maintaining the flexibility to support our customers and be responsive to their production needs. We expect to deliver another strong year of cash flow in 2025.
Tom Kohler: Capital expenditures in the fourth quarter were approximately $23 million and $42 million for the full year for.
Tom Kohler: For 2025, we expect capital expenditures will be two and a half to three 5% of sales as we complete the build out of our China facility and invest in some of our growth initiatives.
Tom Kohler: In 2024, we closed on two strategic acquisitions, I K V and <unk> for a total of approximately $40 million.
Earlier. This month, we also closed on the acquisition of chemical solutions and innovations in South Africa, which furthers our scale and portfolio in emerging geographies.
Tom Kohler: In the quarter, we paid approximately $9 million in dividends and opportunistically repurchased approximately $26 million of shares.
Tom Kohler: We repurchased $49 million of shares in the full year and combined with dividends, we returned $82 million to shareholders in 2024.
Tom Kohler: $101 million remains on our current share repurchase authorization.
Tom Kohler: Our balance sheet and liquidity are strong our net debt at year end was $519 million and our net leverage ratio was one seven times, our trailing 12 months adjusted EBITDA.
Tom Kohler: Yeah.
Tom Kohler: Looking ahead, we are committed to driving further operational efficiencies across our regions, especially in EMEA. We are taking actions to drive procurement and manufacturing improvements and we have initiated an additional $20 million worth of cost actions. The team continues to execute well on what we can control positioning the company to <unk>.
Tom Kohler: I've continued above market performance, we are executing on all items of our capital allocation strategy and we have ample capacity to accelerate our growth and create shareholder value with that I'll turn it back over to Joe.
Speaker Change: Thank you Tom.
Speaker Change: I am humbled to lead this incredible organization.
Speaker Change: My leadership team and I are United around transforming Quaker Houghton.
Speaker Change: Re centering the organization around the customer and returning to growth.
Speaker Change: We will advance our strategy and efficiently deploy capital to unlock our full potential.
Speaker Change: I know our success is built on the foundation of our people and I'm confident that we have the best talent in our industry to take the company forward.
Speaker Change: With that we'd be happy to take your questions.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: Like to ask a question. Please press star one on your telephone keypad.
Tom Kohler: Tom will indicate your line is in the question queue.
Speaker Change: May press star two if he would like.
Speaker Change: Question from the queue and for participants using speaker equipment may be necessary to pick up the handset before pressing the star.
Speaker Change: One moment, while we poll for questions.
Speaker Change: Our first question is from Mike Harrison with Seaport Research partners. Please proceed.
Mike Harrison: Hi, good morning.
Speaker Change: Yeah.
Speaker Change: Good morning, Mike Good morning, Mike.
Speaker Change: Just just looking at the gross margin performance in Q4.
Speaker Change: Youre down quite a bit from where you started.
Speaker Change: 2024, and I understand some of that seasonality there is some.
Speaker Change: Fixed cost absorption you mentioned mix, some raw materials stuff, maybe kind of a perfect storm.
Speaker Change: During the quarter, but I was hoping just looking forward you could talk about that.
Speaker Change: Prior 37%, 38% gross margin margin target that you've been using is that still the right target.
Speaker Change: That we should be thinking about in <unk>.
Is that a reasonable.
Speaker Change: Assumption for where you would expect to be in 2025.
Mike Harrison: Yeah, Thanks, Mike for the question.
Speaker Change: I would say it's in the right Zip code.
Speaker Change: 37, 38, as you know those are pretty historically highs from from where that margin has been.
Speaker Change: Definitely saw.
Speaker Change: Mix factors in absorption in the fourth quarter as you mentioned, we think in the first quarter that margin is coming back into that range that that same zip code of where we were last year.
Speaker Change: I think over the long term you know we're in competitive markets.
Speaker Change: We do put an emphasis on growth profitable growth.
Speaker Change: And I think there's an opportunity here as we continue to to get back to growth and get back to more.
Speaker Change: Historical volume levels start looking at our EBITDA margins and what we're really driving for there is getting into EBITDA margins into the high teens and eventually to the sort of 20% level.
Speaker Change: So.
Speaker Change: That range, you talked about things may flex, a little above or little below at times, we have a lag in our pricing.
Speaker Change: We get we can go and get pricing, but it takes time to do that but I think that's the right ZIP code Mike as you think about the long term and then we're doing things internally looking at our our network.
Speaker Change: Global procurement some initiatives around around there to improve our raw material.
Speaker Change: Buying position and just simplifying processes internally to become more efficient. So that's the right target range I think that's in the ZIP code for us.
Speaker Change: Alright, very helpful. And then in terms of kind of refocusing the business on growth.
Speaker Change: It really seems like Asia Pacific is it's kind of a bright spot for you and you mentioned the strength that you're seeing are the faster growing opportunities you're seeing in places like India Southeast Asia.
Speaker Change: Maybe talk a little bit more about what's going right.
Speaker Change: In Asia Pacific and maybe how you start to transfer some of that success over to your other regions.
Speaker Change: You know, maybe maybe help us understand what opportunities or obstacles you might see in the Americas or EMEA as you think about.
Speaker Change: Starting to grow a little bit faster.
Mike Harrison: Yeah, Great question Mike.
Mike Harrison: We are very happy with with the performance in Asia Pacific last year, and really whats driving that as new business wins those markets themselves have also been challenged I think they they faced some headwinds in the second quarter last year things started to slow down a little bit.
Mike Harrison: But we really did a good job winning back customers that we.
Mike Harrison: We lost to that 'twenty, two 'twenty three sort of pricing cycle.
Mike Harrison: We've also been very successful in gaining new metals business, so whether that's in steel or aluminum.
Mike Harrison: We're getting some traction with the new winners and battery electric vehicles.
Mike Harrison: Now China has changed a lot theres. Some some new suppliers are whether they are Oems or component suppliers I think we've shifted our focus to make sure that we're we're able to grow with them.
Mike Harrison: Mentioned in India, India is a market that between say 2020, and 2030, maybe it goes to 2035, but the manufacturing production in that in that country is expected to double and were very well position. There we are winning new mills.
Mike Harrison: New lines in that region as well.
Mike Harrison: Thank a transit translating those wins back over two to Europe, and the Americas I would say couple of things in 2024.
Mike Harrison: Things definitely got worse last year, we didn't think they could get much worse in Europe, but they did.
Mike Harrison: We feel that perhaps we're at a trough in that part of the world right now and the other thing that was unexpected.
Mike Harrison: Unexploited was North America really took a turn in the second half of the year, we saw a lot of capacity that idled and even in the automotive space.
Mike Harrison: So stuff that that.
Mike Harrison: It was absolutely running on a lower operating rate.
Mike Harrison: Despite that I think we are seeing similar share gain in those markets I mentioned.
Mike Harrison: I was talking through earlier food intelligence I think.
Mike Harrison: That's an enabler for us right now.
Mike Harrison: We are as new mills are being built and there are some new builds coming online globally, but even in the U S.
Mike Harrison: We're offering.
Mike Harrison: And equipment solution to help get.
Mike Harrison: That first Phil and also support.
Mike Harrison: Our service capabilities on those mill so.
Mike Harrison: It's a mix of different things, Mike, making sure that we're focusing on the customer that we're enabling our people to you know.
Mike Harrison: Make it easier for our customers to do business with US all of those things stacking up I think.
Mike Harrison: It will help us get back on that growth trajectory in these in these other more challenging regions outside of Asia Pacific.
Mike Harrison: Yes.
Mike Harrison: Alright, Thanks for that and then last question for me is just.
Mike Harrison: You said you expect to show revenue and EBITDA growth in 2025, I was hoping that you could talk about some of the.
Mike Harrison: Underlying macro assumptions.
That play into that forecast, maybe some of the puts and takes around areas like FX.
Mike Harrison: Don't know if theres, an incentive comp rebuild.
Mike Harrison: Baked into next year.
Mike Harrison: What your expectations are on price cost.
Mike Harrison: That would kind of help us bridge to a year over year growth, obviously, a $15 million worth of savings.
Mike Harrison: From restructuring would be beneficial, but any other details there would be helpful. Thanks.
Tom Kohler: Yeah, no great Great question, Mike and I'll, let I'll, let Tom filling the gaps on FX and.
Mike Harrison: Incentive comp rebuild but.
Tom Kohler: Look the markets we're in are uncertain.
Mike Harrison:
Mike Harrison: So we're committed to controlling what we can control and I think we do feel really good about.
Mike Harrison: Our ability to continue to win new business and reduced reduce our churn so the net new business gains.
Mike Harrison: Into the cycle, we feel pretty confident about we have a healthy pipeline there.
Mike Harrison: We do expect the markets that we're in to gradually improve and I think one of the things when you look at 25 versus 24.
Mike Harrison: This feeling that the second half of 2024 was the trough.
Mike Harrison: Gives us a favorable comp heading into next year.
Mike Harrison: Overall market performance.
Mike Harrison: We're anticipating markets will grow 1% to 2%. This is after a period of decline. So even stability I think we would we would view us as very positive, what's giving us confidence around market growth I mean, there are some some drivers like there's just new production coming online.
Mike Harrison: There are things as I mentioned, there was capacity that was taken offline is as our customers manage their inventory in the second half of last year.
Mike Harrison: So all of those things kind of give us give us confidence.
Mike Harrison: With our gross margin is expected to be comparable to 2020 for full year.
Mike Harrison: With the $20 million of cost.
Mike Harrison: On a run rate 15 million in year that should cover investments in growth and.
Mike Harrison: Normal inflationary aspects net net as you mentioned, we expect to grow our revenue.
Mike Harrison: We expect to grow EBITDA and earnings next year.
Mike Harrison: And I think over the long term.
Mike Harrison: Our our model our algorithm there is we're in markets that will grow.
Over the long term, 1% to 3% we plan to continue to take net new business wins above that 2% to 4%.
And we haven't really talked about M&A, but I think.
Mike Harrison: The two deals we did in 2024 and the one we just did recently here in the first quarter are evidence that we're active in the inorganic space and we have a pipeline that were that were working there that we hope will accelerate our growth as we go forward. So.
Mike Harrison: Yes.
Speaker Change: You don't know what you don't know, but at this point of the year, Mike those are the assumptions that we're baking into our outlook.
Speaker Change: Yeah, and then thanks, Mike just a little bit more.
Speaker Change: Impact or or input.
Speaker Change: Input relative to FX, so we're viewing FX as.
Speaker Change: Likely to be a headwind for us in 2025.
Speaker Change: In terms of how we're thinking about it for our 2025.
Speaker Change: Outlook, we took a hybrid approach so a combination of current spot rate, but with all the current market volatility. We also did look at the forward curve and so it took a took a view sort of bringing those two pieces together current spot and forward.
Speaker Change: In general we're estimating it to be low single digit percent impact to sales in 2025.
Speaker Change: Alright, thanks very much.
Speaker Change: Our next question is from David Begleiter with Deutsche Bank. Please proceed.
David Begleiter: Thank you good morning, Joe what are your expectations for raw materials.
Speaker Change: In 2025.
David Begleiter: Yeah, Good morning, David.
David Begleiter: We're really expecting some stability and raw materials were not really anticipating volatility one way or another other work there were some things that we had hit us in the fourth quarter.
David Begleiter: Primarily in Asia, and Europe, but as we head into 2025, we're expecting raw materials to stabilize at this point.
Speaker Change: Very good interest on your Americas volumes, how would you expect them to trend in 'twenty five would it be would it decline first half followed by a growth in the second half be consistent with your with your thinking.
Speaker Change: I mean, I think sequentially, we're going to see improvement from fourth quarter to first quarter.
Speaker Change: And I do think as we go through the year. The overall conditions will get better probably the first quarter will be our lowest quarter David.
Speaker Change: Traditionally.
Speaker Change: Second and third quarter things do get better and then you have your normal seasonal pattern, but by that point, if we get to <unk> when we get to the fourth quarter of this year.
We expect to have a lot of the new business wins also.
As a as a tailwind to the business.
Speaker Change: And last time, you mentioned, some new capacity coming on is that mostly in Asia that you referenced.
Speaker Change: Actually it's not it's it I would say that there is new capacity in Asia across cross Asia, So that would be China, India and southeast Asia.
Speaker Change: There is also some new capacity coming online in the U S.
Speaker Change: Thank you very much.
Speaker Change: Thank you David is from Laurence Alexander with Jefferies. Please proceed.
Speaker Change: Hi, just one quick follow on that you mentioned in the remarks.
Speaker Change: Secondary element of dropouts.
Speaker Change: So does it.
It started in January.
Speaker Change: Q1 running.
Speaker Change: Above or below kind of how you see the overall year because my impression is like the easy comps really kick in in the back half of the year.
Scott: Yes, Hi, Hi, Laurence this is Scott.
Speaker Change: Thank you for the question, Yeah, I think as Joe as Joe mentioned I think we have seen some of those gross margin impacts resolved here as we move into Q1.
Scott: We are anticipating that.
Year will build as we go so we anticipate.
Scott: Q1 will be our lower lower quarter, notwithstanding seasonal impacts in Q4 are lower quarter and will build through Q2, and Q3, which are seasonally our strongest strongest period throughout the year.
Scott: Thank you.
Speaker Change: Our next question is from John Campbell.
Scott: <unk> with CJS Securities. Please proceed.
John Campbell: Hi, Good morning, and thank you for taking my questions. My first one is just on the refocusing of the market go to market strategy I guess.
John Campbell: As part of this restructuring do you think that will improve the the growth over the market that you've seen versus your historical rate of 2% to 4% or is that does that remain to be seen.
John Campbell: Look I think I think the.
John Campbell: 2% to 4% is still the right right number John.
John Campbell: We expect to be and have been I think on the on the higher end mid to high of that 2% to 4%.
John Campbell: In the face of the markets we're in.
John Campbell: But.
John Campbell: Stability and even slight growth in our markets will be able to see that a little bit better in the results. As we go forward and then execution of M&A is another another thing to get us back to that sort of mid mid single digit high single digit.
John Campbell: Growth growth algorithm that we want to get on.
John Campbell:
John Campbell: There was a lot of things that we had to do internally that were very helpful for us too.
John Campbell: <unk>.
John Campbell: To build out scale and critical functional support areas and to drive out cost and there's actually still more more work that can be done there, but we're really focused on making it easier for our customers, who do business with us some of those areas.
John Campbell: Would be our branding we still have some of the legacy brands from from acquisitions, we made.
John Campbell: Optimizing our channels.
John Campbell: Having.
John Campbell: Services that make it again easier for customers to deal with us looking at our portfolio and rationalizing that that has both an external and internal benefit and making sure that we have the right coverage out in the field. So all of these types of things focusing our R&D around food and intelligence and sort of.
John Campbell: Breakthrough innovation that we were trying to achieve there.
John Campbell: All of those things.
John Campbell: We think will help us maintain.
John Campbell: For several years going forward, hopefully that that 2% to 4% growth that we want to achieve.
Speaker Change: Got it. Thank you and then could you Tom maybe if you could take this one just in the savings plan that you have detail how much of that comes out of Cogs versus SG&A and then where do you think is January one of this year.
Speaker Change: Maybe relative to growth or as an absolute number.
Speaker Change: Yeah, Thanks for the questions.
Speaker Change: Largely our cost savings initiatives are targeting.
Speaker Change: SG&A as we think about refocusing around.
Speaker Change: Customer intimacy and and driving value for our customers.
Speaker Change: We are continuing to look at.
Speaker Change: Opportunities to optimize our manufacturing network, particularly in EMEA as I mentioned in our prepared remarks in terms of overall SG&A with the cost savings initiatives were anticipating SG&A to be flat to modestly up in 2025 as we've got compensation re.
Speaker Change: Build in some of those things and again, we all we are we all also are balancing.
Speaker Change: The short term market dynamics that we're in versus our long term focus on making prudent investments to drive growth and enhance value for our customers.
Speaker Change: Great. Thank you if I could squeeze one more in just could you talk a little bit more about CSI in with the rest of the portfolio number one and two there is a bias towards M&A or share repurchases as you go forward.
Speaker Change: It continues.
Speaker Change: Yeah.
Speaker Change: Yes, great questions.
Speaker Change: CSI is a is a business in South Africa with.
Speaker Change: Few different locations down there they serve.
Speaker Change: The metalworking and metals.
Speaker Change: Businesses and they also have some capabilities, what we would call around operating solutions and advanced solutions. So.
Speaker Change: It helps us fill out our portfolio down there because there's some better logistics and certainly.
Speaker Change: Sure.
Speaker Change: We want to we want to grow in that part of the world as well we have seen you know things in Africa across the continent, and especially in the eastern part of Africa.
Speaker Change: New new new mills, coming online, whether they're pipe mills or construction for metals. So.
Speaker Change: Over the next you know.
Speaker Change: 10, 20 years, I think our consumption of metal in the industrialization of that.
Speaker Change: Part of the World will continue.
Speaker Change: The position is with CSI in South Africa will help us serve really that part of Africa, but also other parts of Africa.
Speaker Change: The second part of your question around capital allocation.
Speaker Change: I think the.
Speaker Change: Still the priority I think.
Speaker Change: We see as the best way to enhance or increase shareholder value is investing in the business. So.
Speaker Change: That would include M&A.
Speaker Change: Also investing in our organic growth.
Speaker Change: Making prudent investments they're in.
Speaker Change: And as you mentioned funding those investments through through reallocating other parts of our business we.
Speaker Change: We paid a dividend continuously since 1972, we'll continue to do that.
Speaker Change: But M&A is really the best lever for us.
Speaker Change: As far as share repurchases, we did do.
Speaker Change: A fair amount last year of $49 million of share repurchases, we have 100 million plus still available to do that and if the opportunity presents itself.
Speaker Change: We would we wouldn't hesitate to do that again, but we would balance that against all of these different levers that are in the model.
Speaker Change: Great. Thanks, guys.
Speaker Change: As a reminder, it is star one on your telephone keypad, if he would like to ask a question. Our next question is from everyone.
Speaker Change: <unk> with RBC capital markets. Please proceed.
Speaker Change: First off on the 2025 comments.
Speaker Change: You know you know.
I know that there are a lot of price initiatives put in the 'twenty to 'twenty. Three period, you did have to give some of that back and share that with your customers over the last couple of years I guess.
Speaker Change: Have you seen that that dynamic kind of play out.
Speaker Change: Or is that going.
Speaker Change: Should we expect that price dynamic to continue as you recapture some volumes as you move forward. Thanks.
Speaker Change: Yeah.
Yeah, I mean, I I would say.
Speaker Change: Now.
Speaker Change: We're not really actively in the market trying to increase prices unless we have to and there are some some raw materials that have increased and where that happens we'll go and do it. There's also a natural flow with our business, where we have things on index. So as raw materials kind of came down from these.
Speaker Change: Historic highs we saw we've seen some some deflation there just naturally as our index contracts.
Speaker Change: Adjust.
Speaker Change: But overall for next year, we're anticipating stability and.
Speaker Change: In the raw materials space and.
Speaker Change: Overall, I think the mix issues that we had in the fourth quarter.
Speaker Change: Should work themselves out as we head into Q1.
Speaker Change: Okay. Thanks, and then.
Speaker Change: I understand that the the objectives are to refocus the company on the customer and maybe that would help drive a little bit more volume.
Speaker Change: Could you just flush that out a little bit would that require you know maybe some different capex levels or where do you expect capex to go capacity additions or <unk>.
Speaker Change: Conversely, when it actually require maybe shutting down some noncore areas of focus and refocusing the business on India as you noted.
Speaker Change: What are some of the specifics that you're thinking about around that strategy.
Speaker Change: Yes, great question.
Speaker Change: As far as Capex goes I mean, one of the one of the things that.
Speaker Change: We talk about making it easier for customers to do business with us.
Speaker Change: We've been adding things to our portfolio to expand that.
Speaker Change: That wallet that we have or that basket of products that we can sell to customers.
Speaker Change: In some cases are our production capabilities for those are generally regional right like.
Speaker Change: An example, there would be we have.
Speaker Change: Ability to manufacturer Greece's specialty greases in the U S and Europe, but not really other parts of the world. So we're making some investments right now in China is building a new plant. There. So there is some capex that is involved with that.
Speaker Change: The other part of this <unk> on the just sort of the regular organic or.
Speaker Change: Non capex investments, it's making sure that we're shifting our resources around and deploying them.
Speaker Change: To the point you know the tip of the spear, where we where we can grow.
Speaker Change: And that might mean that we have to increase investments in some parts some geographies like Jim mentioned, India and other parts of Asia and pull back as we have been.
Speaker Change: In places like Europe, as we readjusted to the new realities there.
Speaker Change: Yes, Arun and then specifically on Capex plan for 2025, we we are an asset light business and typically target capex as a percent of sales in that one five to two 5% range I would say on a normalized basis in 2025 Thats still on.
Speaker Change: Our go forward plan, we do have a couple of items specific to 2025 that are pushing that capex up to two and a half to three 5% of sales.
Speaker Change: One is the further build out of our new China facility and then the second is we are.
Speaker Change: Consolidating our footprint in the Philadelphia area, we have a couple of R&D laboratories that we're bringing together along with a new administrative corporate facility. So absent those two items were in that normalized range, but but were a little higher in 2025 because of those specific items.
Speaker Change: Okay, great. Thanks, and then just lastly, if I may just on the volume front I know Europe has been challenging.
Speaker Change: But it does appear that some of your end markets also continue to be challenged, especially as you say as you noted in North America as well.
Speaker Change: Is it mainly just industrial production that is going to.
Speaker Change: Drive a little bit better volume environment or is there anything else that we should keep in mind. Thanks.
Well I mean look there are different factors, but the thing that drives our business is that industrial production things.
Speaker Change: Things things like interest rates have an <unk>.
Speaker Change: Pact on it.
Speaker Change: For sure consumer sentiment buying all of those things, but we have a.
Speaker Change: Pretty diversified portfolio when you think about even if we're heavier in metals for instance.
Speaker Change: Aluminum goes into beverage containers that also goes into automotive and aerospace steel goes into construction. It also visit the cars. So.
Speaker Change: There's a lot of different things that drive it but I think it's really that industrial base that that you would look to as you look to the environment that we operate in.
Speaker Change: Thanks.
Joe Berkwist: With no further questions in the queue I would like to turn the conference back over to Joe for closing remarks.
Speaker Change: Yes. Thanks.
Speaker Change: We really appreciate your continued interest in Quaker Houghton and if you have any other questions feel free to reach out to Jeff for myself and.
Speaker Change: Look forward to.
Speaker Change: Speaking to you again soon thank you.
Speaker Change: Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.