Quaker Chemical announces record quarterly sales for Q1 2007

02 May '07

4 min read

This change in sales mix decreased gross margin as a percentage of sales by approximately 1.5 percentage points compared to the fourth quarter of 2006.

Selling, general and administrative expenses for the quarter increased $4.6 million, as compared to the first quarter of 2006. Foreign exchange rate translation accounted for approximately $1.0 million of the increase over the first quarter of 2006.

Also negatively affecting the comparison with the prior year is a pension gain of $0.9 million recorded in the first quarter of 2006 due to a legislative change.

The remainder of the increase was due to continued planned spending in higher growth areas, primarily China, higher commissions as a result of higher sales, and increased incentive compensation as a result of higher earnings.

The increase in other income was the result of higher foreign exchange rate losses recorded in the prior year. The increase in net interest expense is attributable to higher average borrowings and higher interest rates.

The Company's effective tax rate was 32.9% for the first quarter of 2007, compared to 36.2% for the first quarter of 2006. The decrease in the effective tax rate was primarily attributable to a shifting of income to lower rate tax jurisdictions, which was offset in part by the Company's first quarter 2007 adoption of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48").

The Company's net debt has increased from December 31, 2006, primarily to fund working capital needs driven by higher sales late in the quarter and the start-up of a new operation in China. The Company's net debt-to-total capital ratio was 43% at March 31, 2007, compared to 40% at December 31, 2006.

In connection with the adoption of FIN 48, the Company recorded a non-cash charge to shareholders' equity of $5.5 million, which negatively impacted the Company's net debt-to-total capital ratio by approximately 1 percentage point.

Ronald J. Naples, Chairman and Chief Executive Officer, commented, "We had a fine first quarter resulting from increased contributions from strategic initiatives such as Asia/Pacific growth and CMS, as well as our continued actions on the pricing front. Virtually worldwide, we had solid results in the first quarter."

Even though sequential quarterly gross margin percentage slipped a bit, due primarily to sales mix, we were able to achieve higher gross margin in dollar terms even as raw material costs ran considerably ahead of last year.

"This flowed from business expansion efforts and, importantly, from our work with customers to recognize the value we deliver as well as our cost realities. We continue to invest where we think we can get growth and feel good about our long-term future and the prospects of continuing earnings improvement in 2007.

Quaker Chemical Corporation

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