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Quaker Chemical sees a fine second quarter

31 Jul '08

6 min read

Quaker Chemical Corporation announced net sales for the second quarter 2008 of $158.2 million, a quarterly record, and net income of $4.3 million, increases of 15% and 4%, respectively, compared to the second quarter of 2007. Earnings per diluted share were $0.41 for the second quarter of 2008, the same as the second quarter of 2007.

Included in second quarter 2008 results is a charge of approximately $1.9 million of incremental expense, or approximately $0.12 per diluted share, related to the upcoming retirement of the Company's chief executive officer.

"We had a fine second quarter in sales and profits, particularly in consideration of the much quickened escalation of raw material costs in the quarter and the CEO transition cost charged. Our raw material experience in the quarter dramatically outstripped even the unprecedented levels of the last couple of years," commented Ronald J. Naples, Chairman and Chief Executive Officer.

"Our second quarter profit was helped by considerable leverage in SG&A expenses. And, beyond the P&L, the second quarter showed excellent cash flow improvement, leading to about a $14 million reduction in net debt, our lowest level since the end of 2005.

We are certainly mindful of the challenges and limited visibility of the current economic environment, but we remain committed to investing in key growth initiatives and continuing to work with our customers to recognize the value we deliver and our cost realities. We're on our way to a solid growth year, even in the face of today's well-known negatives, and are confident of our long-term future and the prospects for continued growth."

Second Quarter Summary:
Net sales for the second quarter were $158.2 million, up 15% compared to $137.6 million for the second quarter of 2007. The increase in net sales was primarily due to higher sales prices and foreign exchange rate translation. Volume growth in Asia/Pacific and South America, as well as higher revenue from Chemical Management Services ("CMS"), was largely offset by volume declines in the Company's other regions.

Foreign exchange rate translation increased revenues by approximately 8%. Selling price increases were realized, in part, as a result of an ongoing effort to offset higher raw material costs. CMS revenue was higher due to the impact of additional CMS accounts gained in 2007, as well as the renewal and restructuring of several of the Company's CMS contracts.

Gross margin dollars were up by approximately $2.2 million, or 5% over the second quarter of 2007. However, the gross margin percentage was 28.3%, compared to 31.0% in the second quarter of 2007. The Company's larger mix of CMS contracts reported on a gross versus pass-through basis decreased the gross margin percentage by approximately 0.5 percentage points.

The remaining decline in the gross margin percentage is due to increased raw material costs in excess of price increases, as well as product and regional sales mix. The Company has announced and implemented a number of further price increases to aid in offsetting the significant rise in the Company's key raw material costs.

Selling, general and administrative expenses ("SG&A") increased $1.7 million, compared to the second quarter of 2007. Foreign exchange rate translation increased SG&A by $2.5 million. Investments in higher growth areas, as well as inflationary increases, were more than offset by lower legal and environmental costs and lower incentive compensation expense. SG&A as a percent of sales was 23.5% versus 25.7% in last year's second quarter.

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