管理層發言
Greetings, and welcome to the Quaker Houghton First Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to John Dalhoff, Director of Investor Relations. Mr. Dalhoff, you may begin.
Thank you. Good morning, and welcome to Quaker Houghton's First Quarter 2026 Earnings Conference Call. Joining us on the call today are Joe Berquist, our President and Chief Executive Officer; Tom Coler, 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 the U.S. markets yesterday, April 30, 2026. Our press release and accompanying slides can be found on our Investor Relations website. Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations 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 Joe.
Thank you, John, and good morning, everyone. We delivered a strong first quarter with organic volumes up 3% year-over-year, resulting in our third consecutive quarter of adjusted EBITDA growth. Our performance was driven by new business wins in all regions, highlighted by double-digit organic volume growth in Asia Pacific, where we continue to gain traction across the region. Adjusted EBITDA increased 5% compared to the prior year, building on net share gains that enabled us to outperform our end markets, which we estimate were down approximately 1% in the quarter. Gross margins improved from the fourth quarter, increasing 150 basis points sequentially and 40 basis points year-over-year. The sequential improvement in margins was bolstered by higher utilization of fixed assets and improved operational performance. Market conditions remain soft overall, with pockets of incremental industrial gains tempered by weak automotive production.
The hostilities in the Middle East are creating inflationary pressure on raw materials and input costs. But so far, it has not had a significant direct or indirect impact on demand. Strong commercial execution from our team and contributions from our recent acquisitions helped offset the underlying sluggish markets, enabling us to deliver organic volume, revenue and EBITDA growth in the quarter despite headwinds and volatility. Turning to the first quarter results. Net sales increased 8% year-over-year, fueled by net share gains of 4% at the top of our target range, along with the contribution from recent acquisitions. This marks the 10th consecutive quarter of net share gains, while our end markets have been consistently sluggish. Organic sales volumes in Asia Pacific grew for the 11th consecutive quarter. While our business in China continues to grow above end market rates, we are also achieving outsized growth in emerging markets such as India, Thailand and Vietnam.
Operating margins have expanded in the region as we are benefiting from recent organic investments in localized manufacturing. In EMEA, organic volumes grew 2% in the first quarter as new business wins outpaced persistently tough end markets. Volumes in the Americas declined slightly year-over-year, driven by a lingering customer outage, tariff uncertainty and weather-related disruptions. Despite these challenges, March had the highest volume in the Americas in the last 16 months, signaling improved momentum as we exited the quarter. EBITDA margins declined 50 basis points year-over-year, primarily because of higher SG&A expenditures related to acquisitions, foreign currency and incentive compensation. I would like to provide more color on the ongoing conflict in the Middle East and how we are managing its impact on our business. Immediately after the conflict began, we established an executive level task force to monitor developments, assess potential impacts and coordinate our response.
Our top priority was to ensure the safety of our more than 4,700 employees, particularly those living and working in the region. We also took swift action to confirm supply continuity to customers in the affected region. Since then, the task force has remained actively engaged, tracking conditions closely and addressing emerging pressures. From a business perspective, we have proportionately low direct sales exposure to Middle East countries near the conflict area. Our sales to North Africa and the Middle East in 2025 were less than 2% of total company net sales. While first quarter results were largely insulated, we expect higher raw material and shipping costs in the second quarter. To address this, we implemented pricing actions across all regions with some taking effect in April. There will be a typical lag between rising costs and price realization, which we expect will create temporary gross margin pressures in the second quarter.
Based on the actions we have taken and additional increases planned for this quarter, we expect to recover margins within 1 to 2 quarters. Meanwhile, we are committed to ensuring products reach our customers without disruption. We have not yet seen a meaningful impact on customer demand, but a prolonged conflict could begin to influence broader economic activity, including forward demand and further cost inflation. With this backdrop, we are focused on what we can control. Today, we are announcing the launch of a new transformation program that will reduce cost and complexity across the organization, optimize our manufacturing network, strengthen sales and technical capabilities and simplify global processes. We will pace investments over the coming months to unlock productivity in a disciplined manner. The first phase is underway through a comprehensive business process review focused on finding cost opportunities and improving master data management.
The program will fundamentally change the way we work, and we are looking to modernize the employee and customer experience. In the first quarter, we took steps to streamline our executive leadership structure to sharpen customer focus and accelerate decision-making. This program is central to achieving adjusted EBITDA margins at or above our target of 18%. We expect to exit this year with approximately $10 million in new run rate savings. Over the next 3 years, we see a clear path to delivering at least $20 million to $30 million of sustainable structural cost improvement with much of that target already identified. We have a clear line of sight to a robust set of initiatives, giving us confidence in our long-term transformation path. This new program complements actions that are already underway. The closure of our manufacturing facility in Dortmund, Germany remains on track, and we are beginning to realize the associated financial benefits.
We continue to expect approximately $2 million in cost savings from the closure in 2026 and $5 million in annual run rate savings beginning in 2027. We also recently announced the planned closure of our manufacturing facility in Songjiang, China, which will coincide with the start-up of our new facility in Zhongjiang later this summer. Production from Songjiang will transition to the new site as it comes online, enabling more efficient operations and enhanced capabilities. This modern facility will strengthen our ability to serve customers across Asia Pacific and manufacture recent portfolio additions more competitively at the local level. Turning to the outlook. Our view on macro trends is consistent with prior expectations. End markets declined modestly in the first quarter as expected. And while we still continue to predict flat end market conditions for the full year with normal seasonal improvement and a slightly better demand environment in the second half, we expect sequential volume and revenue growth in Q2, driven by seasonal improvement and wrap effect of new and recent business wins.
Visibility through the first part of the quarter indicates steady demand. At the same time, we anticipate temporary gross margin pressure related to higher input costs stemming from the Middle East conflict, which is expected to push gross margins below our target range in the second quarter. The situation remains dynamic due to the prevailing market uncertainty. We expect these gross margin headwinds to be temporary, lasting no more than 1 to 2 quarters. Our current estimate is that second quarter gross margins will be 200 to 300 basis points below quarter 1 on a sequential basis. Through pricing actions we are taking, we expect to fully recover gross margins within our target range of 36% to 37% as we exit the year. With the rapid raw material cost escalation in recent weeks above what we experienced at the end of the first quarter and the ongoing uncertainty of the situation, we are in the process of implementing further price increases, which we expect will be in place before the end of the second quarter.
We are recovering the cost impact from inflation in a responsible way and collaborating with our customers to successfully navigate the complexity of the current situation. As mentioned previously, the company is also taking action to improve our cost structure. Our long-term earnings profile continues to be resilient. Our local-for-local operating model and deep customer relationships differentiate us and enable new business wins. As a result, even amid heightened uncertainty, we continue to expect revenue and adjusted EBITDA growth in 2026, assuming no significant further deterioration in our end markets because of the Middle East conflict. In closing, I am incredibly proud of our team and their consistent execution in a challenging environment. We are making substantial progress across key priorities, including pursuit of new business, cost structure optimization, while also diligently executing our strategy to create long-term value for our customers and shareholders. With that, I will turn the call over to Tom to walk through the financials in more detail.
Thank you, Joe, and good morning, everyone. First quarter net sales were $480 million, an 8% increase from the prior year. Organic volumes increased 3%, driven by global net share gains of 4% across all regions, with Asia Pacific being the largest contributor. Acquisitions contributed an additional 4% to net sales, primarily related to Dipsol, which will become part of our organic base beginning in Q2. We also had a 4% benefit to net sales from favorable foreign currency translation, primarily due to the euro strengthening against the U.S. dollar. Partially offsetting these items was unfavorable selling price and product mix, which was 3% lower than the prior year associated with lower index pricing, regional and geographic mix. As expected, gross margins improved on both a year-over-year basis as well as sequentially to 36.8%, near the high end of our target range. This was driven by product margin improvement and more favorable manufacturing absorption.
On a non-GAAP basis, SG&A increased approximately $16 million or 14% in the first quarter compared to the prior year. This increase was primarily due to acquisitions and the impact of foreign currency. Excluding these items, organic SG&A was approximately 6% higher in the first quarter, mainly due to higher incentive compensation and accelerated depreciation related to our corporate headquarters and lab consolidation in the Philadelphia area. We delivered $73 million of adjusted EBITDA in the first quarter, while adjusted EBITDA margin of 15.1% declined year-over-year due to higher SG&A costs. Switching now to our segment results. Our Asia Pacific segment continues to be a growth engine with organic net sales increasing in 10 of our last 11 quarters and new business wins far exceeding the high end of our total company target range. Asia Pacific sales in the first quarter increased 25% year-over-year as the impact of our acquisition of Dipsol complemented organic volume growth of 10% and a favorable foreign currency impact of 3%.
These drivers were partially offset by unfavorable price and mix, which declined 2% in the quarter. Segment earnings in Asia Pacific increased approximately $8 million or 32% in the first quarter compared to the prior year. This was driven by higher top line growth as well as improved product margins and more favorable manufacturing absorption. First quarter net sales in EMEA increased 10% year-over-year, partially due to favorable foreign currency impacts. Higher net sales from organic volume growth and the impact of acquisitions were offset by lower selling price and product mix. Segment earnings in EMEA increased approximately $2 million or 9% in the first quarter compared to the prior year. First quarter net sales in the Americas were in line with the prior year as favorable impacts from our acquisitions and foreign currency were offset by lower organic sales volumes and selling price and product mix.
Lower volumes were attributable to a continued customer outage, regional tariff uncertainty and weather impacts early in the quarter, while lower selling prices were primarily the result of our index contracts as raw material costs declined in the quarter compared to the prior year. Segment earnings in the Americas decreased approximately $5 million or 8% in the first quarter compared to the prior year. This was driven by higher SG&A related to selling expense and incentive compensation as well as unfavorable product mix that negatively impacted margins. Turning to nonoperating costs. Our interest expense was $10 million in the first quarter, which was consistent with the prior year and the past few quarters. Our cost of debt remained approximately 5% in the quarter. Our effective tax rate, excluding noncore and nonrecurring items, was approximately 28% in the first quarter, which is slightly lower than the prior year and in line with our expectations for the full year effective tax rate in the range of 28% to 29%.
And in the first quarter, our GAAP diluted earnings per share were $1.13 and our non-GAAP diluted earnings per share were $1.63, a 3% increase over the prior year due to improved operating performance. Cash generated from operations was $4 million in the first quarter, increasing from a use of cash of $3 million in the prior year. The first quarter is typically our lowest from a cash generation perspective due to incentive compensation payments, working capital investments and the seasonality of our business. The improvement over the prior year was primarily the result of better operating performance and lower cash restructuring costs, which totaled $4 million in the first quarter. Capital expenditures in the first quarter were approximately $11 million, primarily related to the construction of our new facility in China. We anticipate capital expenditures to increase in the remaining quarters as we complete construction in China and finalize the build-out of our new corporate headquarters in Pennsylvania.
We still expect full year 2026 capital expenditures to be approximately 2.5% to 3.5% of sales. During the first quarter, we paid approximately $9 million in dividends. We remain focused on our capital allocation priorities and balancing investments for growth with returning cash to shareholders, and we'll continue to weigh opportunistic share repurchases in a prudent manner that optimizes shareholder value. In April, we announced that we entered into an amended credit agreement in which we extended our nearest debt maturity by almost 4 years from June 2027 to April 2031, while also increasing our revolving credit facility availability by approximately $300 million and improving our overall credit terms. The amended agreement also provides us with the right to increase the revolving credit facility by approximately $331 million for additional liquidity. The improvement in our credit terms and increased availability under this new agreement reflects the strength of our balance sheet and are clear indicators of the underlying health of our business and the durability of our cash flows.
The new agreement provides increased financial flexibility that will allow us to execute our strategy, achieve our capital allocation priorities and continue investing in growth. We delivered strong first quarter results, continuing to gain share and driving organic volume growth despite ongoing macroeconomic and geopolitical challenges. With a strengthened balance sheet and increased financial flexibility, we are well positioned to continue executing our strategy and creating value for shareholders. With that, I will turn it back over to Joe.
Thank you, Tom. We are executing a clear set of priorities to strengthen the business, simplifying how we operate, enhancing our capabilities and putting the right cost structure in place to support sustainable growth. With that, we would be happy to answer your questions.
分析師問答
Our first question comes from the line of Mike Harrison with Seaport Research Partners.
I wanted to start with just kind of the raw material picture. I think you did a good job kind of articulating the expectation of 200 or 300 basis points of margin pressure next quarter. But maybe just give us some details on what you guys are seeing in terms of raw material costs. I assume that the biggest pressure you're seeing is in crude-based materials, but maybe comment also on what you're seeing. I know we're just getting past an oleochemical spike, and I think some of those materials also continue to be kind of volatile. And also, if you can cover whether you're having any issues with raw material availability in any parts of the world.
Yes. Thanks, Mike. Good question. So talking about the general situation: if you think about our raw materials, there's really three buckets — base oils, additives and oleochemicals. And right now, as is typical in an inflationary environment like this, everything sort of keys off of what's happening with crude oil. All three of those buckets are higher. When hostilities broke out, as I mentioned earlier, we put a task force together that Saturday and started looking at what impacts this was going to have on supply and cost. From a supply standpoint, we've been very fortunate to not have any availability issues. The flexibility of our supply chain — our local-for-local approach — and our relationships as one of the leaders in the space have helped us get product around the world. Overall, the trend across those three buckets is higher. What we had thought the increase was going to be toward the end of Q1 has gone up further in recent weeks.
We put a price increase out at the end of Q1; some of that became effective in April, and more took effect in May. We've already started another round of price increases because the cycle is inflationary right now. Will that go further? I personally have my own views that it may not, but it all depends. If it does, I think, as we did in the past, we have good ability to go out and get pricing, but there is a lag. We have index agreements that adjust on a quarterly basis, which creates that lag. It's not something we can implement instantly.
All right. Very helpful. And then I wanted to ask about the new transformation program that you guys announced in the press release and in your prepared remarks. Kind of what was the genesis of this program? And maybe just give a little bit more detail on what kind of actions you're taking that are beyond what you got — the actions that you've announced with previous cost programs that are, I believe, still in mid-flight.
Yes. We've sunset, or there are a few lingering things with prior cost programs, but this is a new program. The genesis of the program is that I believe our EBITDA margins need to be above 18% and eventually pushing toward 20%. We're currently in the mid-teens. I've been in the role about 18 months, and visibility into how the company is operating highlighted areas that could be improved, such as spans and layers of management. One of my philosophies is to bring decision-making closer to the customer and to have a culture of hands-on working managers. So part of this is clarifying the organizational structure and addressing redundancy. There's also significant complexity lingering from the Quaker and Houghton combination in 2019. While we've integrated well and retained customers, our master data is messy, which creates inefficiency and a lot of manual work. We reviewed business processes and found inefficiencies in things like intercompany charge processing and how many times a customer service rep has to touch an order before it reaches the customer.
The key thrust is business process optimization and establishing a consistent Quaker Houghton way of doing things, tied closely to master data improvements. We have good line of sight on this and believe efficiencies will allow us to leverage AI and shared services to make the business more competitive. This is not a reaction to the Middle East situation; it's something we need to do to modernize the employee and customer experience and take advantage of modern tools.
That makes sense. And then I guess last question for now is just — as always, I'm trying to get a little bit of a sharper view on how you guys are thinking about EBITDA for the next quarter? You mentioned the gross margin pressure. Typically, you guys would see some seasonal improvement in EBITDA, but it sounds like maybe that could be completely offset by gross margin pressure. So is it fair to say we're probably looking at an EBITDA number in the second quarter that's pretty similar to what you guys just reported in Q1?
Mike, I think that's fair. I do think volume is surprisingly strong. I feel confident that second quarter volumes will sequentially improve and that we'll see year-over-year improvement. We have visibility into our order book and the wrap effect of new business wins. In some parts of our business we are adding labor and off-shifts to keep up with demand. So demand is good. We are putting price in, but not all price will be realized in Q2; there is another phase coming. From a volume perspective, we expect improvement and some normal seasonality, but the gross margin slide means mathematically we should be within range of where we landed in Q1.
Our next question comes from the line of Jonathan Tanwanteng with CJS Securities.
I was wondering if you could talk about the expanded credit agreement you did recently and your thoughts maybe on capital allocation from here. Did you update that? I know that it was becoming current, but the expanded size, did you do that to accommodate your expected operational organic growth? Or did you see more of an opportunity maybe to do share repurchases or M&A here? Maybe just give us a little more color on the opportunities that you see going forward and how you're addressing that.
Yes. John, this is Tom. I'll share some thoughts on that. First and foremost, the update to the credit agreement was primarily about extending maturities. Our existing facility matured in June 2027, so the amendment extended that out to April 2031, adding several years. It also increased capacity and gave us more flexibility from a capital allocation standpoint. We're focused on investing in growth, both organic and inorganic, including projects like our new plant in China. As I noted in my prepared remarks, we will continue to weigh capital deployment for growth against returning capital to shareholders through opportunistic share buybacks and dividends. The amended agreement improves terms and gives us additional availability, which supports our strategy and provides financial flexibility.
Got it. And maybe just to be a little more focused here, do you see opportunity just given the market volatility, whether it's in your own shares or in potentially acquiring tuck-ins or larger players?
Yes. I'd say yes to both. We haven't done anything meaningful on share repurchases in a couple of quarters, but we're not ruling it out. Our balance sheet is in good position. If the opportunity presents itself, we would consider share repurchases. The M&A pipeline remains active with bolt-on tuck-in opportunities that can expand our portfolio and be accretive. Those types of deals have been effective for us historically and will be part of our strategy going forward. We're pleased with the financing we achieved and the additional flexibility it provides.
Our next question comes from the line of Laurence Alexander with Jefferies.
It's Dan Rizzo on for Lawrence. A couple of things. As you aim for your 18% to 20% EBITDA margins, once, I guess, some of this volatility may subside and your restructuring is in place, how should we think about incremental margins kind of in the mid-cycle? I mean it's obviously increasing. I was wondering how we could quantify it.
Dan, thanks for the question. As we drive towards 18% plus EBITDA margin, our assumptions on gross margin remain consistent with a target range of 36% to 37%. The primary opportunity is from our transformational and restructuring program to reduce cost and complexity across G&A and manufacturing, and to optimize our network. Over the next couple of years, we expect leverage primarily from SG&A as a percent of sales — those G&A functions — and by driving cost and complexity out of the business. That pathway, combined with continued volume growth and net share gains, is how we get toward the 18% target.
I'm sorry, I didn't hear what the cash cost of the plan is.
No, we didn't mention anything specific about the cash cost of the plan. We will pace this over time. We're not planning a big new ERP implementation, so it's not a huge outlay. As a rule of thumb, what's typical is roughly 1 to 1.5x to achieve the types of synergies we're targeting. We're not planning any extraordinary investment to get there.
No, that does. That's helpful. And then my final question. You guys have done a good job of increasing market share. But you have a lot of new products from Houghton and Dipsol. I was wondering how much of your share growth is increased sales to existing customers versus going into different customers? How does that break out?
It's much easier to grow share of wallet with existing customers than to open a new relationship with a customer that doesn't know you. Proportionately, most of our gains are coming from share gains within existing customers — increasing the share of wallet. For example, a customer buying a lubricant from us might also be a candidate to buy grease, specialty hydraulic fluids, or metal finishing chemicals from us. A high majority of our gains are coming from growing with existing customers and selling them new parts of the portfolio.
Our next question comes from the line of Arun Viswanathan with RBC Capital Markets.
Yes, sorry about that. I hope you guys are well. Congrats on the quarter. I guess, I understand the couple of hundred basis points of gross margin compression you expect for Q2 because of the lag in pricing. I have two questions. First, do you expect to fully recover that in the second half, and does that imply that you have to actually price above inflation? Second, you were successful recouping inflation in the last cycle in 2022–2023 and seemed to get pricing above inflation. Is the demand picture now choppier or less robust that would make that more difficult or take longer to recoup margins?
Good questions, Arun. Our goal is to get back to our target gross margin range. That implies we need to stay ahead of inflation to some extent in this environment. About one-quarter of our pricing is index-linked, which helps remove some uncertainty. Our customers understand the situation; we are trying to recover costs responsibly and collaborate with them. The demand environment has been surprisingly strong through the first four months of the year; we haven't seen meaningful deterioration. We do think by the end of the year we'll be back in the 36% to 37% gross margin range, which is our goal.
Okay. Great. And then a follow-up on volumes: can you describe end markets — are steel utilization rates holding up, aluminum, automotive? Regionally, Asia Pacific has remained strong; are North America and Europe also improving? How should we think about that?
The main takeaway is we're punching above our weight. Asia Pacific results are very strong — double-digit volume growth — even against a backdrop where industrial production declined in China in Q1 and light vehicle builds were down across regions. We've seen some improvement in metal production, steel and aluminum, which can precede an automotive rebound. North America seemed to pick up at the end of Q1, which supported our Americas segment. Typical seasonality returns after Q1 and the Lunar New Year in Asia; outside China, markets like India, Vietnam and Thailand performed well. Overall, as we head into Q2, normal seasonality combined with continued share gains suggests continued strength.
Our next question comes from the line of David Silver with Freedom Capital Markets.
Good morning. Thank you. A couple of questions. First, tactically, why not a surcharge pegged to a visible index to limit the 200 to 300 basis point erosion on the way up and give customers assurance that pricing will return when costs abate? Second, longer-term, with onshoring of heavy industry in the U.S., does Quaker have a playbook to capture incremental investment and new capacity coming to the United States?
We do use surcharges for things like freight, and those can be implemented more quickly. For raw materials, we have to present data and justification to customers; we're embedded in many customers' operations, so we work with them to present options to offset costs, such as bundling services or products. It is a laborious process but necessary for long-term trust. Pricing adjustments can be volatile week-to-week, which complicates a simple surcharge approach. Over the long term, our goal remains to get back to our target gross margin, and that typically takes a quarter or two of lag to catch up. On the longer-term question, we have a playbook and industry relationships. We participate in technical groups, maintain relationships with mill builders and equipment suppliers, and are often involved in early design phases of new installations. When new capacity is coming online, we try to be involved on the front end and frequently are the incumbent supplier. We have pilot capabilities and can test on the front end to support successful startups. We're well-positioned to support investments coming to North America and other regions.
Our next question comes from the line of Jon Tanwanteng with CJS Securities.
I apologize if you already addressed this, but I was wondering if you could talk about the potential for demand destruction or disruption at your customers and what you planned for in your scenario analysis as you consider what would happen if the conflict was extended. Have you talked to your customers about it, and what contingencies might be in place and how might your earnings and revenue profile look if that happened?
We talk to our customers every day and are watching this closely. It's tough to predict. There's an equal chance the situation is prolonged or not. There's also an equal chance it could have very disruptive effects on demand or little effect. Based on the information we have today, through the early part of Q2, we are not seeing catastrophic demand disruption and are not baking that scenario into our outlook. If the conflict is prolonged and inflation increases materially, it could negatively affect business, but with current visibility, we're not seeing that, so it wasn't included in our guidance assumptions.
And we have — there are no further questions at this time. I would like to turn the floor back over to Joe Berquist for closing comments.
Thank you. Yes, we again really appreciate the interest in Quaker Houghton. I want to thank all of our employees for what they continue to do in these really volatile times and especially our employees that were impacted in the region close to the conflict and the amazing work that they've done to keep our customers supplied. We appreciate the questions. If there's any follow-up, don't hesitate to reach out to John Dalhoff, and we'll be happy to answer any additional questions you have. Thanks.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.