Quaker Chemical Corporation Q3 FY2025 earnings call

• Third quarter adjusted EBITDA was up 5% and adjusted earnings per share up 10% year-over-year. - There was consecutive quarter of organic volume growth across all regions, amplified by strength in Asia Pacific and 5% global new business wins. - Earnings growth was from organic sales, acquisitions (especially Dipsol), and expanding operating margins. - The organization was balancing operational discipline and strategic execution, with acceleration of new business wins at appropriate profitability. - Cash generation was strong, with $51 million of operating cash flow in the quarter, debt reduced by $62 million, and net leverage ratio below the targeted range. - The Asia Pacific segment has been a bright spot, winning new business and seeing sequential margin improvement. - Cost actions were taken, including network optimization, closing one manufacturing facility in the Americas, and expecting further actions to improve asset utilization. - Capital allocation strategy was focused on returning cash to shareholders through dividends and share repurchases while maintaining balance sheet flexibility for strategic acquisitions.

In the third quarter, the Asia Pacific segment saw sales increase 18% year-over-year, with organic growth of approximately 3% in the third quarter of 2025, driven by new business wins and the contribution from the acquisition of Dipsol. The EMEA segment's net sales grew compared to the prior year and prior quarter for the second consecutive quarter, with organic sales growing 2% compared to the prior year across most product categories and double-digit growth in Advanced Solutions. The Americas segment's net sales increased 1% year-over-year, with organic volumes flat as new business wins offset softer end market activity. Overall, the company delivered sales growth and an increase in organic sales volumes in all segments in the third quarter.

• Macroeconomic trends had remained soft through 2025 and were expected to remain so at least through Q4. - Expected a return to normal seasonal trends in Q4 and continued momentum from share gains and cost actions to mitigate impacts. - Anticipated another quarter of revenue and adjusted EBITDA growth in Q4 year-over-year and solid cash flow. - Confident in the strategy to return to growth in 2026 and beyond despite the soft macro backdrop.

• Uncertainty around tariffs continued to weigh on customer operating plans. - Macroeconomic trends remaining soft could impact business performance.

Q: Congrats on a nice volume quarter in a challenging environment. Could you give details on the Asia Pacific business and margin performance, especially regarding margin pressures and future improvement?

A: Yes. Asia Pacific has been a bright spot. There's some lumpiness in margins due to a mix of products and factors like oleochemical raw materials, but expected some improvement as pricing catches up and growth in India and new business wins continue.

Q: Could you talk about the opportunity to pick up further market share in Advanced Solutions, especially with the transition of a major player in surface treatment?

A: Our entry into Advanced Solutions is a good opportunity as customers want to buy across the portfolio. Dipsol has been performing as expected, and we're excited to roll out the offering across regions.

Q: Could you give more precision on Q4 outlook, including organic growth and margin improvement year-on-year?

A: Have good momentum heading into Q4 with net business wins carrying over. Expect normal seasonality and cost control to contribute to Q4 being better than last year, with margin stability expected.

Q: Are there areas where you're hearing optimism from customers for 2026?

A: More of a general comment, with stability in markets like Asia expected and Europe possibly hitting bottom, while Americas is a question mark.

Q: How do you think about the trends in industrial markets like robotics and additive manufacturing, and your sales mix relevance?

A: We've been compiling technologies through acquisitions, and there's opportunity in areas like specialty greases for robotics. Our Ultraseal business and Dipsol add relevant capabilities.

Q: Could you discuss the sustainability of share gains and the role of pricing in gaining share?

A: Expect share gains to sustain within the 2% - 4% range, with a focus on responsible profitability and a customer intimate model. Pricing is strategic with a good, better, best offering.

Q: Could you clarify where you stand relative to prior guidance for earnings in 2024?

A: Confident Q4 is better than last year, with second half better than first half, and Dipsol acquisition and cost actions contributing to being within range.

Q: Does the APAC beat signal what could happen in other regions, and why are you outperforming there?

A: It's a combination of strong markets and executing sales pipelines.

Q: What about pricing dynamics, including raw materials and future expectations?

A: Price/mix impact moderated in Q3, expected to lessen in 2026 with a fit-for-purpose pricing strategy.

Q: How are you viewing exposure to ICE vehicles vs EVs and expanding offerings?

A: Growing with new winners in EV, added capabilities through acquisitions, and opportunities in both ICE and EV due to automotive production in general.