Quaker Chemical Reports Drop in Profit


Quaker Chemical Corp. reported its net income for 2004 fell 39 percent from the previous year, dragged down by higher raw material costs and increased selling and administrative expenses. Management predicted a rebound for 2005 – hinging partly on hopes that raw material costs will ease – and added that the company remains on an acquisition bent.

The Conshohocken, Pa., company said Feb. 17 that it raked in record sales revenue of $400.7 million last year, compared with $340.2 million in 2003. The increase derived primarily from three sources: more favorable currency exchange rates; gains from 2003 acquisitions; and new contracts for chemical management services. The company also had internal sales growth of 3.6 percent, with increases in Asia-Pacific and the Americas being partially offset by declines in Europe.

Despite the rise in revenue, net income dropped from $14.8 million to $9 million. The biggest factor was sharp increases in raw material prices, which contributed to a 23 percent jump in cost of goods sold. Selling, general and administrative expenses also climbed – mostly because of unspecified strategic initiatives, pay hikes and higher administrative costs, but also because of exchange rate fluctuations. Gross margins as a percent of sales dipped from 35.7 percent to 32.7 percent, partly due to growth of the chemical management services business. As the company noted, it serves as an agent on CMS contracts and records both revenue and costs for products supplied by other companies.

Chief Executive Officer and Board Chairman Ronald J. Naples called Quaker Chemicals 2004 performance disappointing, but said he expects improvement this year.

Our plans call for high single-digit revenue growth, and we expect margins to improve over 2004, assuming raw material costs stabilize, he said. We would certainly benefit from downward movement in the cost of key raw materials but are not seeing indications of such movement at this time.

Management said the company benefited in the fourth quarter from cost-cutting measures and markups of its own prices, and it has continued trimming costs this quarter. At the same time, it is redirecting resources to expand in the growing Asian market, to convert CMS customers to Quaker products and to develop complementary businesses.

The company made several acquisitions in recent years, and Naples said it is looking for more targets, as well as for joint venture opportunities. It enhanced its position for such efforts recently, announcing a $4.2 million property sale this month and raising lines of credit by $25 million in the fourth quarter.

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