Quaker Houghton (KWR) (Q2 2026) Earnings Call Highlights: Record EBITDA and Strategic Growth ...

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Net Sales: $533 million, a 10% increase year-over-year. Sales Volumes: Increased 7%, driven by global net share gains. Gross Margin: Declined to 35.5% due to higher raw material costs. Adjusted EBITDA: $85 million, a record quarterly result, with margins of 16%. Adjusted EBITDA Margin: Increased 40 basis points year-over-year and 90 basis points sequentially. GAAP Diluted EPS: $1.55. Non-GAAP Diluted EPS: $2.19, a 28% increase year-over-year. Cash from Operations: $29 million in the second quarter. Capital Expenditures: $10 million in the second quarter. Asia Pacific Segment Sales: Increased 12% year-over-year, with 10% organic volume growth. EMEA Segment Sales: Increased 13% year-over-year, with 7% volume growth. Americas Segment Sales: Increased 7% year-over-year, with 4% higher sales volumes. Segment Earnings (Asia Pacific): Increased approximately $8 million or 27% year-over-year. Segment Earnings (EMEA): Increased $8 million or 31% year-over-year. Segment Earnings (Americas): Decreased $2 million or 3% year-over-year. Interest Expense: $10 million, consistent with the previous quarter. Effective Tax Rate: Approximately 28% on a non-GAAP basis. Share Repurchases: Approximately $24 million worth of shares repurchased in the second quarter. Dividends Paid: Approximately $9 million in the second quarter.

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Release Date: July 31, 2026

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Record quarterly adjusted EBITDA, the highest in the company's 160+ year history, driven by a 7% increase in sales volumes. Broad-based volume growth and net share gains across all regions, with Asia Pacific delivering a second consecutive quarter of double-digit volume growth. Successful navigation of raw material cost inflation and supply disruptions from the Strait of Hormuz conflict, maintaining supply continuity and implementing price increases. Strong capital allocation with a new $250 million stock repurchase authorization, a 4% dividend increase (17th consecutive annual increase), and successful refinancing of the credit facility. Progress on strategic initiatives, including the startup of a new manufacturing facility in China and a cost optimization program expected to deliver $10 million in run-rate savings.

Negative Points

Gross margins declined sequentially and year-over-year to 35.5% due to product margin pressure from higher raw material costs. Raw material costs remain elevated and volatile, particularly for base oils, with expectations of stable high input costs in the short term. Automotive light vehicle production remains challenged across most regions, negatively impacting demand in that end market. Americas segment earnings decreased 3% year-over-year due to higher manufacturing and operational costs, including inventory disposal costs and 24/7 plant operations. Cash generated from operations decreased to $29 million from $42 million in the prior year, driven by higher working capital outflows from increased sales volume and inventory.

Story Continues

Q & A Highlights

Q: Can you provide more color on the raw material front, specifically which baskets are moving higher, and help quantify the inflationary impact and timing for Q3 and Q4?A: Joe Berquist (CEO): Raw materials related to base oils or crude derivatives, which make up about two-thirds of our basket, remain volatile and at elevated levels. Oleochemicals are softening slightly. Raw material costs peaked in June and early July. We expect gross margins to be relatively flat in Q3 compared to Q2, with improvement expected toward the end of the quarter and into Q4 as pricing actions and index adjustments take effect.

Q: Regarding the strong volume growth in EMEA and Asia Pacific, how sustainable is this strength, and what is the breakdown between share gains and market growth?A: Joe Berquist (CEO): In EMEA, underlying markets were flat to slightly up, with most growth coming from self-help share gains that were slightly above the high end of our 2%-4% target range. We believe half to two-thirds of EMEA growth was from share gains, with the rest from pre-buying. Demand has remained steady in early Q3. In Asia Pacific, the double-digit growth is coming from share gains, particularly with electric vehicle manufacturers. While we expect Asia Pacific growth to normalize to mid-single digits, it should remain a growth engine for several quarters.

Q: Can you explain the decline in Americas operating margin, which was down 250 basis points year-over-year, and how we should think about it trending in the second half?A: Joe Berquist (CEO): The decline was due to higher manufacturing and operational costs, including inventory disposal costs related to quality issues at one plant, higher inventory to work off backlog, and the transition of our Middletown plant to 24/7 operations. Some of these costs were one-time in nature, so we expect operating margins in the Americas to improve and return to traditional levels.

Q: Given the less severe drop in gross margins than anticipated, do you see upside to the 36%-37% gross margin range you've talked about exiting the year at?A: Joe Berquist (CEO): We are not modeling upside, but we firmly believe we will be above 36% gross margin by the end of the year. The better-than-expected performance was driven by strong volumes and capacity utilization, not just pricing. While we don't anticipate exceeding the 36%-37% target range, it wouldn't surprise us if we did in a deflationary environment.

Q: How should we think about the cadence of share buybacks this year, and how are you weighing repurchases against potential bolt-on M&A?A: Tom Kohler (CFO): We have good flexibility with the new $250 million repurchase authorization and refinanced credit facility. Our first priority is deploying capital to grow the business, whether organically or inorganically. We will be opportunistic with share repurchases, balancing them with dividend payments and M&A opportunities, using all the tools in our toolkit with a balanced approach.

Q: Are the strong share gains in Asia coming from a few large wins or many smaller ones, and how should that look moving forward?A: Joe Berquist (CEO): The growth is broad-based across China, India, and Southeast Asia, and across all product lines. It's mostly "singles and doubles," with occasional larger wins like a new cold rolling line in China where we placed our Fluid Intelligence equipment. This equipment serves as a toehold, allowing us to penetrate further and accelerate growth with each new plant.

Q: Given you've been at or above the high end of your 2%-4% share gain target for over a year, should we recalibrate expectations for your ability to continue gaining share?A: Joe Berquist (CEO): We've had a good run due to cross-selling from acquisitions, a strong local-for-local model in fast-growing regions, and leveraging Fluid Intelligence to win hard-to-crack customers. We've also reduced churn to historical low single-digit levels. While we remain confident in sustaining the 2%-4% range, the recent outperformance was partly due to recovering from a period of higher churn.

Q: How big is the Fluid Intelligence business today, and are its margins higher than the company average?A: Joe Berquist (CEO): It's hard to size precisely, but 10%-20% of our revenues have some Fluid Intelligence component. We want to penetrate it across the entire business and use it as a growth engine. Margins are not necessarily higher than average; it's a digitized service model that enables product sales and enhances our service offering, but the margin profile is consistent with the rest of the business.

Q: Can you handle continued high single-digit new business win pace with your current skilled labor force, or will you need to invest in new talent?A: Joe Berquist (CEO): We've been focused on reducing internal complexity and freeing up our subject matter experts to spend more time with customers. We have capacity in our team and ample production capacity. Our goal is to shift resources from back-office functions to commercial areas, investing in commercial talent while becoming more efficient internally. This supports our long-term goal of achieving EBITDA margins above 18%.

Q: How much of the price increases implemented have yet to flow through in Q3, and how much of the year-over-year growth is from first-half outperformance?A: Joe Berquist (CEO): The majority of pricing has already flowed through, with only a few time-based index adjustments remaining. We don't expect much more net selling price expansion unless the external environment dictates otherwise. We expect Q3 to look very similar to Q2, with the second half traditionally better than the first. We're tracking toward mid to high single-digit EBITDA growth for the full year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

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