Quaker Houghton (NYSE:KWR) reported second-quarter results marked by higher sales volumes, record adjusted EBITDA and broad-based share gains, as the company navigated elevated raw-material costs and supply-chain uncertainty tied to the conflict in the Strait of Hormuz.
President and Chief Executive Officer Joe Berquist said the company recorded its fourth consecutive quarter of year-over-year profitability growth. Sales volumes rose 7% from a year earlier, helping produce the highest quarterly adjusted EBITDA in the company’s more than 160-year history. Management estimated that aggregate end markets were flat to slightly higher than the prior year, indicating that share gains were a significant driver of volume growth.
Record EBITDA Despite Gross-Margin Pressure
Quaker Houghton generated adjusted EBITDA of $85 million in the second quarter, with an adjusted EBITDA margin of 16%. The margin improved 40 basis points from a year earlier and 90 basis points sequentially, as stronger sales volumes and stable selling, general and administrative expenses as a percentage of sales offset pressure on product margins.
Gross margin declined to 35.5%, down 130 basis points sequentially, due primarily to higher raw-material costs. Berquist said base oil and crude-related materials, which represent about two-thirds of the company’s raw-material basket, remained volatile and elevated. The company also experienced meaningful container-cost increases during the quarter, which management said appeared to peak in June and early July.
The company implemented two rounds of price increases during the quarter, and certain index-based pricing adjustments are expected to take effect during the third quarter. Berquist said management expects third-quarter gross margin to remain roughly in line with the second quarter before improving toward the end of the year. The company continues to target gross margins above 36% by year-end.
GAAP diluted earnings per share were $1.55, while non-GAAP diluted earnings per share were $2.19, up 28% from the prior-year period. The increase reflected improved operating performance and lower interest expense resulting from reduced borrowings. Interest expense was $10 million, while the cost of debt declined to approximately 4.4% following refinancing actions.
Asia-Pacific Leads Regional Growth
Asia-Pacific remained Quaker Houghton’s strongest growth region, with sales rising 12% year over year. Organic volume increased 10% for the second consecutive quarter, driven by new business wins in metalworking, including electrical, vehicle OEM and component-manufacturer markets. Segment earnings increased about $8 million, or 27%, from the prior year.
Berquist said growth in Asia-Pacific was broad-based across China, India and Southeast Asia rather than concentrated among a small number of customers. He cited continued growth opportunities in electric vehicles, die casting and electrical steel in China, while India is benefiting from rising industrial production and new manufacturing capacity.
EMEA sales increased 13%, supported by 7% volume growth, pricing actions and favorable currency effects. Segment earnings rose $8 million, or 31%, aided by better sales performance and lower manufacturing costs associated with the closure of a facility in Dortmund, Germany. Berquist said some customer purchasing in Europe was pulled forward early in the quarter amid concerns over the Middle East conflict, though he characterized the impact as limited.
Americas sales rose 7%, including 4% volume growth, supported by new business wins, resumed production at previously idled customer facilities and new metals capacity. However, segment earnings declined $2 million, or 3%, as higher manufacturing and operational costs offset improved sales. Berquist said the region incurred inventory-disposal costs related to quality issues at one plant and faced higher costs while addressing grease-order backlogs, including operating its Middletown plant around the clock. He described some of these pressures as one-time in nature and said Americas margins should improve.
Cost Actions, China Facility and Capital Returns
The company said actions under its business transformation and cost-optimization program implemented in the second quarter are expected to generate approximately $10 million in run-rate savings. Benefits from those actions were already reflected in second-quarter results. Management reiterated its longer-term goal of achieving EBITDA margins sustainably above 18% through a combination of growth, cost reduction and operational simplification.
In June, Quaker Houghton started operations at a new manufacturing facility in Zhangjiagang, China. Berquist said the site will allow the company to manufacture its full portfolio within China, reducing imports of certain products and improving flexibility and responsiveness for customers in Asia-Pacific.
Operating cash flow totaled $29 million, compared with $42 million a year earlier, as increased sales volume and inventory associated with the Dortmund closure and China facility opening raised working-capital needs. Capital expenditures were $10 million, primarily for the China project. The company expects full-year capital expenditures to equal approximately 2.5% to 3% of sales.
During the quarter, Quaker Houghton repurchased approximately $24 million of shares and paid about $9 million in dividends. The company announced a new $250 million share-repurchase authorization and increased its quarterly dividend by 4.3%, its 17th consecutive annual dividend increase. Coler said share repurchases would be used opportunistically, while the company’s primary capital-allocation focus remains investments in organic growth and acquisitions.
Outlook Calls for Continued Growth
Management maintained its outlook for end markets to be flat to modestly positive in the second half of 2026. Berquist said demand had remained healthy in the early part of the third quarter, although seasonal shutdowns and higher temperatures in Europe could weigh on regional activity during August. Improving demand in the Americas is expected to help offset that potential weakness.
The company expects third-quarter performance to be in the range of the second quarter, barring market disruptions, and projected meaningful revenue growth and mid- to high-single-digit adjusted EBITDA growth for the full year. Berquist said the company has not experienced significant supply disruptions from the Middle East conflict to date, citing the flexibility of its global manufacturing network and proactive customer communication.
About Quaker Houghton (NYSE:KWR)
Quaker Houghton is a global provider of process fluids, chemical specialties and sustainable solutions for industrial applications. The company develops and supplies metalworking fluids, coatings, and corrosion inhibitors, as well as heat transfer, lubrication and additive products designed to improve productivity and extend equipment life. Its portfolio addresses a range of end markets including automotive, aerospace, defense, energy, mining, agriculture and heavy industry.
The company traces its roots back to the founding of Quaker Chemical Corporation in 1918 and Houghton International in 1865.
