QUAKER CHEMICAL Q2 FY26 earnings call KWR

Quaker Houghton is actively pursuing strategic initiatives to enhance long-term growth and profitability. The company successfully started up its new manufacturing facility in Zhong tugong, China, in June, which strengthens its local-for-local operating model and expands manufacturing capabilities within the region. This facility is expected to reduce import needs and improve flexibility and service responsiveness. Additionally, a business transformation and cost optimization program, announced last quarter, is on track, with actions implemented in Q2 expected to deliver approximately $10 million in run-rate savings, already partially reflected in Q2 results. Management aims to achieve EBITDA margins sustainably above 18% over time^⏳ through these efforts.

Underlying market conditions were mixed in Q2 FY26, with end markets estimated to be flat to slightly above the prior year. Steel and aluminum end markets trended positively, while automotive light vehicle production remained challenged. Despite this, Quaker Houghton achieved broad-based volume growth of 7% year-over-year, primarily driven by significant net share gains across all regions. Asia Pacific demonstrated exceptional performance with double-digit volume growth, fueled by new business wins in metalworking, particularly with electric vehicle OEMs and component manufacturers in markets like China, India, and Thailand.

The company successfully navigated sharp increases in raw material costs and supply disruptions stemming from the conflict in the Strait of Hormuz. Raw material costs, especially base oils, stabilized at elevated levels, with continued volatility expected due to supply constraints. Gross margins declined sequentially by 130 basis points to 35.5% due to product margin pressure, but this was less pronounced than anticipated due to higher volumes and proactive pricing actions. Incremental pricing actions and index-based adjustments are expected to provide increasing benefits, aiming to return gross margins above 36% by year-end.

Quaker Houghton maintains a disciplined and balanced capital allocation strategy. In May, the company announced a new $250 million stock repurchase authorization, under which approximately $24 million of shares were repurchased in Q2. The Board also approved a 4.3% increase to the quarterly dividend, marking the 17th consecutive annual increase. Additionally, the company completed the refinancing of its credit facility, enhancing financial flexibility. Management continues to evaluate potential bolt-on acquisition opportunities that strengthen the business and support long-term growth, prioritizing investments for growth while remaining opportunistic with share repurchases.

Management highlighted ample production capacity within its manufacturing network to meet customer needs. The company is focused on reducing internal complexity and improving business processes to free up skilled commercial teams to spend more time with customers. This shift aims to nurture commercial talent and become more efficient in back-office operations, enabling the company to sustain high share gain rates without significant additional staffing. The Fluid Intelligence offering, which integrates equipment and service to optimize fluid application, is a key enabler of this enhanced service model, currently contributing to 10-20% of revenues.