This U.S. specialty chemicals firm recently completed its 13th acquisition since 2010.
Buying smaller firms whose technologies and clientele complement its business helps reduce costs and expand earnings for the company. This also cuts the risk of operating in a cyclical industry, and sustains a dividend that has now been raised for 42 consecutive years.
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QUAKER CHEMICAL CORP. (New York symbol KWR; www.quakerchem.com) started up in 1918 and currently operates 35 plants in 21 countries. Those facilities make lubricants and chemicals that keep mechanical parts from rusting. Quaker’s products help its clients cut their costs and improve efficiency. In addition to its headquarters in Pennsylvania, the company has regional offices in the Netherlands, Brazil and China.
The company has completed 12 acquisitions since 2010. Each was a smaller firm with attractive technologies and clientele. That helped cut the risk of the acquisitions.
The company recently agreed to acquire Houghton International Inc. Based in Philadelphia, privately owned Houghton makes specialty chemicals, oils, and lubricants for customers in the automotive, aerospace, mining, and beverage industries. The deal will also help Quaker expand sales in India, South Korea, Japan and Mexico.
Under the terms of the takeover, Houghton’s owners will receive $172.5 million in cash and a 24.5% stake in the combined company. The purchase will double its annual sales and gross profits, excluding any cost savings from combining the two businesses. Quaker now aims to complete its takeover of Houghton International Inc. by the end of 2018.
Dividend stocks: Earnings jump 61% in the most recent quarter
Quaker expects the merger with Houghton will let it cut $45 million from its annual costs by the end of the third year. As of June 30, 2018, it held $90.2 million in cash, and its long-term debt was $58.3 million, or a low 2% of its market cap.
In the quarter ended June 30, 2018, the company earned $19.2 million, or $1.44 a share. That’s a gain of 61.6% over its year-earlier earnings of $11.9 million, or $0.89. If you disregard unusual items, earnings per share in the latest quarter rose 25.8%, to $1.56 from $1.24. Sales also gained 10.3%, to $222.0 million from $201.2 million. Those gains are due to stronger demand and selling prices, as well as a lower tax rate.
The stock trades at 26.1 times the $5.78 a share Quaker will likely earn in 2018. That’s a high multiple, but still acceptable, in light of the company’s high market share in this niche industry segment.
The company last raised its dividend with the July 2018 payment. The annualized dividend of $1.48 yields 0.8%. The company has paid dividends for the past 46 years, and has increased the rate each year for the past 42 years.
Recommendation in Wall Street Stock Forecaster: Quaker Chemical is a buy.
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