This U.S. industrial firm will soon complete its 13th acquisition since 2010.
The company’s strategy of buying smaller firms whose technologies and clientele complement its existing business reduces the risk of acquisition. And the additional cash flow helps sustain a dividend that has risen in each of the past 41 years.
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QUAKER CHEMICAL CORP. (New York symbol KWR; www.quakerchem.com) started up in 1918 and currently operates 36 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.
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.
In 2017, Quaker 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 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 expects the merger will let it cut $45 million from its annual costs by the end of the third year. The company should complete the transaction in the first half of 2018.
As part of the Houghton deal, Quaker will assume the firm’s debt of $690 million. That will increase its long-term debt from $72.4 million (as of September 30, 2017) to $762.4 million. That’s a high, but still manageable, 38% of its market cap.
Quaker expects to free up cash for debt repayments by eliminating overlapping operations.
Due to charges stemming from the new U.S. tax laws and costs related to the Houghton purchase, Quaker lost $9.8 million, or $0.73 a share, in the quarter ended December 31, 2017. It earned $17.4 million, or $1.31 a share, a year earlier.
If you disregard all unusual items, earnings per share in the latest quarter rose 0.8%, to $1.27 from $1.26. That beat the consensus estimate of $1.26.
Sales in the quarter rose 10.4%, to $211.1 million from $191.2 million. That also beat the consensus forecast of $208.1 million. If you exclude the contribution of acquisitions and foreign exchange rates, sales improved 5%.
The stock trades at 28.1 times the $5.46 a share it will likely earn in 2018. That’s a high multiple, but still acceptable, in light of Quaker’s high share of its niche market.
The company last raised its dividend with the July 2017 payment. The annualized dividend of $1.42 yields 0.9%. The company has paid dividends for the past 45 years, and has increased the rate each year for the past 41 years.
Recommendation in Wall Street Stock Forecaster: Quaker Chemical is a buy.
Thanks for your comment. The company chooses to reinvest most of its cash flow rather than pay a high dividend. That boosts its growth prospects and its capital gains outlook.
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0.9 percent dividend is hardly attractive especially in a US stock
Thanks for your comment. The company chooses to reinvest most of its cash flow rather than pay a high dividend. That boosts its growth prospects and its capital gains outlook.