Michael Barry - Chairman, Chief Executive Officer and President Margo Loebl - Chief Financial Officer Robert Traub - General Counsel.

Dan Rizzo - Jefferies Mike Harrison - Global Hunter Securities Liam Burke - Wunderlich.

Greetings, and welcome to the Quaker Chemical Corporation Firsts Quarter 2015 Results Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr.

Michael Barry, Chairman, CEO, and President of Quaker Chemical Corporation. Thank you Mr. Barry, you may begin..

Good morning, everyone. Joining me today are Margo Loebl, our CFO, and Robert Traub, our General Counsel. After my comments, Margo will provide the details around the financials, and then we'll address any questions that you may have. We also have slides for our conference call.

You can find them in the Investor Relations section of the website at www.QuakerChem.com. I'll start it off now with some remarks about the first quarter.

We have seen some significant changes in our external environment over the past several months, including a much stronger dollar against many of the world's currencies, low oil prices, and the impact that both these had on regional steel production. Let me now talk about each of these further.

Foreign exchange rates have significantly changed over the past several months. This negatively impacted our earnings by 8% or $0.08 a share and our revenue by 7%. So you can see that our earnings and revenue while essentially flat on an actual currency basis would have shown good growth, if not for the exchange rate impact.

Lower oil prices also impacted our results in several ways. On the plus side, we saw some expansion on our gross margins as there can be some lag effect between the changes in our pricing and our raw material costs.

On the demand side, we did see some lower volumes in our tube and pipe segment, which was negatively impacted due to lower production of pipes for the oil and gas markets. This highlights the mixed impact that low oil prices have had on our results.

We also saw some shifts in regional production especially in our steel markets, which makes up close to half our business. The stronger dollar enticed more steel imports into the U.S., negatively impacting North American steel production. In fact, steel production was off versus last year by 6% in North America. Globally, the story was not much better.

In fact, all the major regions or countries show flat or declining steel production versus the first quarter of 2014. Overall, global steel production declined approximately 2% in the quarter versus last year.

Most of what I've read about steel production for the full year suggests that we should see relatively stable steel production this year followed by growth in the 3% per year range over the next several years. I'd now like to make some comments on our sales and I'll do this region-by-region.

North America showed good growth in its volumes of approximately 11% even despite a 9% contribution from the ECLI acquisition and the lower overall steel and tube and pipe production that I just described. So we're continuing to have good traction and market share gains in North America.

Our European or EMEA region showed a 12% decline in sales, which is primarily driven by the decline in the Euro. Our volumes were slightly down, but relatively stable as we continue to take market share to help offset the European industrial weakness.

South America continues to be our most challenging region sales dropped 27% with lower demand and currency being essentially equal causes for the decline. Overall though, I think it is important to point out that we continue to make money in South America and we reacted quickly to the economic situation by the recent streamlining efforts we've made.

Our strongest region continues to be Asia Pacific where sales grew 7% despite foreign-exchange headwinds of nearly 2%. Again, as you can see in our Asia Pacific numbers that further reflect our share gains as industrial production was relatively modest at best in most countries in the region. So the sluggish global economy, strong U.S.

dollar, and low oil prices did change our business dynamics the first quarter. However, despite these negative impacts, we were essentially able to offset them and have relatively stable revenue, non-GAAP earnings and EBITDA. In addition, we had strong operating cash flow in the quarter and generated $10 million more than first quarter of 2014.

We were able to achieve these results based on the benefits from our recent acquisitions, as well as taking share in the marketplace. And just to give you a sense of our organic growth, which is without acquisitions, our volumes increased 2.4% from the prior year for our three largest regions, which makes up over 94% of our sales.

This 2.4% volume growth also was in the face of the overall steel market being down by approximately 2% in the quarter. So I believe this is another indication that we are growing our market share in our major regions and end-use markets.

We believe the share gains are due to our commitment to our customer intimacy model which puts the customer needs as our top priority and provides them with strong service and business solutions. I believe this approach continues to differentiate us in the marketplace.

We have a great deal of initiatives in our base business lines and in each of the regions as well as through growing our recent acquired technologies around the globe. As I mentioned in the past using a baseball analogy, I see each of these initiatives as singles.

Our goal is to hit many singles to produce multiple runs and thereby show continuous growth even in tough market conditions. Over the next quarter, we expect to see the continued impacts of low oil prices and a stronger dollar on our revenue.

In the case of raw materials, we expect that we probably have reached bottom and we'll begin to see some modest firming in our raw material costs going forward.

As mentioned, during the last call, we expect more volatility in our gross margins this year as there can be timing differences between raw material cost changes and our related product price adjustments. Overall, our longer term goal remains to keep our gross margins in the targeted 35% range.

So while there's a great deal happening around us, the bottom line is I continue to be confident in our future. We believe that we can continue to grow our earnings and generate strong cash flow despite the realities of the stronger dollar.

We will do this by executing our business strategies, which we project will lead to continued share gains in the marketplace. Also, we are continuing to leverage our recent acquisitions by selling our newly acquired technologies on a global basis. And finally, we will continue to work on new acquisition opportunities.

The combination of all these growth vehicles gives us confidence that 2015 will be another good year for Quaker, as we expect higher earnings for the sixth consecutive year. In closing, I want to thank all of our associates whose dedication and expertise helps to create value for our customers and differentiate Quaker in the marketplace.

People are everything in our business and by far our most valuable asset and I'm happy with the Quaker team we have in place throughout the world. And now, I'll turn it over to Margo, our CFO, so that she can provide you with more details behind our financials, and after that, we'll address any questions that you may have..

Thank you, Mike. Good morning, everyone. Overall, we had a good quarter, which was greatly impacted by the effects of foreign exchange. Quarterly results were $0.78 per diluted share or $0.94 per share on a non-GAAP basis, which both reflect a negative $1.1 million or $0.08 per diluted share impact from foreign exchange.

Before launching a financial review of the quarter, please note that Quaker provides non-GAAP earnings per diluted share table in an effort to provide shareholders of visibility into Quaker operations, excluding certain items, which we believe do not reflect our core operations.

Such a table is outlined in chart 10 of the investor slides, yesterday's earnings release and our Form 10-Q, also filed yesterday. Next, I'd like to highlight certain of these non-GAAP items recorded in the first quarter of 2015.

First, we had a $0.21 per diluted share currency charge in the quarter related to the decline of the Venezuelan Bolivar Fuerte. I will talk about this in more detail later in my comments. Second, we recorded a cost streamlining initiative of $0.01 per diluted share in Brazil to right size our cost and the continuous difficult economy.

Third, we recorded a $0.06 per diluted share related to the equity income in our captive insurance company, Primex. Finally for reference, the prior year quarter had a $0.05 per diluted share charge related to our UK pension plan. As referenced in chart 4, Quaker's first quarter 2015 includes the following chief financial officer highlights.

With respect to CFO highlights number one and number two, both of which cover the implications of foreign exchange for Quaker in the first quarter of 2015, I will first note the two highlights. Number one, increased volumes including recent acquisitions offset 7% decline on net sales from foreign currency exchange.

And number two, changes in foreign exchange rates decreased earnings by $0.08 per diluted share. Turning to charts 5 and 6, changes in foreign currency exchange rates impacted Quaker's top and bottom line. Net sales for the first quarter of 2015 of $181.3 million were generally consistent with net sales for the first quarter of 2014 of $181.7 million.

Notably, higher product volumes drove an increase in the company's revenue of 7% compared to the same period last year, which was offset by a decrease of $12.1 million or 7% due to the negative impacts of foreign currency exchange rate translation.

From a bottom-line perspective, non-GAAP earnings per diluted share for the first quarter of 2015 of $0.94 compared to $0.95 for the first quarter of 2014.

Overall, changes in foreign-exchange rates significantly impacted the company's first quarter of 2015 reported and non-GAAP results, decreasing net income of approximately $1.1 million or $0.08 per diluted share. As background approximately 60% of Quaker's business is outside of the U.S. and similar to other U.S.

based reporting entities with global footprints, the impact of fluctuations in foreign currency exchange rates is highly relevant. Notably, the impact of the strengthened U.S. dollar turned out to be quite broad reaching across many currencies. While most currencies in which Quaker operates depreciate against the strengthened U.S.

dollar, we noted the most impactful currency rates to be the euro, the Brazilian real, the Argentinean peso, the Mexican peso, and the Australian dollar with the percent decline in the average foreign exchange currency rates from the first quarter of 2015 versus the same period last year being 18%, 17%, 13%, 11%, and 12%, respectively.

Looking forward, we currently believe the U.S. dollar will continue to remain strong year-over-year versus numerous currencies. With respect to CFO highlight number three, increased gross margin in the current quarter driven by changes in price and product mix.

Turning to chart 7, gross profit increased $1.2 million or 2% compared to the first quarter of 2014 and gross margin increased to 36.6% in the first quarter of 2015 compared to 35.8% for the first quarter of 2014.As a result, net price cost recoveries was positive in the quarter reflecting the lagging impact of our customer pricing and raw material costs.

With respect to CFO highlight number 4, currency charge of $2.8 million related to the company's Venezuelan affiliate. Turning to chart 10, we have an equity affiliate in Venezuela referred to as Kelko Venezuela.

Since 2010 Venezuela's economy has been considered hyperinflationary requiring the ongoing re-measurement of any monetary assets and liabilities to be recognized in its income statement. As a current update, the foreign exchange market and controls in Venezuela were recently changed and the country's economic challenges continue.

As a result of the changes in Venezuela's environment, we've reassessed the ability to access Bolivar Fuerte at a rate of exchange for U.S. dollars most likely applicable to or, said another way, most likely available to Kelko Venezuela. After this assessment, we noted that the currency exchange depreciated dramatically from the end of 2014.

Specifically, Kelko Venezuela could import under the CADIVI or at BsF6.1 [ph] per $1 at year end 2014 versus now we can only access the SIMADI market at approximately BsF193 per one dollar. This change in access to U.S.

dollars resulted in us re-measuring all related assets to the SIMADI rate resulting in a 2.8 million currency related charge in the quarter. Notably, this charge decreases the Quaker investment in Kelko Venezuela to a minimal amount. With respect to CFO highlight number 5, strong operating cash flow of $8.1 million.

Turning to chart 6, the company had net operating cash flows of approximately $8.1 million for the first quarter of 2015, a $9.9 million increase compared to cash outflows of $1.8 million in the first quarter of 2014.

The increase in net operating cash flows primarily relates to lower cash invested in the company's working capital during the first quarter of 2015. Further, as noted on chart 11, Quaker's adjusted EBITDA with $23.2 million in the first quarter of 2015 compared to $23.7 million in the first quarter 2014.

Adjusted EBITDA remains a key metric for Quaker and is summarized in charts 6, 8, and 11. Similar to earnings per share, we adjust EBITDA to reflect items which are not part of our core business activities. On a trailing 12 month basis, adjusted EBITDA approximated $99 million at March 31st, 2015.

With respect to CFO highlight number six, continued strength in balance sheet for future acquisitions. Turning to chart 9, overall the company's liquidity remains strong with net debt of $8.8 million as of March 31st, 2015, and a consolidated leverage ratio that continues to be less than one time EBITDA.

Quaker has made a total of 10 acquisitions over the last 4.5 years. We continue to believe that making acquisitions is the best way to create significant shareholder value and believe our strong balance sheet and ongoing cash flow generation will allow us to make significant future acquisitions, while continuing to pay consistent dividends.

Before I conclude, the company's effective tax rate for the first quarters of 2015 and 2014 were 30.8% and 34.8%, respectively.

The primary contributors to the decrease in the current quarter's effective tax rate were lower changes in reserves related to uncertain tax positions the first quarter of 2015 and certain onetime items that increased the first quarter of 2014's effective tax rate. We currently estimate the full year 2015 effective tax rate will approximate 30%.

Finally, I'm pleased on balance with the quarter despite the complex market conditions. We are navigating forward in a more complicated business environment with certain realities, including foreign exchange being a macroeconomic driver which is out of the company's control.

We will continue to appropriately steer the business managing items in our control to address such complexities and also we do continue to expect another good year at Quaker, increasing earnings in 2015 for the sixth consecutive year.

I would like to personally thank all of you for joining us on the call today and, importantly I'd like to thank the Quaker associates around the world for their commitment to our customers and contributions to the success of Quaker Chemical. This concludes my prepared remarks for today.

Again, thank you, and I will now turn the call back over to Mike..

Thank you, Margo. At this stage, we'd like to address any questions from any of the participants on this conference call..

Thank you, sir. [Operator Instructions] Our first question comes from the line of Laurence Alexander with Jefferies. Please go ahead with your question..

Hi this is Dan Rizzo in for Laurence. Margo, you were talking about your M&A pipeline and you used the word significant acquisitions.

Would that suggest – am I reading too much into this or would that suggest that the pipeline has – that the targets are larger than they have been in the past or is it more of the same or just a little more color?.

Good question, thank you, Dan. We remain business as usual. We are really – we're looking at a variety of acquisitions. Our pipeline is on track and no, I'm not signaling to you any change at this point in time. But we have a variety of types of deals that we look at..

Okay. And then you indicated that, I think you said that raw material costs are expected to increase modestly or moderately over the – going forward.

Do you think we've hit a low point here? Is there of big I guess, difference between say vegetable oil versus some of the more petroleum-based stuff or is – I mean, are they moving at different rates or is there just – again a little bit more color?.

Sure, we have kind of three major groups of raw materials. Mineral oils, we expect them to be kind of relatively stable, animal fats is another category. Those have actually been bottoming out. Recently, we think that they may go up somewhat, but then they may come down at the end of the year, has a lot to do with the kills that go into the cattle.

Vegetable oils are probably the most likely ones that could potentially be going up just because of supply conditions as weather related things with the crops and so forth. But it also depends whether you're talking about palm oil or coconut oil or soybean those kind of things.

So it's all very related, but I'd say overall they may see some increases..

All right. Thank you, guys..

Sure..

Thank you, Dan..

Thank you. Our next question comes from the line of Mike Harrison with Global Hunter Securities. Please go ahead with you question..

Hi, good morning. .

Morning, Mike..

Morning. Mike, on the U.S. steel side, the weakness in tubulars, as well as the strong dollar is drawing in a lot of imports. We're seeing definitely some negative impacts on those producers. How are you seeing your customers respond to this environment, and do you think we're in for a prolonged stretch of weakness in primary metals in the U.S.

just based on these macro trends?.

Good question. What we've seen in both steel and in the tube and pipe mill, we've seen the producers cutting back in production.

And in tube and pipe, it's probably even more severe, some shutdowns some prolonged shutdowns at times, and you see in the steel side maybe some people taking prolonged maintenance outages and using this time period to do things. So yes, we've seen definitely impacts and that this is how they've reacted.

I think the good news on the steel side is we saw a pretty dramatic drop in the capacity utilization in North America steel. A year ago it was in the mid 70%s and it went closer to the –into the 60%s capacity utilization.

Over the past several weeks, we have started to see the steel capacity utilization come up and kind of we've – the indications we have picked up I guess the marketplace seem to suggest that it will, while imports will continue to be an issue they may be less of an issue in the future..

And when your U.S.

primary metals business is struggling, does that mean that you're performing that much better in another part of the world? In other words is there a net neutral trade-off if you're seeing steel imports coming from Asia and the Asia business is performing that much better or do you come out a little behind or a little ahead with those dynamics?.

Yes, great question again. I would say generally we have similar market shares everywhere around the world. So in the case of like this U.S. situation, yes the U.S. is down. But that means yes, maybe things from Russia or China or more imports are coming in. Yes, we're definitely getting that business as well.

But then I think the other thing just that the China market is relatively weak, the Russian internal market is weak. So it's not that they are producing a lot more or anything like that, but definitely they're just importing or exporting more than they had in the past.

So, yes, I'd say in general we're neutral where steel is – as a general, very high-level statement, we're neutral where steel is produced. We just wanted to grow globally and that did not happen in the first quarter. Obviously, there can be some differences.

So for example, like when you are producing steel in China, you're producing on newer mills and those newer mills tend to be more efficient and use less of our products than maybe in the older type of U.S. mills. But I would say in general, we're relatively neutral but in this case it might be a little bit of a negative..

And the last question I had is, just looking at South America, are there attractive acquisition targets in that region, and is now maybe the time to pursue some consolidation opportunities that might help you build some additional scale there given the weakness on the macro side?.

We have continued to have discussions with some producers. I think sometimes when the values of companies maybe just a year or two ago were a lot higher and a lot of these are family-run companies they might have a hard time mentally selling at a much lower price today. I think that's the biggest obstacle we tend to face in situations like this.

But to your point, I think if it becomes more of a dire situation for them and they are losing money, it might be an opportunity for us. And just going off something Margo said earlier, such as we do have and are looking at acquisitions pretty much all over the world. It's just a matter when one of these will hit for us..

And the strength of the dollar can be an advantage in those situations too, when you are converting them to reais or some other currency?.

Yes, exactly. Today's is a good time to buy those, yes..

Yes, we keep an eye on that actually..

All right. Thanks very much..

Thank you, Mike..

Thank you. [Operator Instructions] Our next question comes from the line of Liam Burke with Wunderlich. Please go ahead with your question..

Thank you. Good morning, Mike. Good morning, Margo.

Morning, Liam..

Morning, Liam..

Mike, normally when we're looking at a period of price increases or commodity increase, especially oil, you are able to push prices through to recoup that additional cost, and there's about a 90 day lag between the actual increase in raw materials and then the realization of those price gains.

In a declining oil environment, is that lag a similar period of time or are there other variables involved that would change that trend?.

I would say it's similar in nature. We've – raw materials really started declining for us in the fourth quarter of last year and you can kind of see looking at our gross margin how they've expanded over the past six months, as oil and raw materials continue to go down. So yes, I would say that same kind of effect happens.

It's hard to exactly predict where things shake out on a quarter-by-quarter basis because, yes, we think raw materials are starting to bottom out. But now we are having – you'll see more effects of the price adjustments coming through this quarter. So it's all a matter of how things shake out.

I think in the short term, we still expect to see our gross margin to be above our long-term target of 35%, but it's hard to say exactly what that number will be..

Great. And you touched on product mix as favorably affecting your gross margin.

Is that a trend you expect to continue?.

Yes, I guess it depends on some of these new technologies. If we sell more and more greases that could impact and have a positive mix effect on things. So yes – but it really depends on, we have so many different products out there and different dynamics, more of a depends, I don't know if I would follow the long-term trend at this point..

Great. Thanks, Mike..

Thank you..

Thank you. Ladies and gentlemen, there are no further questions at this time. I would now like to turn the floor back over to management for closing remarks..

Very good. I want to thank everybody for joining us today and their interest in Quaker Chemical. And certainly we continue to be very confident in our future despite pretty interesting circumstances and realities we are dealing with.

Our next conference call for the second quarter will be in late July or early August, and if you have any questions the meantime please feel free to contact Margo Loebl or myself. Thanks again for your interest in Quaker Chemical..

Thank you, ladies and gentlemen, this does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day..