Quaker Chemical (KWR) Q2 Sales Rise 4%

Key Points

• The company recorded a GAAP net loss of $66.6 million due to an $88.8 million GAAP impairment in its EMEA segment, despite solid volume growth in Asia/Pacific and contributions from acquisitions of approximately 6%.

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Quaker Chemical (NYSE:KWR), a global specialty chemicals company known for industrial process fluids, released its Q2 2025 results on July 31, 2025. The most notable headline: revenue (GAAP) outperformed expectations at $483.4 million, exceeding analyst forecasts by 4.8% (GAAP). However, profitability lagged, with Non-GAAP earnings per share at $1.71—missing consensus by 6.6% and marking a 19.7 % decrease from a year earlier. The quarter also featured an $88.8 million non-cash goodwill impairment in the EMEA business, resulting in a GAAP net loss. Overall, the quarter brought strong top-line momentum, as GAAP net sales increased 4.0% year-over-year but underscored persistent margin pressure and challenges in Europe, setting the stage for a cautious outlook for the rest of fiscal 2025.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

About the Business and Key Focus Areas

Quaker Chemical operates in more than 25 countries, supplying industrial process fluids and chemicals to sectors such as steel, aluminum, automotive, and aerospace. Its portfolio includes specialty product families like metal removal fluids, which maintain and cool machinery during metalworking; rolling lubricants that support metal sheet production; and hydraulic fluids used for industrial machine operations.

Recent years saw it zero in on five core areas: global market share, product diversification, managing volatile raw material costs, growth through acquisitions, and advancing sustainability. Its leadership position is tied to broad sector reach and a steady pace of new business wins, while successful cost controls and procurement strategies help counter raw material swings. Acquisitions, like Dipsol in electroplating chemistry, have strengthened its technology base and regional footprint, supporting moves into new markets and generating fresh synergies. Sustainability remains a rising theme, with specific targets for renewable energy and waste reduction.

Quarter in Review: Sales Growth, Margin Pressure, and Key Developments

The quarter's GAAP revenue result beat analyst expectations by $22.3 million, driven by a 6% contribution from acquisitions and 2% organic product volume growth. The Dipsol acquisition played a major role, especially in Asia/Pacific, which posted 8% organic volume gains and 20% total sales growth. CEO Joe Berquist noted, "The momentum in our Asia/Pacific segment continued, generating 8% organic volume growth compared to the prior year." New customer wins—responsible for approximately 5% of overall volume gains—also helped offset persistent market sluggishness in other regions.

Despite these top-line gains, profitability lagged. Adjusted EBITDA, which measures underlying operating cash flow by excluding items like acquisition costs and restructuring, slipped approximately 10% from the prior year period. Operating and gross margins also dropped, with management citing higher raw material and manufacturing costs as the main causes. Americas sales were essentially flat (down 1%) and EMEA sales were slightly up (up 1%) year over year (GAAP), but both regions saw notable decreases in segment operating earnings, underscoring the challenge in managing rising input costs.

The company recorded a GAAP net loss of $66.6 million, primarily because of an $88.8 million goodwill impairment within the EMEA segment. Goodwill impairment is a non-cash charge taken when an acquisition's expected value falls below its carrying value. Without the impairment, the company would have reported a modest profit (non-GAAP). This event does not affect cash flow but raises questions about the outlook and integration of prior deals in Europe.

The Dipsol deal, acquired at a multiple of approximately 10.5 times trailing 12 months adjusted EBITDA. Roughly three quarters of Dipsol's expected $80 million annual revenue and $15 million adjusted EBITDA run-rate were included in Quaker Houghton's results for 2025. The strategic fit brings new surface treatment solutions for automotive and industrial customers, opens additional Asian markets, with some margin upside possible as cost and cross-selling plans take hold.

The company's broad portfolio remains a key advantage—reducing dependency on single products and allowing flexible responses when demand shifts across customer industries. Customer intimacy (customized service and collaborative product development) and increased use of e-commerce channels are being emphasized for further expansion. Investments in new manufacturing capacity, such as a facility under construction in China, aim to serve regional customers more efficiently and lighten logistics costs in competitive markets.

The quarter also highlighted ongoing spending on sustainability and efficiency improvement, including steps to increase renewable electricity usage and cut waste, as well as pursuing a $20 million multi-year cost reduction program. The release didn’t provide new targets but reaffirmed these longer-term commitments, which are seen as increasingly important for both operations and stakeholder relations.

The company raised its quarterly dividend by approximately 5% and repurchased about $32.7 million of shares. Net debt rose to $734.8 million as of June 30, 2025, following the acquisition, driving net leverage to 2.6 times trailing twelve months adjusted EBITDA as of June 30, 2025. The balance sheet remains flexible, with management focused on using multiple capital allocation levers—including acquisitions, share buybacks, and ongoing investment—to support future growth.

Looking Ahead: Outlook and What to Watch

Looking forward, management struck a cautious but stable tone. It projects that revenue and earnings for FY2025 will be "in the range of 2024," signaling expected stability but little underlying earnings growth. Cost-cutting efforts continue, with a $20 million run-rate savings target by end of 2026 as a main focus. No formal, quantitative annual guidance was shared, consistent with the company's acknowledgment of persistent uncertainty in global end-markets and unpredictable factors such as tariffs and raw materials.

Key themes to monitor include progress on announced cost efforts, further integration of recent acquisitions, EMEA business recovery after the goodwill impairment, and the company's ability to defend margin through selective price increases. Product mix improvement, continuing investments in sustainability, and effective supply chain management will all be critical as the company looks to maintain its global leadership in process fluids. The company raised its quarterly dividend by approximately 5%, even as near-term market conditions remain "tepid"—particularly outside of Asia/Pacific, which management expects will continue to outperform.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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