QUAKER CHEMICAL CORP. $57 (New York symbol KWR; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 13.1 million; Market cap: $746.7 million; Price-to-sales ratio: 1.1; Dividend yield: 1.7%; TSINetwork Rating: Average; www.quakerchem.com) makes lubricants and chemicals that keep mechanical parts from rusting.
Quaker has bought five other companies in the past two years. Expanding by acquisition adds risk, but these were all smaller firms that added to Quaker’s technical expertise. They also expanded its overseas operations, which now supply 65% of its revenue.
For example, in July 2012, Quaker paid $2.7 million for Italy-based NP Coil Dexter Industries, which makes chemicals that carmakers and other industrial clients use to prepare metal surfaces before applying paint or other coatings. This helps paint form a stronger bond, which prevents rust. NP Coil Dexter will add $11 million to Quaker’s annual revenue.
In the three months ended September 30, 2012, Quaker’s revenue fell 0.8%, to $180.9 million from $182.3 million a year earlier. Unfavourable foreign exchange rates more than offset the contribution from acquisitions.
Earnings fell 21.5%, to $10.5 million from $13.6 million. Quaker sold shares to fund its recent purchases. Because of more shares outstanding, earnings per share fell 22.3%, to $0.80 from $1.03. Without integration costs and other unusual items, Quaker would have earned $0.85 a share in the latest quarter, up 4.9% from $0.81.
The company’s long-term debt of $38.0 million is a low 5% of its market cap. As well, it holds cash of $30.2 million, or $2.31 a share.
Quaker’s strong balance sheet will let it keep paying quarterly dividends of $0.245 a share, for a 1.7% yield. The stock also trades at 16.7 times the $3.42 a share that Quaker probably earned in 2012.
Quaker Chemical is a hold.
