Quaker Chemical Corp's Q3 2025: Contradictions Emerge on Asia-Pacific Performance, Share Gains, Pricing Outlook, and Automotive Exposure

Date of Call: October 31, 2025

Financials Results

• Revenue: $494M, up 7% year-over-year
• EPS: $2.08 non-GAAP diluted EPS, up 10% year-over-year; GAAP diluted EPS $1.75
• Gross Margin: 36.8%, compared to 37.3% in the prior year

Guidance:

• Q4 2025: expect revenue and adjusted EBITDA growth year-over-year and solid cash flow.
• Macroeconomic trends remain soft through Q4; normal seasonality expected in Q4.
• Ongoing cost actions and share gains to mitigate headwinds; adjusted EBITDA margins expected to trend into the high teens over time.
• CapEx expected ~2.5%–3% of sales in 2025; new China facility online H2 2026.
• Net leverage reduced to ~2.4x; prioritizing debt repayment and shareholder returns while retaining M&A flexibility.

Business Commentary:

• Strong Performance and Share Gains:
• Quaker Houghton reported adjusted EBITDA up 5% and adjusted earnings per share up 10% year-over-year in Q3 2025.

• Growth was driven by consecutive quarters of organic volume growth across all regions and strong new business wins globally, outpacing underlying end markets.

• Asia-Pacific Expansion and Market Outperformance:

• The Asia-Pacific segment delivered an 8% increase in organic sales volumes in Q3, contributing to a 16% increase in segment earnings year-over-year.

• This outperformance is attributed to new business wins, the integration of acquisitions like Dipsol, and strong execution in markets like India.

• Capital Discipline and Financial Health:

• Quaker Houghton generated $51 million in operating cash flow in Q3 and reduced net leverage to 2.4 times.

• The company returned cash to shareholders through share repurchases and dividends, indicating strong financial health and disciplined capital allocation.

• Advanced Solutions and Technology Expansion:

• The company's product segment achieved high single-digit to low double-digit organic volume growth in the third quarter, driven by advanced solutions and new offerings.

• The integration of acquisitions like Dipsol and Norman Hay has expanded Quaker Houghton's portfolio, enhancing competitiveness in high-growth areas such as surface treatment and metal solutions.

• Cost Management and Margin Improvement:

• Adjusted EBITDA margins improved to 16.8% in Q3, supported by $50 million of cost actions announced this year.
• Effective cost management and operational efficiency are positioning the company to deliver adjusted EBITDA margins in the high teens over time.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted a "strong performance" with adjusted EBITDA up 5% and adjusted EPS up 10% YoY; "organic volume growth across all regions" and 5% global new business wins; stated they "expect to deliver another quarter of revenue and adjusted EBITDA growth" and generated $51M operating cash flow.

Q&A:

• Question from Mike Harrison (Seaport Research Partners): Can you give details on Asia‑Pacific margin performance, the drivers of the sequential improvement, and whether further margin improvement is likely?
  Response: APAC is a bright spot; sequential margin improvement was driven by modest raw‑material deflation and the absence of one‑time Q2 Dipsol acquisition items, and management expects continued profitable share gains with some additional pricing realization toward year‑end.

• Question from Mike Harrison (Seaport Research Partners): How do you see the opportunity to pick up further market share in advanced solutions, particularly surface/metal treatment from the Dipsol acquisition?
  Response: Dipsol is performing in line (or slightly better) and, together with prior acquisitions, provides scalable cross‑selling opportunities—management expects to globalize the technology and expand advanced‑solutions revenue over time.

• Question from Mike Harrison (Seaport Research Partners): For Q4 you said revenue and earnings should be up YoY—can you be more precise on organic growth and margin improvement expectations?
  Response: Confidence in Q4 YoY revenue and EBITDA growth driven by net wins, Dipsol inclusion and cost actions; expect margin stability with sequential improvement but not a dramatic near‑term expansion, and normal seasonality to apply.

• Question from Lawrence Alexander (Jefferies): Is the optimism for 2026 based on customer signals (capex/orders) or more a general macro view?
  Response: The optimism is general—management expects market stability rather than a clear end‑market inflection; confidence is driven by share gains, acquisition annualization and internal cost actions.

• Question from Lawrence Alexander (Jefferies): If end markets accelerate, would your rate of share gains amplify or slow as focus shifts to supporting growing customer demand?
  Response: Long‑term new‑business run‑rate target remains 2–4%; management has recently exceeded that and could sustain the higher end but will prioritize winning business at responsible profitability levels.

• Question from Lawrence Alexander (Jefferies): How significant are robotics and additive manufacturing opportunities today, and do you have the right sales/technology mix?
  Response: Company already has relevant technologies (Ultra Seal, specialty greases, Dipsol plating/anodizing) and is well positioned for robotics/additive growth, though the exact dollar impact has not been quantified yet.

• Question from Jon Tanwanteng (CJS Securities): Are you expecting share gains/new business to remain above the historical 2–4% range, and have you taken lower margins to gain share?
  Response: Management expects the 2–4% long‑term range to hold but has recently outperformed it; they have not pursued broad price cuts to gain share and use a good/better/best portfolio with targeted pricing instead.

• Question from Jon Tanwanteng (CJS Securities): You declined to update prior guidance language—do you still view prior ranges as valid?
  Response: Yes—management is confident Q4 will be better than last year and believes results will fall within prior guidance range, supported by Dipsol inclusion and ongoing cost actions, though exact quantification wasn’t provided.

• Question from Arun Viswanathan (RBC Capital Markets): Why is APAC outperforming—purely share gains, stronger markets, or both—and can other regions replicate this trajectory?
  Response: APAC outperformance reflects both stronger regional end‑markets (China/India/SE Asia) and successful sales execution/share gains; it’s a combination rather than solely one factor and may not replicate identically in all regions.

• Question from Arun Viswanathan (RBC Capital Markets): On price vs. volume and ROS—is the pricing giveback finished, and how should we model price/mix going forward?
  Response: Price/mix was a ~2% headwind in Q3 (about half price, half mix) and is expected to moderate into 2026; pricing actions have been strategic (good/better/best) rather than broad cuts.

• Question from Arun Viswanathan (RBC Capital Markets): How do you view exposure to ICE vs EVs and are you expanding EV offerings?
  Response: EVs use slightly less traditional metalworking fluids but company has added EV‑relevant products and sees comparable opportunities across ICE, hybrid and EV production; both segments are viewed as compelling.

Contradiction Point 1

Asia-Pacific Performance and Margin Improvements

It highlights differing perspectives on the Asia-Pacific region's performance and margin improvements, which are crucial for assessing regional growth potential and strategic focus.

Could you share more details on the Asia-Pacific business and its margin performance? Are margin pressures still present despite sequential improvements? - Mike Harrison (Seaport Research Partners)

2025Q3: Asia-Pacific has been a bright spot with ongoing strength, especially in India. - Joseph Berquist(CEO)

How will raw material headwinds, such as oleochemicals, affect Asia/Pacific margins? - Michael Joseph Harrison (Seaport Research Partners)

2025Q2: In Asia/Pacific, there's new business growth with some initial incentives. Mix of products and raw material impacts, particularly in India, affect margins. - Joseph A. Berquist(CEO)

Contradiction Point 2

Share Gains and Market Positioning

It involves differing explanations for the source and sustainability of share gains, which are critical for understanding the company's competitive strategy and market positioning.

How do you see the opportunity to gain market share in advanced solutions, particularly in surface and metal treatments? - Mike Harrison (Seaport Research Partners)

2025Q3: Share gains are driven by customer intimacy, strategic pricing, and intentional business wins. - Joseph Berquist(CEO)

Where are the share gains coming from, from a regional and product line perspective? Can the mid-single-digit above-market growth rate be sustained in the second half? - Michael Joseph Harrison (Seaport Research Partners)

2025Q2: Share gains were broad-based across all regions, with strength in Asia/Pacific, particularly in automotive. - Joseph A. Berquist(CEO)

Contradiction Point 3

Outlook for Pricing and Market Dynamics

It highlights differing expectations for pricing and market dynamics, which are crucial for assessing the company's pricing strategy and market responsiveness.

What is the outlook for pricing and margin pressures given potential market deflation? - Arun Viswanathan (RBC Capital Markets)

2025Q3: Pricing and mix dynamics are under control, with targeted actions to maintain profitability. - Tom Coler(CFO)

What are the cash costs and operational impacts of the new $20 million cost savings initiative? - Jonathan E. Tanwanteng (CJS Securities)

2025Q2: Pricing is holding up in the industrial markets as well as in automotive. - Tom Coler(CFO)

Contradiction Point 4

Asia-Pacific Performance and Market Dynamics

It involves the company's assessment of Asia-Pacific's performance and the factors driving its outperformance, which could impact investor perceptions and strategic decision-making.

Can you provide details on the Asia-Pacific business's margin performance and whether margin pressures persist despite sequential improvement? - Mike Harrison (Seaport Research Partners)

2025Q3: Asia-Pacific has been a bright spot with ongoing strength, especially in India. Some geographic and product mix challenges persist, but there's expected improvement later in the year. - Joseph Berquist(CEO)

Does Quaker Houghton face input cost or cross-border selling concerns, or is the primary challenge the impact on overall demand and existing uncertainty affecting customers? - Mike Harrison (Seaport Research Partners)

2025Q1: As our Asia operations are smaller and less diversified to begin with, they are not as pressured by tariffs and we are certainly not experiencing any cross-border selling issues in that area. - Joe Berquist(CEO)

Contradiction Point 5

Automotive Market Exposure and Growth Opportunities

It highlights the company's mixed messaging regarding its exposure to the automotive market and the opportunities it presents, which could impact investor expectations and strategic planning.

What is the outlook for pricing and margin pressures given potential market deflation? - Arun Viswanathan (RBC Capital Markets)

2025Q3: Our outlook is very positive that we are going to have growth in automotive into the second half of the year and we are very supportive in our numbers for the year? - Joseph Berquist(CEO)

Are you still on track to achieve 17-18% EBITDA margins, and what are the key factors to achieve this? - Arun Viswanathan (RBC Capital Markets)

2025Q1: Automotive was relatively strong and there is certainly an ongoing issue with respect to the European production rate impact. So we still plan on seeing that headwind in Q2 and we are still resetting our expectation for automotive growth in 2025. - Joe Berquist(CEO)