Quaker Chemical Corporation Price & Performance (KWR)

A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Jeffrey Schnell, Vice President, Investor Relations. Mr. Schnell, you may begin.

Thank you. Good morning, and welcome to our fourth quarter and full year twenty twenty four earnings conference call. On the call today are Joe Birkquist, our President and Chief Executive Officer Tom Koehler, our Executive Vice President and Chief Financial Officer and Robert Traut, our General Counsel. Our comments relate to the financial information released after the close of U. S. Markets yesterday, 02/24/2025. Our press release and accompanying slides can be found on our Investor Relations website. Both the prepared commentary and discussion during this call may contain forward looking statements reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward looking statements. This presentation also contains certain non GAAP financial measures. And the company has provided reconciliations of these non GAAP financial measures to the most directly comparable GAAP financial measure in the appendix of the presentation materials, which are available on our website, For additional information, please refer to our filings with the SEC. Now, it's my pleasure to hand the call over to Joe.

Thank you, Jeff. And I'd like to welcome everyone to Quaker Houghton's fourth quarter and full year 2024 earnings call.

Quaker Houghton enters 2025 in a strong position. We made progress on our enterprise strategy last year, despite some contraction across our end markets and regions. Our team delivered a solid performance due to the strength of our portfolio and our focused commitment to improve our customers' operations and productivity. We also continue to manage items within our control. We further improved our margin profile, and generated strong operating cash flow. We have the right long term strategy which will build our competitive advantage and drive value for our shareholders. I will say a few words about the Quaker, then provide comments about my vision for the [indiscernible] and the outlook for 2025. Then I will hand the call over to Tom to discuss our financials in more detail. Fourth quarter net sales were $444,000,000 5% below the prior year or 3% lower on a comp like to highlight that while market conditions were persistently soft throughout the entirety of 2024, our ability to gain new pieces of business continued to contribute to our positive performance.

Our volumes in the fourth quarter were consistent with the prior year due to market share gains despite an estimated low to mid single digit decline in the aggregate end markets we serve. We continue to outperform these difficult end markets. For the past nine quarters, volumes have been stable on both a year over year and sequential basis due to the strength of our business model and net new business wins. Continue to trend within our targeted 2% to 4% range on a global basis. We feel good about our ability to continue to consistently deliver above market performance regardless of the end market environment.

Gross margins were 35.2% in fourth quarter reflecting manufacturing absorption the timing of raw material cost increases and mix impacts related to customer production levels especially in The Americas and EMEA. These latter issues have largely resolved themselves in January. We generated adjusted EBITDA of $65,000,000 in the fourth quarter and $311,000,000 for the full year, through solid execution and disciplined cost management. And we generated $05,000,000 of operating cash flow in 2024. Enabling us to execute on all levers of our capital allocation priorities.

Including investing in our organic growth increasing our dividend paying down debt, completing two acquisitions and repurchasing approximately $50,000,000 of shares. These results considering the macroeconomic challenges impacting our end markets, demonstrate our focus on positioning the company for long term outperformance At Quaker Houghton, our mission is clear. To be the trusted partner to the world's leading manufacturers who rely on our process fluid solutions and services to advance the world safely and sustainably. Throughout my nearly twenty eight year tenure at Quaker Houghton, our talented global team has delivered on that mission driving value for our customers, and continuously innovating to help customers achieve their desired outcomes and stay ahead of evolving trends. I am confident that our capabilities and our commitment to our customers is enduring and will continue to be a point of strength and differentiation in our markets. Since becoming CEO in November, I have taken a renewed look at our strategy and our execution against it What is most evident is that since the combination in 2019, Quaker Houghton Quaker managed through significant external volatility and internal change. While we have the right strategic plan, we need to refocus on growth in partnership with our customers.

We manage through a prolonged period of declining end market conditions. A global pandemic, supply chain constraints, and inflation in our raw materials and other costs. These challenges have made it difficult to fully realize the value of our portfolio and untapped the full potential of our company. With more stability on the horizon, we are focused on restoring the trademarks of Quaker Houghton. Returning to growth and driving the company forward together.

Since completing the integration of Quaker and Houghton Quaker, we have made many internal improvements that are exciting for the organization. Our global functional teams have executed well against a demanding but necessary transformation agenda. Looking ahead, it is imperative that we better leverage our technical expertise industry knowledge, financial strength and global scale and continue to invest in our future. My priorities are straightforward. First, we will return to growth. Second, we will reduce complexity and unlock the leverage in our model.

And third, we will, in a disciplined and prudent manner, deploy capital to enhance value for shareholders. These priorities are intertwined. And will be accomplished by globalizing Quaker Houghton and deploying a sharper focus on customer intimacy. I'd like to provide some context First, growth. Over the past few years, our markets have declined as evidenced by the prolonged contraction in global PMIs, and lower production in industrial and automotive applications. [indiscernible] Our volumes have fared better than the market rates. Even when considering our exit of Russia, the termination of the tolling business in The Americas and EMEA that was part of their required asset divestment to close the combination and rationalization of industry capacity in certain regions. Our study volume performance reflects the team's ability to gain share with new and existing customers regardless of the operating environment. These gains have been most notable in our Metals business. We are in industries that are tied to markets with historically consistent growth trends. As a company, we will capitalize on our leading market position and long heritage of being innovative responsive and going above and beyond or exceed our customers' expectations. Globalizing Quaker Houghton is occurring on many fronts.

First, we are aligning our resources with faster growing regions. Including India, Southeast Asia, Japan, Eastern Europe, The Middle East, and Africa. We will continue to make prudent like our new plant in China. We are also globalizing our product portfolio and technical expertise. For example, we are excited by the momentum in our advanced and operating portfolio. These are product applications that demand differentiated performance capabilities and are a natural complement to our metals and metal working process fluids. They also have differentiated growth characteristics. Second, as part of the next stage of our transformation, we will simplify and refocus the organization on value enhancing activities. Shifting the center of gravity back to our customers. From an internal perspective, we are creating efficiencies via harmonizing our business processes and organizing our broad portfolio of products and services to streamline our brands into one Quaker Houghton. We will kick to better serve customers and create space for commercial teams to more effectively pursue growth. We will make it easier for customers to do business with us. And we will provide enhanced services through digitization and innovative sensor technology. Refocusing on customer intimacy will support our organic growth. With our previous emphasis on gross margin restoration, we experienced elevated churn comparable to historical levels.

Some of this was intentional, as we decided to exit unprofitable business. Through better execution and leveraging our vast network of internal we will streamline decision making shorten lead times, and improve our responsiveness and customer service levels. While we have made progress, we have more optimization opportunities ahead of us. Will take a closer look at our footprint and manufacturing capabilities especially in Europe. There is opportunity to drive out costs and inefficiencies and leverage our scale in logistics, procurement and manufacturing. These actions all support our ability to and advance our strategy.

I am very passionate about our food intelligence offering. We are now prioritizing R and D resources to this technology in a more targeted way. Which has the opportunity to revolutionize our Fluid Care offering. Defend and drive new business and provide a step change in automation efficiency for our customers. We are in the early innings and seeing early success. On this powerful longer term tool for value creation.

To support these objectives and to align with the current market environment, we have identified an additional $20,000,000 of cost actions. These new actions are expected to be substantially complete by the end of the first half of twenty twenty five. And will drive approximately $15,000,000 of in year savings.

Lastly, capital deployment. Quaker Houghton has a long history of healthy and consistent cash [indiscernible] Our balance sheet is strong. We will continue to fund organic growth initiatives and pay dividends. We will also prioritize cash flow to support our growth primarily through M and A. In 2024, we acquired IKB in Sutai and recently acquired Chemical Solutions and Innovations or CSI in South Africa.

We will remain disciplined and we will use excess cash to maintain a strong balance sheet and return cash to our shareholders. In 2024, we returned more than $80,000,000 to shareholders through dividends and share repurchases. Quaker Health has a very strong foundation and a legacy of driving growth. We are focused on driving commercial and operational improvements getting back to basics. And executing on these enablers, which we believe will advance our strategy and drive value for shareholders. Before turning the call to Tom, I want to provide some commentary on our outlook. Looking ahead, after several years of contraction, we expect our end markets will grow approximately 1% to 2% in '20 This will be primarily weighted to the second half of the year and driven by increased production at new steel and aluminum mills and stability or modest growth in most other end markets. It also excludes potential effects of tariffs or other unforeseen geopolitical events that could negatively impact growth. Across our products and regions. Which will support our above market performance. We are making progress reducing churn which has impacted both volume and mix. And expect to make further progress in 2025. We also expect gross margins to be comparable to 2024 levels. [indiscernible] Therefore, we expect to deliver revenue adjusted EBITDA and earnings growth in 2025.

And another strong year of cash flow generation. The long term fundamentals of our industry are positive We are effectively managing what we can control while investing in our capabilities to strengthen our business. Switching to the first Quaker. We expect a seasonal improvement in demand primarily in The Americas and EMEA segments whereas Asia Pacific will contend with the Lunar New Year.

Gross margins are also expected to improve sequentially as some of the items that impacted the fourth quarter have resolved. We expect a modest improvement in adjusted EBITDA for and both demand and earnings are expected to improve as we progress through the year. With that, I'd like to pass it to Tom to discuss financials in more detail.

Thank you, Joe, and good morning, everyone. Fourth quarter net sales were $444,000,000 a decline of approximately 5% from the prior year, or 3% on a constant currency basis. Selling price and product mix was approximately 4% lower. Primarily reflecting the impact of our index based contracts and mix of products and services. Organic sales volumes were approximately 1% lower but were more than offset by a contribution from acquisitions of [indiscernible] Foreign exchange had a 2% unfavorable impact to net sales in the quarter. End market conditions were persistently soft in 2024. In the fourth quarter, underlying conditions weakened further especially in The Americas and EMEA segments. New business wins across all segments especially in Asia Pacific, were the primary driver to the stability in our organic sales volumes on a year over year and sequential basis despite the challenging market conditions. Lower selling price and product mix was due to the wrap effect of index based contracts and the mix of products and services. Which primarily reflects lower service related revenue as customers balance their operations to the external environment particularly in EMEA. Gross margins in the fourth quarter were 35 There were several factors that occurred in the fourth quarter impacting margins.

Including manufacturing absorption on lower volumes, and the impact of higher raw material costs in our Asia Pacific and EMEA businesses.

Mix also impacted margins. As expected, we had lower sales in and experienced reduced production levels and customer downtime in the fourth quarter. These secondary items have largely resolved themselves in January. Excluding one time items, SG and A decreased $4,000,000 or 4% compared to the prior year. And $2,000,000 or 2% sequentially. The decrease reflects our cost management efforts, partially offset by costs onboarded related to our acquisitions in 2024. SG and A declined in 2024 as we executed on our prior cost and optimization actions.

We delivered $65,000,000 of adjusted EBITDA in the fourth Adjusted EBITDA margins were 14.6% reflecting the impacts on gross margins in the quarter. Switching to our segment results, Net sales in our Asia Pacific segment increased approximately five driven by a 5% increase in sales volumes a 3% contribution from the Sutai acquisition and partially offset by a 3% decrease in selling price and product mix.

Volumes in the Asia Pacific segment increased 7% in 2024 driven by new business wins, Growth was consistent in both China and other Asia Asia Pacific market is highly competitive Selling price and product mix reflected some selective incentives first fills on new business wins, Net sales in Asia Pacific also increased compared to the third quarter driven by higher volumes. Segment earnings in Asia Pacific declined approximately $1,000,000 compared to the prior year. Segment margins were impacted by higher raw material costs.

We continue to be pleased with the performance in the Asia Pacific region as they effectively manage through the dynamic market environment delivering segment margins consistent with 2023 levels. Net sales in EMEA were 7% lower year over year in the fourth Quaker. Selling price and product mix declined 3%. Due to lower service revenues, as well as the impact of index based contracts, sales volumes inclusive of the benefit from the IKB acquisition declined approximately 4% compared to the prior year. EMEA manufacturing PMIs remained in contraction and overall conditions weaken further in the fourth quarter. Segment earnings in EMEA decreased by approximately $5,000,000 compared to the prior year This was due to lower sales, and a decline in segment margins. EMEA segment margins were impacted by manufacturing absorption due to softer volumes, sales mix, primarily lower revenues in the in the current period related to service revenue and higher raw material costs We expect to deliver further productivity improvements and efficiencies in the EMEA segment in 2025. Net sales in The Americas declined 8% year over year due to lower selling price and product mix of approximately 3%. An unfavorable foreign exchange impact of 4%, and a 1% decline in total sales volumes.

Industrial activity in The Americas declined further in the fourth quarter highlighted by broadly lower production rates. We were also impacted by lower sales into aerospace applications. The new business wins were strong in the quarter equally in metals and metal working, helping to offset the challenging market conditions and customer order patterns into year end. Segment earnings in The Americas declined by $11,000,000 in the quarter compared to the prior year driven by lower sales and segment margins. Manufacturing absorption as well as the mix of product and services for instance lower aerospace and specialty grease sales, impacted margins in the quarter.

The fourth quarter was very dynamic especially in the EMEA and Americas segments, as industrial activity weakened further, we expect demand and margins to improve in the first quarter from these lows and believe we are entering 2025 well positioned with our customers to capitalize on an improvement in underlying market conditions. Turning to non operating costs. Our interest expense of $9,000,000 was $3,000,000 lower in the fourth quarter compared to the prior year. This reflects the ongoing reduction in our variable cost debt which is currently yielding approximately 6%. Our effective tax rate excluding non recurring and non core items was approximately 34% in the fourth quarter or 29% for the full year We expect our expected tax rate in 2025 will be approximately 29%. In the fourth quarter, our GAAP diluted earnings per share were $0.81 and our non GAAP diluted earnings per share were $1.33 For the full year GAAP and non GAAP diluted earnings per share were $6.51 and $7.44 respectively.

Switching to liquidity, we generated $63,000,000 of from operations in the fourth Quaker, and $2.00 $5,000,000 in 2024.

Cash flow conversion was at the high end of our targeted range. We remain focused on driving working capital efficiencies, while maintaining the flexibility to support our customers and be responsive to their production needs, We expect to deliver another strong year of cash flow in 2025. Capital expenditures in the fourth quarter were approximately $23,000,000 and $42,000,000 for the full year, For 2025, we expect capital expenditures will be 2.530.5% of sales as we complete the build out of our China facility and invest in some of our growth initiatives. 2024, we closed on two strategic acquisitions, IKB and Sutai. For a total of approximately $40,000,000 Earlier this month, we also closed on the [indiscernible] which furthers our scale and portfolio in emerging geographies. In the quarter, we paid approximately $9,000,000 in dividends, and opportunistically repurchased approximately $26,000,000 of shares. We repurchased $49,000,000 of shares in the full year and combined with dividends, we returned $82,000,000 to shareholders in 2024. Dollars 101,000,000 remains on our current share Our balance sheet and liquidity are strong. Our net debt at year end was $519,000,000 and our net leverage ratio was 1.7 times our trailing twelve month adjusted EBITDA. Looking ahead, we are committed to driving further operational efficiencies across our regions, especially in EMEA.

We are taking actions to drive procurement and manufacturing improvements, and we have initiated an additional $20,000,000 worth of cost actions. The team continues to execute well on what we can control positioning the company to drive continued above market performance. We are executing on all items of our capital allocation strategy and we have ample capacity to accelerate our growth and create shareholder value. With that, I'll turn it back over to Joe. Thank you, Tom.

I am humbled to lead this incredible organization My leadership team and I are united around transforming Quaker Houghton re centering the organization around the customer and returning to growth We will advance our strategy and efficiently deploy capital to unlock our full potential. I know our success as built on the foundation of our people and I'm confident that we have the best talent in our industry to take the company forward. With that, we'd be happy to take your questions.

Our first question is from Mike Harrison with Seaport Research Partners. Please proceed.

Hi, good morning. Good morning, Mike. Good morning, Mike. Just looking at the gross margin performance in Q4, you're down quite a bit from where you started 2024 and I understand some of that seasonality. There's some fixed cost absorption, you mentioned mix, some raw material stuff, maybe kind of a perfect storm during the Quaker. But I was hoping just looking forward, you could talk about this prior 37% to 38% gross margin margin target that you've been using Is that still the right target that we should be thinking about? And is that a reasonable assumption for where you would expect to be in 2025?

Yes. Thanks, Mike, for the question. I would say it's in the right ZIP code. 3738. Those are pretty historically highs from where that margin has been. Definitely saw mix factors and absorption in the fourth quarter as you we think in the first quarter that margin is coming back into that range, that same zip code to where we were last year. I think over the long term, we're in competitive markets. We do put an emphasis on growth. Profitable growth. And I think there's an opportunity here as we continue to get back to growth and get back to more historical volume levels, start looking at our EBITDA margins. And what we're really driving for there is getting the EBITDA margins into the high teens and eventually the sort of 20% level.

So that range you talked about, things may flex a little above or a little below at times. We have a lag in our pricing We can go and get pricing, but it takes time To do that, But I think that's the right ZIP code, Mike, as you think about the long term. And then we're doing things internally looking at our our network, gold procurement, some initiatives around there to improve our raw material buying position. And just simplifying processes internally to become more efficient. So that's the right target range. I think that's in the right zip code for us.

All right. Very helpful. And then in terms of kind of refocusing the business on growth, It really seems like Asia Pacific is is kind of the bright spot for you and you mentioned the [indiscernible] like India, Southeast Asia, Maybe talk a little bit more about what's going right in Asia Pacific and maybe how you start to transfer some of that success over to your other regions? Maybe help us understand what opportunities or obstacles you might see in The Americas or EMEA as you think about starting to grow a little bit faster? Yes, great question, Mike. We are very happy with the performance in Asia Pacific.

Last year and really what's driving that is new business wins Those markets themselves have also been challenged. I think they face some headwinds second quarter last year. Things started to slow down a little bit. But we really did a good job winning back customers that we lost through that 2022, 2023 sort of pricing cycle. We've also been very successful in gaining new metals business. So whether that's in steel or aluminum, We're getting some traction with the new winners in battery electric vehicles and China has changed a lot. There's some new suppliers there, whether they're OEMs or component suppliers. And I think we've shifted our focus to make sure that we're able to grow with them.

Mentioned India. I mean India is a market that between say 2020 and 02/1930, maybe it goes to 02/1935, but the manufacturing production in that country is expected to double. And we're very well positioned there. We are winning new mills and new lines in that region as well. I think translating those wins back over to to Europe and The Americas, I would say a couple of things in 2024. Things definitely got worse.

Last year. We didn't think they could get much worse in Europe, but they did We feel that perhaps we're at a trough in that part of the world right now.

And the other thing that was unexpected was North America really took a turn in the second half of the year We saw a lot of capacity that idled and even in the automotive space some stuff that was absolutely running on a lower operating rate. Despite that, I think we are seeing similar share gain in those markets. I mentioned as I was talking through earlier, Food Intelligence. I think that's an enabler for us right now. We are as new mills are being built and there are some new mills coming online globally, but even in The U. S. We're offering an equipment solution to help get that first fill and also support our service capabilities on those mills. So it's a mix of different things, Mike, making sure that we're focusing on the customer, that we're enabling our people to make it easier for our customers to do business with us, all those things stacking up. I think will help us get back on that growth trajectory in these other more challenging regions outside of Asia Pacific.

All right. Thanks for that. And then last question for me is just you said you expect to show revenue and EBITDA growth in 2025. I was hoping that you could talk about some of the underlying macro assumptions that play into that forecast. Maybe some of the puts and takes around areas like FX, I don't know if there's an incentive comp rebuild baked into next year. What your expectations are on price cost that would kind of help us bridge to a year over year growth. Obviously, dollars 15,000,000 worth of savings from restructuring would be beneficial, but any other details there would be help Yes. Great question, Mike. And I'll let Tom fill in the gaps on FX and sort of incentive comp rebuild.

But the markets we're in are uncertain. So we're committed to controlling what we can control. And I think we do feel really good about our ability to continue to win new business and reduce our churn. So the net new business gains into the cycle, we feel pretty confident about. We have a healthy pipeline there.

Do expect the markets that we're in to gradually improve And I think one of the things when you look at 25 versus 24, this feeling that the second half of twenty twenty four was a trough that gives us a favorable comp. Heading into next year.

Overall market performance we're anticipating markets will grow 1% to 2% This is after a period of decline. So even stability, I think we would view as as very positive.

What's giving us confidence around market growth? I mean, there are some some drivers like there's just new production coming online. There are things as I mentioned, there was capacity that was taken offline as our customers manage their inventory. In the second half of last year. So all of those things kind of give us give us confidence With our gross margins expected to be with the $20,000,000 of cost on a run rate, dollars 15,000,000 in year, that should cover investments in growth and normal inflationary aspects, net net you mentioned, we expect to grow our revenue we expect to grow EBITDA and earnings next year, And I think over the long term, our our model, our algorithm there is we're in markets that will grow over the long term. 1% to 3%.

We plan to continue to take net new business wins above that 2% to 4%.

And we haven't really talked about M and A, but I think the two deals we did in 2024 and the one we just did recently here in the first quarter are evidence that we're active in the inorganic space and we have a pipeline that we're working there that we hope will accelerate our growth as we go forward. So you don't know what you don't know, but at this point of the year, Mike, those are the assumptions that we're baking into our our outlook. Yes.

And then thanks, Mike. Just a little bit more impact or input relative to F FX.

So we're viewing FX as likely to be a headwind for us in 2025.

In terms of how we're thinking about it for our 2025 outlook, we took a hybrid approach, so a combination of current spot rate but with all the current market volatility. We also did look at the forward curve and so took a view sort of bringing those pieces together, current spot and forward.

In general, we're estimating it to be a low single digit percent impact to sales in 2025.

All right. Thanks very much. Our next question is from David Begleiter with Deutsche Bank.

Please proceed.

Thank you. Good morning. Joe, what are your expectations for raw materials in 2025? Yes. Good morning, David. We're really expecting some stability in raw materials. We're not really into [indiscernible] hit us in the fourth Quaker, primarily in in Asia and Europe. But as we head into 2025, we're expecting raw materials to stabilize at this point.

Very good. And just on your Americas volumes, how would you expect them to trend in 'twenty five? Would it be a decline in the first half followed by growth in the second half be consistent with your thinking? I mean, I think the sequentially, we're going to see improvement from fourth quarter to first quarter. And I do think as we go through the year, the overall conditions will get better Probably the first quarter will be our lowest quarter, David.

Traditionally, second, third quarter things do get better and then you have your normal seasonal pattern. But by that point, if we get to fourth when we get to the Fourth Quarter Of This Year, We Expect To Have A Lot Of The New Business Wins Also As A Tailwind To The Business. And Lastly, You Mentioned Some New Capacity Coming On. Is That Mostly In Asia?

You referenced Actually, it's not. I would say that there's new capacity in Asia across Asia. So that would be China, India, even Southeast Asia. There's also some new capacity coming online in The U. S. Thank you very much. [indiscernible] is from Laurence Alexander with Jefferies. Please proceed.

Hi, just one quick follow on. You mentioned in the remarks sort of secondary elements that dropped out So does in it started in January. So is Q1 running above or below kind of how you see the overall year? Because my impression is like the easy comps really kick in, in the back half of the year. Yes. Hi, Laurence.

This is Tom. Thank you for the question. Yes, I think as Joe mentioned, I think we have seen some of those gross margin impacts resolved here as we move into Q1. We are anticipating that the year will build as we go. So we anticipate Q1 will be our lower lower quarter notwithstanding seasonal impacts in Q4, our lower quarter and will build through Q2 and Q3, which are seasonally our strongest strongest period throughout the year. Thank you.

Our next question is from John Tanwanteng with CJS Securities. Please proceed. Hi, good morning and thank you for taking my questions. My first one is just on the refocusing of the market go to market strategy, I guess, as part of the restructuring. Do you think that will improve the the growth over the market that you've seen versus your historical rate of the 2% to 4% or is that remains to be seen? Look, I think 2% to 4% is still the right number, John. We expect to be and have been, I think, on the on the higher end, mid to high of that 2% to 4%. In the face of the markets we're in. But stability and even slight growth in our markets we'll be able to see that a little bit better in the results as we go forward.

And then execution of M and A is another thing to get us back to that sort of mid single digit, high single digit growth algorithm that we want to get on. There's a lot of things that we had to do internally that were very helpful for us to build out scale and critical functional support areas and drive out costs and there's actually still more more work that can be done there. But we're really focused on making it easier customers to do business with us. Some of those areas would be our branding. We still have some of the legacy brands acquisitions we made. Optimizing our channels, having services that make it again easier for customers to deal with us Looking at our portfolio and rationalizing that, that has both an external and an internal benefit and making sure that we have the right coverage out in the field. So all of these types of things, focusing our and D around fluid intelligence and sort of breakthrough innovation that we or are trying to achieve there. All of those things we think will help us maintain for several years going forward, hopefully that 2% to 4% growth that we want to achieve.

Got it. Thank you. And then could you Tom, maybe if you could take this one, In the savings plan that you have detailed, how much of that comes out of COGS versus SG and A? And where do you think SG and A will end up this year? Maybe relative to growth or is it absolute number?

Yes. Thanks for the questions. Largely, our cost savings initiatives are targeting SG and A as we think about refocusing around customer intimacy and driving value for our customers.

So we are continuing to look at opportunities to optimize our manufacturing network particularly in EMEA. As I overall SG and A with the cost savings initiatives, we're anticipating SG and A to be flat to modestly up in 2025 as we've got compensation rebuild and some of those things. And again, we all we are we also are balancing the short term market dynamics that we're in versus our long term focus on making prudent investments to to drive growth and enhance value for our customers.

Great.

Thank you. If I could squeeze one more in. Just could you talk a little bit more about CSI and what that adds to the portfolio? Number one, and if two, there's a bias towards M and A or more share repurchases as you go forward and you're debt continues your leverage continues to fall?

Yes, great questions.

So CSI is is a business in South Africa with few different locations down there. They serve the metal working and metals businesses and they also have capabilities what we would call around operating solutions and advanced solutions. So it helps us fill out our portfolio down there and gives us some better logistics and certainly we want to grow in that part of the world as well. We have seen things in Africa across the continent, especially in the Eastern Part Of Africa, new New mills coming online, whether they're pipe mills or construction for metals. Over the next ten, twenty years, I think consumption of metal and industrialization of that part of the world will continue. And the position with CSI in South Africa will help us serve really that part of Africa, but also other parts of Africa. The second part of your question around capital allocation, I think the still the priority, I think what we see as the best way to enhance or increase shareholder value is investing in the business. So that would include M and A. Also investing in our organic growth making prudent investments there and as you mentioned funding those investments through reallocating other parts of our business.

We paid a dividend continuously since night [indiscernible] But M and A is really the best lever for us As far as share repurchases, we did do a fair amount last year, dollars 49,000,000 of share repurchases. We have hundred million dollars plus still available to do that. And if the opportunity presents itself, we wouldn't hesitate to do that again. But we would balance that against all these different levers that are in the model.

Great. Thanks guys.

Our next question is from Arun Viswanathan First off, on the twenty twenty five comments, I know that there are a lot of price initiatives put in the 2022, 2023 period. You did have to give some of that back and share that with your customers over the last couple of years.

I guess, have you seen that dynamic kind of play out and or is that going to should we expect that price dynamic to continue as you recapture some volumes as you move forward?

Thanks. Yes. I mean, I I would say right now, we're not really actively in the market trying to increase prices unless we have to. And there are some raw materials that that have increased and where that happens, we'll go and do it. There's also a natural flow with our business where we have things on index. So as raw materials came down from these historic highs, we saw we've seen some deflation there just naturally as our index contracts adjust. But overall, for next year, we're anticipating stability in the raw material space And overall, I think the mix issues that we had in the fourth quarter should work themselves out as we head into Q1.

Okay, thanks.

And then I understand that the objectives are to refocus the company on the customer and maybe that would help drive a little bit more volume. Could you just flush that out a little bit? Would that require maybe some different CapEx levels or where do you expect CapEx to go capacity additions or conversely would it actually require maybe shutting down some non core areas of focus and refocus What are some of the specifics that you're thinking about around that strategy? Thanks. Yes, great question. As far as CapEx goes, I mean one of the things that talk about making it easier for customers to do business with us. We've been adding things to our portfolio to expand that wallet that we have or that basket of products that we can sell to In some cases, our production capabilities for those are generally regional, right? Like an example there would be, have ability to manufacture creases, specialty creases in The U. S. And Europe, but not really other parts of the world. So we're making some investments right now in China and building a new plant there So there is some CapEx that is involved with that. I think the other part of this, Tarun, is on the just sort of the regular organic or non CapEx investments.

It's making sure that we're shifting our resources around and deploying them to the point tip of the spear where we can grow. And that might mean that we have to increase investments in some parts some geographies Like I mentioned India and other parts of Asia, and pull back as we have been been in places like Europe. As we readjust to the new realities there.

Yes, Arun. And then specifically on CapEx plan, for 2025, we are an asset light business and typically target CapEx as a percent of sales in that 1.5% to 2.5% range. I would say on a normalized basis in 2025, still our go forward plan. We do have a couple of items specific to 2025 that are pushing that CapEx up to 2.5% to 3.5% of sales. One is the further build out of our new China facility. And then the second is we are consolidating our footprint in the Philadelphia area We have a couple of R and D laboratories that we're bringing together along with a new administrative corporate facility. So absent those two items, we're in that normalized range, but we're a little higher in 2025 because of those specific items.

Okay, great. Thanks. And then just lastly, if I may, just on the volume front, I know Europe has been challenging. But it does appear that some of your end markets also continue to be challenged, especially as you noted in North America. Is it mainly just industrial production that is drive a little bit better volume environment? Or is there anything else that we should keep in mind?

Thanks.

Well, I mean, look, there's so many different factors, but the thing that drives our business is that industrial production. Things like interest rates have an impact on it. For sure, consumer sentiment buying, all those things. But we have a pretty diversified portfolio you think about even if we're heavier like on metals, for instance, aluminum goes into beverage containers, it also goes into automotive and aerospace. Steel goes into construction and also goes into cars. [indiscernible] there's a lot of different things that drive it, but I think it's it's really that industrial base that that you would look to as you look to the environment that we operate in.

Thanks. With no further questions in the queue, I would like to turn the conference back over to Joe for closing [indiscernible] Yes, thanks.

We really appreciate your continued interest in Quaker Houghton. And if you have any other questions, feel free to reach out to Jeff or myself. And look forward to speaking to you again soon. Thank you.