Quaker Houghton

Greetings and welcome to Quaker Houghton fourth quarter and full year 2024 earnings conference call. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 2024 earnings conference call. On the call today are Joe Berkwist, our president and chief executive officer, Tom Kohler, our executive vice president and chief financial officer, and Robert Traub, our general counsel. Our comments relate to the financial information released after the close of U.S. markets yesterday, February 24th, 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 continued 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 quarter, then provide comments about my vision for the path forward 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 million, 5% below the prior year or 3% lower on a constant currency basis. I'd 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 digits 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, which continue to trend within our targeted 2 to 4 percent 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 percent in the 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 million in the fourth quarter and $311 million for the full year through solid execution and disciplined cost management. and we generated $205 million 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 million 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 28-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 has 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 managed 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 untap 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, 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. 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 the 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 to meet 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 investments to build our capabilities in these regions. 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 metalworking 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 continue to implement our new multi-channel approach 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 expertise, 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. We 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 respond to customer needs and advance our strategy. I am very passionate about our fluid intelligence offering. We are now prioritizing R&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 million of cost actions. These new actions are expected to be substantially complete by the end of the first half of 2025 and will drive approximately $15 million of in-year savings. Lastly, capital deployment. Quaker Houghton has a long history of healthy and consistent cash generation, and 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&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 return more than $80 million to shareholders through dividends and share repurchases. Quaker Houghton 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 percent in 2025. 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. We have a pipeline of new opportunities and several trials underway 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. Therefore, we expect to deliver revenue, adjusted EBITDA, and earnings growth in 2025 in 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 quarter, 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 from fourth quarter levels, 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 the financials in more detail.

Thank you, Joe, and good morning, everyone. Fourth quarter net sales were $444 million. 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 approximately 2%. 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 a man. Gross margins in the fourth quarter were 35.2%. 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 AMEA businesses. MIX also impacted margins. As expected, we had lower sales into aerospace applications 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&A decreased $4 million, or 4%, compared to the prior year, and $2 million, or 2%, sequentially. The decrease reflects our cost management efforts, partially offset by costs onboarded related to our acquisitions in 2024. SG&A declined in 2024 as we executed on our prior cost and optimization actions. We delivered $65 million of adjusted EBITDA in the fourth quarter. Adjusted EBITDA margins were 14.6 percent, reflecting the impacts on gross margins in the quarter. Switching to our segment results, net sales in our Asia Pacific segment increased approximately 5 percent compared to the prior year, driven by a 5 percent increase in sales volumes, a 3 percent contribution from the SUTI acquisition, and partially offset by a 3 percent decrease in selling price and product mix. Volumes in the Asia-Pacific segment increased 7 percent in 2024, driven by new business wins. Growth was consistent in both China and other Asia. The Asia-Pacific market is highly competitive. Selling price and product mix reflected some selective incentives, first fills on new business wins and the impact of index-based contracts. Net sales in Asia Pacific also increased compared to the third quarter, driven by higher volumes. Segment earnings in Asia Pacific declined approximately $1 million 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 AMEA were 7% lower year-over-year in the fourth quarter. 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. AMEA manufacturing PMIs remain in contraction, and overall conditions weakened further in the fourth quarter. Segment earnings in AMEA decreased by approximately $5 million compared to the prior year. This was due to lower sales and a decline in segment margins. AMEA segment margins were impacted by manufacturing absorption due to softer volumes, sales mix, primarily lower revenues 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 percent year-over-year due to lower selling price and product mix of approximately 3 percent, an unfavorable foreign exchange impact of 4 percent, and a 1 percent 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 metalworking, helping to offset the challenging market conditions and customer order patterns into year end. Segment earnings in the Americas declined by $11 million 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 AMEA 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 million was $3 million 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 percent. In the fourth quarter, our GAAP diluted earnings per share were 81 cents, 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 million of cash from operations in the fourth quarter and $205 million 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 million and $42 million for the full year. For 2025, we expect capital expenditures will be two and a half to three and a half percent of sales as we complete the build out of our China facility and invest in some of our growth initiatives. In 2024, we closed on two strategic acquisitions, IKB and Sutai, for a total of approximately $40 million. Earlier this month, we also closed on the acquisition of chemical solutions and innovations in South Africa, which furthers our scale and portfolio in emerging geographies. In the quarter, we paid approximately $9 million in dividends and opportunistically repurchased approximately $26 million of shares. We repurchased $49 million of shares in the full year, and combined with dividends, we returned $82 million to shareholders in 2024. $101 million remains on our current share repurchase authorization. Our balance sheet and liquidity are strong. Our net debt at year end was $519 million, and our net leverage ratio was 1.7 times our trailing 12 months adjusted EBITDA. Looking ahead, we are committed to driving further operational efficiencies across our regions, especially in AMEA. We are taking actions to drive procurement and manufacturing improvements, and we have initiated an additional $20 million 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, recentering 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 is 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.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. Our first question is from Mike Harrison with Seaport Research Partners. Please proceed.

Hi, good morning.

Good morning, Mike.

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

Yeah, thanks, Mike, for the question. I would say, you know, it's in the right zip code, 37, 38. You know, those are pretty historically highs from where that margin has been. Definitely saw mixed factors and absorption in the fourth quarter. As you mentioned, we think in the first quarter, that margin is coming back into that range, that same zip code 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 get into EBITDA margins, into the high teens, and eventually to the sort of 20% level. So, you know, that range you talked about, things may flex a little above or a little below at times. We have a lag in our pricing. You know, 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 network, global 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 kind of the bright spot for you. And you mentioned the strength that you're seeing or the faster growing opportunities you're seeing in places 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 in the, as you think about starting to grow a little bit faster?

Yeah, great question, Mike. You know, 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 faced some headwinds in the 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 22, 23 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. China's 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. You mentioned India. I mean, India is a market that between, say, 2020 and 2030, maybe it goes to 2035, 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 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, You know, 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, you know, as I was talking through earlier, food intelligence. I think that's an enabler for us right now. We are, you know, 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, $15 million worth of savings from restructuring would be beneficial. But any other details there would be helpful. Thanks.

Yeah, no, great question, Mike. And I'll let Tom fill in the gaps on FX and sort of incentive comp rebuild. But look, 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 continue. into the cycle we feel pretty confident about. We have a healthy pipeline there. We 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 2024 was a trough, that gives us a favorable comp heading into next year. Overall market performance, we're You know, 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 very positive. What's giving us confidence around market growth? I mean, there are 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 confidence. You know, with our gross margins expected to be comparable to 2024 full year, with the $20 million of cost on a run rate, $15 million in year, that should cover investments in growth and normal inflationary aspects. Net, as 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 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&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 know, 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 outlook.

Yeah, and then thanks, Mike. Just a little bit more impact or input relative to 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 two pieces together, current spot and forward. You know, 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 Begleder with Deutsche Bank. Please proceed.

Thank you. Good morning. Joe, what are your expectations for raw materials in 2025?

Yeah, good morning, David. you know, we're really expecting some stability in raw materials. We're not really anticipating volatility one way or another. Now, there were some things that we had hit us in the fourth quarter, primarily 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 2025? Would it be Would a decline in the first half followed by growth in the second half be consistent with your thinking?

I mean, I think 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, 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 last, you mentioned some new capacity coming on. Is that mostly in Asia that you referenced?

actually it's not it's it i would say that there's new capacity uh in asia across across asia so that would be china india even southeast asia there's also some new capacity coming online in the us thank you very much our next question is from lawrence alexander with jeffries please proceed just one quick follow-on you mentioned

In the remarks, there are secondary elements that dropped out. 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.

Yeah, hi, Lawrence. This is Tom. Thank you for the question. Yeah, 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 quarter, notwithstanding seasonal impacts in Q4, our lower quarter, and we'll build through Q2 and Q3, which are seasonally our strongest period throughout the year.

Thank you.

Our next question is from John Tanguang Tang 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, you know, as part of the restructuring. Do you think that will improve the growth over the market that you've seen versus your historical rate of 2 to 4 percent, or does that remain to be seen?

2% to 4% is still the right number, John. We expect to be and have been, I think, 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&A is another thing to get us back to that sort of mid mid single-digit, high single-digit growth algorithm that we want to get on. You know, there was 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 to drive out costs. And there's actually still more work that can be done there. But we're really focused on making it easier for customers to do business with us. Some of those areas would be our branding. We still have some of the legacy brands from 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. All of these types of things, focusing our R&D around food intelligence and sort of breakthrough innovation that we're 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 just In the savings plan that you have detailed, how much of that comes out of COGS versus SG&A, and where do you think SG&A will end up this year, you know, maybe relative to growth or as an absolute number?

Yeah, thanks for the questions. Largely, our cost savings initiatives are targeting SG&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 mentioned in our prepared remarks. In terms of overall SG&A with the cost savings initiatives, we're anticipating SG&A to be flat to modestly up in 2025 as we've got compensation rebuild and some of those things. And, you know, again, we all also are, balancing the short-term market dynamics that we're in versus our long-term focus on making prudent investments 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&A or more share repurchases as you go forward and your debt continues, your leverage continues to fall?

Yeah, great questions. So CSI is a business in South Africa with a few different locations down there. They serve the metalworking and metals businesses. And they also have some 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 you know, we want to grow in that part of the world as well. We have seen, you know, things in Africa across the continent, especially in the eastern part of Africa, new mills coming online, whether they're pipe mills or construction for metals. So over the next, you know, 10, 20 years, I think consumption of metal and industrialization of that part of the world will continue. in 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, you know, 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&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've paid a dividend continuously since 1972. We'll continue to do that, but M&A is really the best lever for us. As far as share repurchases, we did do a fair amount last year, $49 million of share repurchases. We have 100 million 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.

As a reminder, it is Star 1 on your telephone keypad if you would like to ask a question. Our next question is from Arun Biswanathan. with RBC Capital Markets. Please proceed.

First off, on the 2025 comments, I know that there are a lot of price initiatives put in the 22-23 period. You did have to give some of that back and share that with your customers over the last couple of years. Have you seen that dynamic kind of play out Or should we expect that price dynamic to continue as you recapture some volumes as you move forward? Thanks.

Yeah, I mean, 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 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 kind of came down from these historic highs we saw you know we've seen some some deflation there just naturally as our index contracts adjust. But you know overall for next year we're anticipating stability and in the in the raw material space and you know overall I think the mixed issues that we had in the fourth quarter should work themselves out as we head into Q1.

Okay, thanks. And then, you know, 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 flesh that out a little bit? Would that require, you know, 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 refocusing the business on India, as you noted? What are some of the specifics that you're thinking about around that strategy? Thanks.

Yeah, great question. As far as CapEx goes, I mean, one of the things that we talk about making it easier for customers to do business with us You know, 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 customers. In some cases, our production capabilities for those are generally regional, right? Like an example there would be we 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, Leroen, 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, you know, tip of the spear where we can grow. And that might mean that we have to increase investments in some parts, some geographies, like you mentioned, India and other parts of Asia and pull back as we have been, you know, in places like Europe as we readjust to the new realities there.

Yes, Arun, and then specifically on CapEx plan for 2025, you know, we are an asset like business and typically target CapEx as a percent of sales in that one and a half to two and a half percent range. I would say on a normalized basis in 2025, that's 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 trying consolidating our footprint in the Philadelphia area. We have a couple of R&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 as well. Is it mainly just industrial production that is going to 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, you know, we have a pretty diversified portfolio when 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. It also goes into cars. So, you know, there's a lot of different things that drive it, but I think 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 remarks.

Yeah, 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. Look forward to speaking to you again soon. Thank you.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.