Greetings, and welcome to the Quaker Chemical Corporation Third Quarter 2012 Results Conference Call. A question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Barry, Chairman, Chief Executive Officer and President for Quaker Chemical Corporation. Thank you. Mr. Barry, you may begin.

Thank you. Good morning, everyone. I hope all of you and your families are fine in the aftermath of Hurricane Sandy. Joining me today are Margo Loebl, our CFO; and Robert Traub, our General Counsel. After my comments, Margo will provide the details around the financials, and then we'll address any questions that you may have. We also have slides for our conference call. You can find them in the Investor Relations part of the website at www.quakerchem.com. I'll start it off now with some remarks about the third quarter. Overall, we are pleased to be able to report another solid quarter. We continue to execute our tightly focused strategy. Specifically, we are driving to take share in our existing businesses and to leverage new technologies acquired as a result of our recent business acquisitions. Notably, in July this year, we made the NP Coil Dexter acquisition, our fifth acquisition over the past 2 years. 4 out of 5 of these acquisitions brought Quaker new adjacent product technologies that we can leverage over our global infrastructure. We also announced the launch of a revised brand for Quaker. Building on our 94-year history, we are committed to take the company to the next level. Our revitalized brand highlights this commitment by more clearly communicating our competitive advantage, which is formulating products and service solutions for our customers with the innovation, expertise and experience of our people. For Quaker, our people are our key assets, and our new brand emphasizes this aspect. Turning to the global results more specifically, third quarter earnings per share was $0.80 and was relatively flat compared to last year's third quarter EPS of $0.81, which excludes the noncash gain related to our Mexico acquisition. This is a solid level of earnings given the conditions we are facing…

Thank you, Mike. Turning to the financial portion of the call today, we'll reiterate that Quaker continued to report strong results in the third quarter of 2012 and year-to-date 2012. As you know, we've recorded earnings per diluted share worth $0.80 for the third quarter of 2012 compared to earnings per diluted share of $1.03 in the third quarter of 2011 or $0.81 excluding a noncash gain on the revaluation of a previously held ownership interest in the Mexican affiliate of $0.22 per diluted share. The third quarter of 2012 includes certain uncommon expenses totaling $0.05 per diluted share, largely consisting of severance and brand launch costs. In addition, changes in foreign exchange rates negatively impacted the third quarter net income by $0.04 per diluted share. As a general comment, the strong U.S. dollar versus the euro and Brazilian real and the weakening versus the renminbi for both the third quarter and year-to-date 2012 versus the same periods in 2011 have been impacting Quaker's reported revenue and net income. And on balance, they're negatively impacting Quaker's reported revenue and net income this quarter. Looking at our operating performance, I'd like to first comment on product volume. We track Metalworking Process Chemicals segment product volumes and recorded total product volume this quarter of almost 54,000 kilos as you can see on our investor chart on the web. This is a record quarter for Quaker from a product volume perspective. Net sales for the third quarter of 2012 were $180.9 million, a decrease of less than 1% from $182.3 million in the third quarter of 2011. Foreign exchange rate translation decreased revenues by approximately 6%, which more than offset increases due to product volumes of approximately 5%, including acquisitions. Net sales for the first 9 months of 2012 were $535.4 million, an…

Thanks, Margo. At this stage, we'd like to address any questions from the participants on this conference.

[Operator Instructions] Our first question is coming from the line of Liam Burke with Janney Montgomery Scott.

Mike, you said that the strategy with your core product on how you are going to take share and you've been getting traction there, it's a long selling cycle. If I look at the acquisitions as they've been integrated, have you been able to get similar traction on the market share gain side?

Yes, that's a good question, Liam. From a -- you're right, we do have a long sales cycle, so if you look at the 5 acquisitions that we've made, the first one was the aluminum acquisition from D.A. Stuart. And that one, as an example, since that's about over 2 years old now at this point, we have made significant traction there. So when we bought the business at the time was somewhere in the order of $6 million to $7 million, and we have expanded those sales dramatically, both domestically selling our products to their customers, as well as taking their technology and expanding it globally. And so I don't have the exact numbers in front of me, but it's probably close to double of where the original amount was. So that's a good example for -- to me of how we do things and it does take a while. If I start looking at the next acquisition, Summit Lubricants, again, we're in the -- just making progress there. We have initiatives in all regions of the world to do that, and we have made some progress on some additional sales there. And but over time, we expect that to be a lot more of a contribution than what it is today. And then if you look at the most recent acquisitions, they're just getting started. So it generally takes a couple of years to really get traction, get another -- enough people and expertise in other regions in place to be able to sell these new products, and we're on track to where we expect to be on that.

Okay. And you mentioned product mix, Margo, I guess, in your comment, you mentioned product mix on the gross margin front. Are those acquired products or what is in that mix that made such a difference on the gross margin side?

It can be really even just customer mix. Some customers we -- it's not so much, I would say, acquisition mix. It's really kind of timing of shipments to different customers, different regions and some products have better margins than others. So I think it's more just of a whole series of mix and maybe some other -- just other kind of issues that happen over time within inventory and so forth. So it's nothing unusual, I would say.

Did you see any significant effect with the higher oil prices on your raw materials costs?

On the raw materials side, we -- it looks -- region-by-region in general, we're starting to see raw materials come down, slightly down. But like for example, raw materials in Europe were higher in the third quarter than they were in the second quarter. But in other regions of the world, that wasn't true. But as a general statement, I would expect raw materials going forward to be flat to slightly down.

The next question is coming from the line of Laurence Alexander with Jefferies.

I guess, first of all, could you give a little bit of sort of additional commentary around regional trends and market trends, particularly what you're seeing into the fourth quarter and anywhere where you see sort of particular changes in momentum, either positive or negative?

Yes, sure. I would say if I look at Europe, I would think even at some of the numbers I mentioned, we really saw a decline in Europe between the second quarter and the third quarter. And we continue to expect that same kind of level to say what's up in Europe. We don't have big expectations it's getting worse, but we don't have expectations that it's getting better from the third quarter as well. So a trend versus the third quarter I see relatively flat in Europe. With Asia Pacific, we saw a positive trend for us coming from the second quarter to the third quarter, and we don't -- we expect that positive trend to maybe continue or be flat. In other words, it wasn't hopefully a onetime lift, but we expect, in general, Asia Pacific to be a good region for us, especially longer term, but we don't expect dramatic increases or decreases from where we are today. In the United States, in North America -- well, the United States in general, I think we see a little bit certainly of decline. If you look at the steel production and steel capacity utilization, it's been trending downward. But when you look at the signs where expectations are for next year with auto builds and steel production, I still see North America being a good region for us relatively, continuing on pretty well from where it is. And then South America. South America is really the hit hard with steel production. Auto production's way down, heavy equipment production is way down, down there. The government's put in initiatives. Our expectation is kind of the third quarter there will be more at the bottom. Fourth quarter, we're hoping for some pickup but it might be relatively flat, and then our expectations are maybe next year some improvement in South America. So it's definitely a mixture. But as a general statement, I don't see -- things are kind of at a low point here. I don't see it changing much in the short term, so I see relatively consistent industrial production at the global basis going forward for the foreseeable future. And then as we go into next year, hopefully we should see some increases.

And then on the M&A front, could you -- I guess, 2 related questions. One is you look at the acquisitions you've already done and the technologies you've layered in. Are these modest accelerants to your top line growth, a few basis points each year? Or do you expect them to be significant adding 50, 100 basis points to sales each year, I mean, in aggregate as you roll them all together? And then as you look at the M&A landscape, what do you see as the likelihood of significant availability of assets over the next, call it, 6 to 12 months or does it feel that everybody's hunkering down right now?

Right. I wish I knew the second to that last question. I really don't. We're still actively looking. We're still -- have conversations going on in different areas so -- but it's always hard in our industry to kind of predict. When somebody's ready to sell, you tend to have a lot of businesses that are operated by family and have different dynamics or reasons for selling. So in a lot of ways, it's more particular to their situation, but we'll continue to pursue there, and we hope to continue to make acquisitions in the future. On your first question, how much are the acquisitions that we've made so far? How much will they kind of provide to our growth? Definitely, I would have expectations that they would provide at least 1 percentage point or more, 2 percentage -- 1 or 2 percentage points on our growth by leveraging our global infrastructure and then taking these different technologies out. So it's that 1 percentage type number.

[Operator Instructions] Our next question is coming from Summit Roshan with KeyBanc Capital Markets.

Looking at the spending on the branding launch here. I just kind of wanted to get some initial feedback from what you're hearing from customers there, a little bit more color on maybe what you're expecting as we kind of go into the end of the year here and then into '13, '14 in the midterm?

Okay. Do you mean going on with the branding? Is that all related to branding or is it just the first part?

Yes, all related to the branding.

Okay. We've had positive feedback so far and -- but it's kind of early days. We just put it out and rolled it out in the month of September and we've -- our marketing campaigns, our trade shows around this uses new campaign and so it's been positive we received. And we're putting -- as a company in general, putting more emphasis on marketing and marketing Quaker. Quaker is a very well-known name when you talk about specific product lines that we're in like steel. All the steel companies know Quaker. And our hydraulic fluids have a very strong brand name, QUINTOLUBRIC as a brand name. But when you get into some of these other product lines that we're in, we're not as well known. And now we're making acquisitions in other product lines so we really thought it was important to really promote and strengthen our brand, revitalize it and get that out there. So just more emphasis on marketing, get the name Quaker out there for both our -- all our product lines including our new product lines.

Great and just a quick follow-up on that one. Do the costs there largely roll off as we head into the next quarter here? There's going to be some kind of sustained levels of spend on that market.

Does our spending levels roll off? Is that what your question was?

Yes, yes.

Okay. Well, we had an initial launch which means like we were changing a lot of things that we have or everything we have going out with the different logos so there was more of an upfront cost associated with that, that we experienced recently here. And then ongoing, there'll be some more marketing, but we've also spent marketing over time, so it might be some level of expending more but it won't be that much. It won't be that unusual.

Okay, great. And as a point of clarification here. From the Q -- it sounded like, organically, volumes were up in the quarter. Am I looking into that right? And could you kind of parse out what you're seeing in terms of the magnitude of underlying demand and how much that is down and to the extent that new product introductions and new business wins are offsetting that?

Yes, I mean, organic growth -- it's relatively flat, maybe slightly up is the -- it's what we think -- you have -- you look at a region, if I use Europe as an example, we had some really large wins in Europe and some pretty big share gains. But they weren't enough to even offset the significant loss that we saw just in the inherent business that we had. And then you go into other regions like North America and Asia Pacific and so forth where the markets were relatively flat to slightly up and then we had gains on top of that. But when you put all that together, certainly, I think the picture is that you had a -- especially in the third quarter kind of was a -- from an inherent demand on our existing customer base, was down, but we were kind of able to offset that by market share gains. So it's relatively flat from that perspective and then you put -- then you add the acquisitions and so forth.

Great. And one last one here on your CapEx spend and looking at the new plant in China and some of the investments you're making in India. Have you broken out timing and the expected size and ramp up of those?

Well, we haven't broken out that data in the past. I believe for the rest of the year that we could see some brand thoughts from some increase versus run rate but I don't expect anything unreasonable. So you've got -- you can look at our run rates and extrapolate from that going forward, but I don't -- do expect or I do believe there can be some increase versus run rate, but I don't think it will be anything -- nothing unreasonable.

Okay. And just a quick follow-up for that one. Is that going to be largely for legacy products or are you going to be trying to leverage some of the new technologies that you've acquired?

It's -- most of it's really just the demand for our base business, but it would also -- we also are having some adding capacity to also make some additional products that they currently do not make in China, for example.

[Operator Instructions] Our next question is coming from the line of Chuck Murphy with Liberty Park Capital Management.

Just had a couple of quick questions for you. First, I kind of wanted to dig in a little bit more on organic sales trends. I guess, one, could you state what the contribution was from NP Coil? And two, what were kind of the sequential pricing trends for your products?

Well, we don't really give really specific acquisition by acquisition things. But the impact was -- from NP Coil this time was slightly negative but we don't expect going forward that, that will be a negative contribution. It was more of the kind of the initial startup of the acquisition closing costs and hitting the August time period when the European thing is down. But it was not that material either. So NP Coil in itself, we expect as we go further on would be positive to our performance. The -- your pricing trends -- your question was on pricing trends, is that...

Yes, yes. Go ahead and answer that and I'll ask the next one after that.

Sure, yes. Pricing trends. We have -- it really depends on kind of where we are coming from. First of all, if you look at it on a constant currency basis, you got to put in foreign exchange into the equation as well. The foreign exchange is -- with a stronger dollar is -- and you translate everything back, it would look like prices maybe are somewhat coming down. But if you look at it on a constant currency basis, they tend not to be. The -- but we have fluctuations. We have contracts of our customers that go up and down with raw materials. So part of our contract base just adjusts with some of the raw materials that go up or down, and that will really depend -- so maybe you're looking at the first part of the year, raw materials were going up, so we have contract adjustments of pricing going up, and then as raw materials come down eventually, there will be an adjustment for pricing to come down. So it's kind of a mixed bag. As I think about pricing right now, I think we're in a relatively stable situation.

Got you, okay. And since you can't say what NP Coil sales were in the quarter, could you say kind of what the organic trends were sequentially? I know you said kind of year-over-year it was flattish.

Yes.

What about sequentially for organic revenue?

Organic revenue, let's see, relatively flat, maybe slightly up. But it's relatively on a flat basis sequentially. But again, as I mentioned, there's a lot of -- Chuck, there's a lot of dynamics going on there so we were up pretty significantly in Europe, flat in the U.S. and down in Europe and South America. But when you put all that together, we're relatively flat.

Got you, okay. And then my other questions had to do with a gross margin, I think you'd said before kind of had to do with product mix and customer mix in terms of it being down versus 2Q. What exactly -- which types of products are higher margin or lower margin for you? Same thing, which types of customers are higher margin or lower margin? And do you expect those changes to hold in Q4 or is it something that reverts back to the way it was in Q2?

I think a lot of it has to be more related to customer mix, and it'd be impossible for me to go through and identify all the different products and customers that have different things. But I would -- I mean, and the only thing I would say is that I think we had an untypical or slightly negative mix of business in the third quarter and assuming raw materials stay where they kind of are, I hope that mix would improve going forward.

I'm showing there are no further questions at this time. I'll now turn the floor back over to management for closing remarks.

Okay. Given that there are no other questions, we'll end the conference call now. And I want to thank all of you for your interest today. We are pleased with our results for the third quarter, and we continue to be confident in the future of Quaker Chemical. Our next conference call for the fourth quarter results will be in early March. And if you have any questions in the meantime, please feel free to contact Margo Loebl or myself. Thanks again for your interest in Quaker Chemical.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.