Greetings, and welcome to the Quaker Chemical Corporation First Quarter 2012 Results Conference Call. [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, Melissa. Good morning, everyone. Joining me today is Mark Featherstone, our CFO; and Robert Traub, our General Counsel. As usual, after my comments, Mark 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 our website at www.quakerchem.com. I will start it off now with some remarks about the first quarter. The first quarter net income was relatively strong at $11.9 million. This was a 13% improvement over the net income from the first quarter 2011 and also a 22% increase from the net income in the fourth quarter of 2011. Let me now get into some of the variables impacting our sales and gross margins. Sales were up 11% from the first quarter of 2011 and also up 2.5% from the fourth quarter of 2011. You can see the overall sequential quarterly increase in our volume on Page 4 of our slides. However, across the globe, we are experiencing different dynamics. In the U.S., our sales are very strong and we have seen double-digit plus increases in sales versus the first quarter of last year. This is helped by the continued rebound in steel and auto production in the U.S. While the steel and auto industries are still not back to pre-crisis levels, the percentage improvement is impressive. But when we look at the rest of the world, we are seeing a very different story. Yes, we are still seeing growth in Asia Pacific, but is relatively modest at around 2% over the prior year period. In fact, I read the other the day that raw steel production in China is down year-over-year. This is quite a contrast from the previous years.…

Thanks, Mike. Good morning, everyone. Yesterday, we announced earnings of $11.9 million or $0.91 per diluted share for the first quarter of 2012. This compares to $10.6 million or $0.91 per share in the first quarter 2011. Both this year's and last year's first quarters included tax benefits related to the expiration of reserves related to FIN 48 accounting for uncertain tax provisions, which totaled $0.12 per share and $0.11 per share, respectively. The first quarter of 2012 also reflects an $0.08 per share dilutive impact from the 2011 equity offering. I will now go through the first quarter P&L and then we'll go on to questions. Revenues for the first quarter compared with the same period last year were up 11% to almost $178 million, and we're up against the fourth quarter of 2011 as well. As we discussed during our last call, the overall global economic environment is generally sluggish, with the U.S. being a bright spot. Compared to last year's first quarter, overall prior volumes were up about 5% including acquisitions, while exchange rates decreased revenues by about 2%. Price and mix accounted for the remaining 8% increase in sales. Excluding the 2011 acquisitions, volume would have been down about 1%, but up about 3% from the fourth quarter. If we look at Chart 3 on Page 6 of our slides, North America steel industry production levels have increased somewhat in 2012 versus the 2011 level. After spending most of 2011 with capacity utilization rates of between 70% and 75%, we expect some improvement in 2012 with capacity utilization rates generally in the 75% to 80% range. And so far in 2012, they have been in that range. Also on the positive side, overall inventory levels in the steel industry remain in pretty good shape. Last quarter,…

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

[Operator Instructions] Our first question comes from the line of Peter Cozzone with KeyBanc Capital Markets.

Can you help us maybe frame up the gross margin progressing maybe on a relative basis going forward? Given recent raw material increases and the typical pricing lag, can we expect 2Q to kind of be the lowest margin quarter, then maybe some improvement going into the back half of the year, similar to what we saw in 2011?

I find that hard to really address with any kind of accuracy. I think we'll -- it really depends upon, it's kind of the speed at which we put in our price increases. Obviously we want to try to do it as quickly as possible, but sometimes there's limitations in our contracts. At the same time, it also depends upon where raw materials go and do they continue to go up? Because what we saw in 2011 was really from, actually the fourth quarter of 2010 through probably the second half or the second quarter of 2011, we just saw a continually rising raw material environment. So in that case, we were doing multiple price increases and it just took many quarters to kind of get back to where we kind needed to be and that's kind of where we are finally today. Now if prices jumped, where they are today, and kind of stay there, then it will be a lot quicker and by the time we get into the third quarter and certainly the fourth quarter, we should be stabilized. So it really just depends upon what happens, I think more than anything, with the raw material cost and how far they keep going up.

I guess, kind of sort of a follow-up there on the raw material front, I mean, can you kind of characteristics what you've seen year-to-date? And we saw most petrochemicals run up through the first quarter. It seemed like maybe you were not impacted as much until later in the quarter. But most prices appear to have stabilized here. I mean, kind of what is your view on raw materials? Maybe year-to-date, kind of what have you seen on that front?

Well, we -- some of ours don't translate almost immediately. So for example, with crude oil, that went up pretty quickly in the first quarter, but we buy a lot of mineral oil and right away, those were not impacted, but then recently, we saw a really significant impact in those markets. A part of it's due to crude oil, but part of it's just due to supply-demand characteristics in the mineral oil market. And we also buy animal and vegetable oils as well, like palm oil, coconut oil, things like that. And each of those have their own kind of set of dynamics in their own markets. In general, they're correlated to crude, but as we've seen last year and we're starting to see now, is it can go considerably higher just because of what's happening in those individual markets. So what we are seeing now is that we are seeing, in a number of areas, very decent-sized raw material increases in our raw material cost. And we generally don't provide, because it can be different all over the world, we generally don't provide kind of the magnitude of those increases at this point.

Okay, and then just one more. Could you provide some color on what you're seeing in China? How does activity that maybe what you're seeing on the ground stack up versus some of the official indicators that we've seen coming out lately? We've heard from some of a nice rebound following the Lunar New Year. Did you see a similar phenomenon and was this outside typical seasonality? And maybe has that momentum carried through during April?

Well, we certainly saw, around the New Year, always a kind of a decline in volume, so that's not unusual. I think a lot of it will depend upon the steel industry. A good part of our business into China is related to steel and of course, to auto. The steel industry has been somewhat struggling, I mean this is an industry that has seen tremendous amount of growth over the past number of years and has grown at double-digit rates. And as I mentioned in my remarks, we actually saw, I think, I saw something recently that steel production itself has declined in China year-to-date versus where it was, say, a year ago. And we have expectations that, that will get better, somewhat better, in the second half of the year and return to more of a growth mode. And that's because we believe China will start loosening up and credit and things like that. So in the steel side, we haven't really seen a rebound at this point, but we expect, through the year, it certainly could. On the auto side, we are definitely continuing to see decent auto production and we expect to see growth going there forward.

Our next question comes from the line of Laurence Alexander with Jefferies & Company.

This is Jeff on for Lawrence. It looks like in the first quarter, you may have benefited from lower fourth quarter raw materials rolling, through the financials. Can you help us quantify that benefit in Q1?

It's really hard to kind of quantify that. I don't think we view it more from the perspective of finally getting our price increases fully through and that was really helping our margins. There were some, definitely declines in a few raw materials, but I think it's more of the price increases finally getting through and taking effect in all the major price increases -- to overcome the raw material increases we saw last year. And then kind of that things were stabilizing in the first part of the year, things shot up again in crude and now we're starting to see that in our raw material base.

Yes, we certainly saw March raw material cost being higher than February. So we had, certainly had, some benefit, but starting to see a turnaround a little bit in March.

And moving over to volumes, can you talk about the volumes by region? I mean, have you seen any stabilization in Europe or is there anything thus far in Q2 that's surprised you on the positive side?

Well, it's kind of early days in Q2, but the -- from a -- I don't think we see dramatic changes per se in the landscape. I think we still expect U.S. to do pretty well from a growth perspective. As I mentioned in my comments, Europe was down 4% in the first quarter year-over-year. I think we expect -- we don't -- our expectations are Europe will be relatively the same. We don't expect much more decline or much more growth. We've seen a lot of the, what we believe is the impact from the slowdown already. But who knows? It's a very fluid situation in Europe, especially in countries like Spain, Italy. In Brazil and in China, I think we would expect to see, like I said, very modest growth or even somewhat decline in Brazil recently. But I think as we progress through the year, we expect to continue to grow, but it could be at a much more modest level.

And I guess, lastly, you described a mix shift as contributing to the strong performance in the quarter. Can you talk more about what you're seeing and if you expect this trend to continue throughout the year?

Well, it's really a combination of price and mix. And I'd say it was really more the benefit of the 2011 price increases we implemented kin of fully rolling through. So I think it was really more on the price side than on the mix side, I'd have to say.

[Operator Instructions] Our next question comes from the line of Liam Burke with Janney Capital Markets.

Mike, if I look at the steel production numbers of the first quarter, January and February on a year-over-year basis were down, January was down 5% and then it got sequentially better in February and actually steel production was flattish to slightly up in March. Just as a sense of the quarter went, did you finish with any kind of momentum or, I mean, it was a pretty steep hole in January that you started and volumes were only down about 1%. Are you seeing momentum coming out of the quarter? I guess is the question, just based on the steel production numbers?

Yes, I agree with what those kind of numbers that you said because I think in the first part of the year, we tend to see, with some of the -- especially with different regions, Carnival in Brazil and Chinese New Year, you tend to see some weakness in the first part of the quarter. So I agree that generally, steel volumes were a little higher as we exited the quarter.

And then on acquisitions, part of the strategy is to take these products that were pretty locally, geographically concentrated and then move them through your channels throughout the world. Could you give us a sense of the progress on how new product's being introduced into these markets?

Sure. We're kind of at different stages with that. But when we go back, the first acquisition we made in these recent set of acquisitions was our aluminum hot rolling business that we bought. And there, we're actually making some good progress. It's a relatively small business though, but I think it's an indicator that -- we made that one 21 months ago, we've now gone into new mills outside of the U.S. So we are picking up some additional business. We have a major trial going on with a China producer right now. So we are gaining momentum in this. We are also selling our traditional Quaker products to those customers that we bought as well. So I think that's going well, although it's relatively, again, small. On the specialty grease side, that was an acquisition we made a little over a year ago and we're still more in the early stages there. We have done things there to get some new pieces of business, and that's -- it's progressing and we expect that to pick up in momentum this coming year. And then the recent acquisitions that we made. Of course Mexico is more of a geographic one, but the recent one of the die casting business, we're kind of in early stages right now with that. Although we are -- since we made that acquisition, customers from around the world have approached us and actually are interested in talking with us. So we are kind of in the midst of putting our planning and how we're going to roll that out on a global basis together.

I'm sorry Mark, go ahead.

Sure. One of the things we've done with this specialty grease business as well, is we have very good fire-resistant hydraulic products and we've kind of taken our fire-resistant technology and merged that with some of the specialty grease technology from Summit. That's evolved a fire-resistant grease, which we are starting to take out to the steel and mining customers on a global basis as well. So that's one of the other kind of synergies we see coming out of these acquisitions, of getting the strength of both companies together.

I guess, as a follow-on, are these meaningful -- I mean, in most of these acquisitions, you laid out what the run rates or the revenue of the acquired companies were, including Mexico. Well, Mexico's different. On the margin, are you moving the needle on the revenue side, on these incremental opportunities?

Yes, I mean we -- well, I always like to start out saying sales cycles in our business take a long time. I mean, it's not something you turn on a spigot [ph], you say go and you sell it -- so it takes a while to get into this. But we believe we're already starting to see very significant -- significant increases relative to the original number that we made on the aluminum hot rolling. We're seeing a good increase over that existing business that we bought. And then the other businesses are increasing as well. It's just a matter of how fast they will be. So I say overall, they're meaningful contributors to our company's bottom line.

[Operator Instructions] Our next question comes from the line of Scott Blumenthal with Emerald Advisers.

Mike, some of your more recent acquisitions, I think, in the past, you've stated that they came with lower margins than the, I guess, historical legacy Quaker business. Can you maybe talk about what you've done and if you've been successful in improving those and maybe your expectations for being able to continue to improve them?

Yes, I guess we have commented that some of them have a somewhat smaller, lower gross margin percentage than our historic business. But in general, they also tend to have a little bit lower SG&A percentage of sales as well. So that we think that overall, if you get down to kind of an operating income level, that they should be relatively the same. And a key part of all these acquisitions also is kind of that cross-sell of existing Quaker products into these acquisitions' markets.

It would seem to me, Mark, that you would be able to apply the purchasing power that Quaker has to these smaller organizations, at least in the beginning, to be able to drive those margins a little bit higher. Have you been able to see -- have you seen that or...?

I mean, we are certainly taking their raw material buy into the overall Quaker organization and getting some improvement there.

Okay. And, I guess, either one of you can answer this. Do you -- you have a lot of contact with your customers and you mentioned the steel industry utilization between 75% and 80% this year. Do you expect gradual marginal improvement throughout the year, flattish, kind of staying where we are or how do you see that kind of playing out based upon your discussions with your customers?

Yes, I think as Mike tried to mention, we're looking at a better second half of the year in China than first half. We think the government will do a little relaxation of credit. We think the U.S. will be still showing some slow but continual improvement. Europe, as Mike said, is a question, we had hoped that to see an upturn in the second half. It's not quite as clear now there. And Brazil was hampered by the...

By exchange rates.

By the high exchange rates. So I think the governments are going to take some action in Brazil as well on the credit side. So hopefully that will pick up as the year goes on as well.

Mr. Barry, there are no further questions at this time. I'd like to turn the floor back over to you for any closing comments.

Okay. Given no other questions, we'll end the conference call now and I want to thank all of you for your interest today. We're pleased with our results in the first quarter and we continue to be confident in the future of Quaker Chemical. Our next conference call for the second quarter results will be in late July or early August. And if you have any questions in the meantime, please feel free to contact Mark Featherstone or myself. Thanks again for your interest in Quaker Chemical.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.