Earnings Call Transcript - KWR Q4 2021

Operator, Operator

Greetings, my name is Darrell, and I will be your call facilitator this morning. At this time, I would like to welcome everyone to Quaker Houghton’s Fourth Quarter and full-year 2021 earnings conference call. A 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 Jeffery Snow, Senior Director of Investor Relations. Mr. Snow, you may begin.

Jeffery Snow, Senior Director of Investor Relations

Thank you, Darrell. Good morning, everyone. Welcome to Quaker Houghton Fourth Quarter and Full Year 2021 Earnings Call. Joining us on the call today are Andy Tometich, our Chief Executive Officer and President, and Shane Hostetter, our Senior Vice President and Chief Financial Officer, and Robert Traub, our General Counsel. Our comments relate to the financial information released after the close of the U.S. markets yesterday, February 24th, 2022. Our press release and accompanying slides can be found on our investor 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. Today's discussion and materials 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 measures 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 Andy.

Andy Tometich, CEO

Thank you, Jeff, and good morning, everyone. In 2021, we made significant progress on our priorities in a very challenging environment. As our team demonstrated resilience, navigating through a variety of headwinds. For the full-year, we delivered 24% revenue growth and approximately 13% higher volumes. We also augmented our portfolio through acquisitions and implemented strong pricing actions to mitigate persistent cost pressures. We generated record sales and record adjusted EBITDA in 2021. We delivered on our $80 million of communicated synergy targets, invested in productivity initiatives, reduced net leverage, and we delivered positive free cash flow. Turning specifically to the fourth quarter, we achieved $447 million of net sales, adjusted EBITDA of approximately $61 million, and adjusted diluted earnings per share of $1.29. Performance in the quarter can be characterized by strong revenue growth fueled by significant pricing actions and healthy demand. However, we were challenged by higher-than-expected raw material cost escalation and supply chain pressures, which in turn impacted our margins. Despite these unprecedented challenges, the team executed well. In the fourth quarter, our revenue increased 16% from the prior year, with progress in all of our segments. Our revenue growth was primarily driven by strong pricing actions throughout the year as well as the positive contribution from acquisitions. Organic volumes declined modestly compared to the prior year, despite new business wins. However, this was a function of lingering supply chain constraints, especially in automotive, as well as some shipping and logistics delays. And lower volumes from business that we divested in conjunction with the combination. Excluding the impact of these items, total organic volume growth was consistent with the prior year period. By operating segment, organic volumes increased in Asia-Pacific and in our Global Specialties business. Excluding the impact of the divested volumes, the America's organic volumes were consistent with the prior year period. While we may have declined because that is where we saw the biggest impact from automotive and delayed shipments. Importantly, pricing increased across all of our operating segments, both on a year-over-year and sequential basis. It's also important to note that our ability to gain new business continues to contribute to our underlying performance as we estimate new business wins contributed approximately 2.5% to sales in the fourth quarter of 2021. This continued success gives us confidence that Quaker Houghton is well-positioned to expand our share of wallet with our customers, especially as they grow. Through our customer intimate model, we deploy our R&D capabilities and leverage the scale of the combined company, with the expectation to continue to outpace market growth rates as we provide value-added solutions to our customers around the world. While sales remained positive for us in the quarter, the clear negatives were, again, the continued increase in our raw material costs, as well as supply chain and logistics constraints. Our basket of raw materials increased another 10% compared to the third quarter. The increase in costs in the fourth quarter were simply higher than we had anticipated. Also, similar to last quarter, in certain instances, raw material availability limited our sales growth. Nonetheless, we continue to prioritize our customer needs, including continuity of supply. Our ability to do so highlights the power of our global scale and our customer intimate model, which are critical to the success of our customers and Quaker Houghton. These increased costs were the primary drivers of the downward pressure on our gross margins in the fourth quarter. Though we have successfully implemented price increases, the magnitude of the inflationary pressures ultimately exceeded our expectations. As such, we have been implementing further pricing actions across our businesses. Our current expectation is that gross margins will begin to improve in 2022. So while I'm pleased with our execution, we have more work to do to recapture our margins as we demonstrate the value of our products and services as key components of our customer intimate model. In total, 2021 marked a significant step change in our profitability as we projected entering the year. We delivered $274 million of adjusted EBITDA for the full year, an increase of approximately 23% compared to the prior year. In 2021, we generated approximately $49 million of operating cash flow despite a significant increase in working capital. Our balance sheet is strong and our net leverage is near our targeted level, all the while, we've remained active on M&A. The four acquisitions we completed in the fourth quarter and early in the first quarter of 2022 expanded our technology capabilities and geographic reach and are expected to add approximately $20 million in revenue and approximately $4 million in adjusted EBITDA for 2022. We will continue to remain opportunistic executing on accretive deals at attractive multiples. Turning to the outlook, demand remains healthy across our end markets with auto being the clear exception as semiconductor chip availability limits production. In the first quarter, we expect to see new net sales, business wins, but we will contend with a difficult volume comparison versus the strong first quarter of 2021. We also faced some headwinds in China as well as the impact from divested volumes. We do anticipate benefiting from prior pricing actions and from the incremental pricing actions we have been taking throughout the quarter. These strategic pricing actions are essential and may also result in reduction of lower margin volumes. As I mentioned earlier, the headwinds that challenged our business in the second half of 2021 remain. As we expect, raw material costs will continue to rise in 2022. But at a decelerating rate with the largest impact in the first half of the year. Considering all factors, we believe gross margins will begin to recover as we progress through the year. We believe 2022 will be another strong year for Quaker Houghton with a net revenue growth above our long-term trend due to pricing. Our playbook has familiar drivers: 1. Growing our end-markets as they continue to recover and expand, 2. Continue to earn new business wins, 3. Capture the benefit from pricing actions, and 4. Improve our product and total gross margins as we work to offset the raw material and other cost inflation. All translating into another year of adjusted EBITDA growth. Stepping back, I'm confident in the growth engine underpinned by the customer intimate strategy at Quaker Houghton. It is a clear differentiator in the marketplace and only possible due to our highly skilled and dedicated people. I'm optimistic about the path forward and encouraged by the demand outlook and momentum in our business. Importantly, I'm convinced that we will continue to grow by providing the best products, services, and solutions to our customers. Our journey is just beginning. Our focus has shifted from integration to maximizing the benefits of our scale footprint and competencies. We can evolve and expand the success of our core business, accelerate our innovation engine for customers around the world, drive deeper customer relationships with tools and capabilities for the future, and get further embedded sustainably in our customers' workflows. We intend to invest to accelerate these growth initiatives over the course of the next few years. We will further develop our capabilities and improve our productivity and profitability as we invest to better enable our customers to keep pace with the demands of a changing world. The future is bright and I'm excited about the opportunities that lie ahead. With that, I'd like to pass the call to Shane to review our financial results in more detail. Shane?

Shane Hostetter, CFO

Thanks Andy and good morning everyone. The drivers of our fourth quarter performance were relatively consistent with the third quarter of this year. As our solid top-line growth was tempered by higher input costs. Net sales of $447 million increased 16% compared to the prior year, driven by a 15% increase in price and 4% from acquisitions, slightly offset by a 2% decline in organic volumes and a 1% unfavorable impact from foreign exchange. In the quarter, we continued to grow more than our underlying markets and were challenged by several items. First, the semiconductor shortages continued to weigh on the automotive markets. Second, supply chain constraints limited availability of certain key raw materials and caused a delay in our shipments. And third, China growth was impacted by certain policies around power restrictions. Additionally, as you may recall, we divested certain businesses in the Americas and EMEA as part of the combination and agreed to supply product to them for a defined term post-closing. As expected, these volumes are now transferring to the acquirer. And this drove an approximate 2% point decline in volumes in the fourth quarter, which will continue into 2022. As Andy mentioned, absent the impact of these divested volumes, total organic growth was flat compared to the prior year. Sequentially, net sales were consistent with the third quarter as our continued efforts around pricing were offset by typical seasonality as well as lower shipments due to the supply chain restrictions I previously mentioned. Gross margins in the fourth quarter were 31.1%. While we had previously anticipated margins to begin to recover this quarter, the pace of raw material cost increases and other inflationary pressures were higher than we had anticipated. Exiting the fourth quarter, we have largely recovered our product margins on a dollars per kilogram of volume sold basis in an effort to achieve our target of offsetting the gross dollar impact of the raw material costs increases this year. Similarly, we have continued to implement further price increases in 2022 to mitigate the ongoing raw material cost impact, as well as beginning our efforts towards the recovery in our overall gross margins percentages. SG&A increased approximately $3 million compared to the prior year, largely due to higher labor-related costs due to year-over-year inflation and additional costs associated with recent acquisitions. To note, we do forecast an increase in SG&A for 2022 largely related to inflationary increases, past acquisitions, as well as costs for certain strategic initiatives, including spending related to IT, R&D, and sustainability processes. The net of this performance resulted in adjusted EBITDA of $61 million for the quarter, which was down 7% compared to the prior-year period. From a segment perspective, we saw strong double-digit growth in net sales in the Americas, global specialty businesses, and Asia-Pacific segments and high single-digit growth in EMEA, which was negatively impacted by a 5% decline due to foreign exchange. This year-over-year increase in sales was driven by higher prices across all segments and an increase in total volumes. As expected, each of the company's segment earnings were impacted by higher raw material and other supply chain related costs. Additionally, adverse product mix also impacted gross margins in the quarter. The Americas segment fared best, with segment operating earnings increasing 7% compared to the prior year period. EMEA results, however, were impacted the most by lower volumes, higher costs, and product mix. Operating earnings in our Asia-Pacific and Global Specialty segments were relatively flat year-over-year as global supply chain pressures offset additional pricing and volumes in each segment. In response to the persistent supply chain pressures we continue to face, we have and we will implement further pricing actions to offset additional raw material cost increases, recapture our dollar product margins, and begin to recapture margin on a percentage basis across all segments into 2022. For the full-year of 2021, each of the Company's segments grew their top line by approximately 20% or more and most of their earnings by double-digits, leading to consolidated segment revenue growth of approximately 24% and consolidated segment earnings growth of 19%. This was led by the Americas, EMEA, and global specialty business performances, where volumes and earnings bounced back from the negative impacts of COVID-19 in the prior year. Asia-Pacific sales increased in the year as well, but at a lesser rate than other segments as China was less impacted by COVID-19 in the prior year. In total, our segment performance drove record adjusted EBITDA of $274 million. This is a strong result in light of all the headwinds we faced during 2021, especially during the second half of the year. From a tax perspective, our effective tax rate excluding certain non-recurring items was 33% for the quarter, compared to 30% in the prior-year period. While our full-year effective tax rate, excluding the non-recurring items was 26%, which is in line with the level we previously anticipated. Going forward, we expect our effective tax rate to roughly remain at this level pending any changes to domestic or foreign legislation. Our non-GAAP earnings per share of $1.29 decreased 21% compared to the prior year period, primarily due to lower earnings drivers I previously mentioned, as well as a higher quarterly effective tax rate. However, on a full-year basis, our record non-GAAP diluted earnings of $685 increased 43% compared to the prior year due to improved performance in all of the company's segments. Shifting to the company's liquidity profile, our net debt of $736 million improved $23 million sequentially. This was driven by our solid free cash flow generation, which allowed us to reduce our net debt while making $10 million of acquisitions, paying $7 million of dividends, and investing in normal capital expenditures in the quarter. For the full year, we generated $49 million of operating cash flow as our strong earnings were offset by significant working capital investments including sales increases which drove higher accounts receivable, as well as higher inventory levels due to higher overall costs as well as additional stock attributable to the global supply chain pressures we incur. Looking ahead to 2022, we expect our working capital investments will go down in 2022 but the level of these investments will continue to reflect the conditions of our global supply chain and overall operating environment. During 2021, the company remained opportunistic with its acquisition strategy completing five acquisitions for approximately $42 million of initial capital outlay. This continued in January as we completed two additional acquisitions for approximately $10 million. All seven of these acquisitions were acquired for multiples of roughly seven to eight times EBITDA. They are all immediately accretive, and they all bring a wealth of opportunity in technology, product reach, and broaden our capabilities to serve our global customers. In addition, we paid approximately $29 million of dividends during 2021, as well as invested $21 million in capital expenditures. And finally, the company's liquidity and leverage remains very healthy with a leverage ratio of 2.7 times adjusted EBITDA at year-end compared to 3.2 times entering the year. Before I hand the call back to Andy, I want to reemphasize our commitment to a prudent capital allocation strategy. This is based on four main pillars: optimizing our capital structure, pursuing accretive M&A, investing in our organic growth and profitability initiatives, and returning excess cash to our shareholders, including through sustainably growing our dividend. Overall, we remain committed to reducing leverage to our target of 2.5 times adjusted EBITDA while balancing other priorities in our capital allocation strategy. As we demonstrated, we will remain opportunistic with accretive acquisitions. Additionally, over the next several years, we will augment our capital expenditures as we further optimize our footprint, systems, and other functions and processes. Notably, we expect total capital expenditures will be between 1.5% to 2.5% of sales compared to 1.2% of sales in 2021. In addition, we expect to incur additional expenses, which will be treated similar to those related to the integration. This additional capital and operating spend represent investments in our business, which will improve our productivity and profitability and better position the company to capitalize on the next phase of its growth. So to summarize, Quaker Houghton executed very well in 2021, despite persistent headwinds that challenged our business and our customers. 2022 will be another solid year for the company as we deliver earnings growth while investing to best position Quaker Houghton for the future. We have a strong balance sheet, our liquidity remains healthy and we believe our capital allocation strategy is prudent and appropriate.

Andy Tometich, CEO

Thank you, Shane. Before we turn the call over for your questions, I want to thank all of our colleagues at Quaker Houghton for their tireless dedication to our company and to our customers. Our results are truly a team effort, and your ongoing commitment is critical to our success. With that, we would be happy to address your questions.

Operator, Operator

Thank you. We'll now be conducting a question-and-answer session. One moment, please, while we poll for your questions. Our first question comes from the line of Mike Harrison with Seaport Global. Please proceed with your questions.

Mike Harrison, Analyst

Hi. Good morning.

Andy Tometich, CEO

Morning, Mike.

Mike Harrison, Analyst

Andy, I was wondering if you could give us a little bit more precision around the outlook and specifically what you think you can do in terms of earnings growth next year. I think when I look at potential improvement in the price-cost situation, some recovery in auto production, full-year's worth of benefits from synergies, some acquisition impact, it seems like you might be able to do something like 10% EBITDA growth for 2022. Maybe give us a sense of how you're seeing those earnings drivers. And also, if you could give some color on the cadence of earnings. Clearly, you've suggested that the first half is still going to see some pressure, maybe improving more in the second half. But just some additional color around the outlook would be appreciated.

Andy Tometich, CEO

Thanks for the question, Mike. Shane, why don't you start?

Shane Hostetter, CFO

Sure. Thanks, Andy. Mike, looking at our growth story and considering our long-term trends in light of 2022, our markets generally grow between 1% to 3% annually, while we typically see growth of 2% to 4% beyond that. We have also shown good operating leverage, which contributes to our earnings growth. There will be no change to that long-term expectation; however, for 2022, we anticipate relatively flat volumes since the underlying market growth is expected to be at the lower end of the long-term range mentioned. Some of our end markets, particularly automotive and aerospace, have not yet returned to pre-COVID levels. The market growth, along with additional business wins next year, will be countered by a few one-off items mentioned earlier, including volumes we have divested. We will also experience further impacts related to China and decreased volumes due to our strategic pricing initiatives aimed at enhancing profitability. On the revenue side, this will go hand in hand with our pricing actions, which we implemented last year, as well as additional measures we will take in 2022 to offset rising raw material costs and align our pricing with the value of our products. Regarding margins, we will continue to face unprecedented raw material cost increases and supply chain disruptions in 2022, with first half impacts expected to be more significant than those in the second half due to the lag between our pricing initiatives and cost changes. Overall, we anticipate gross margins to improve throughout the year, likely beginning after the first quarter. I also mentioned in my remarks some incremental SG&A cost investments this year, which will result in higher than normal SG&A expenses. Overall, we expect both top-line and earnings growth. Looking ahead to Q1, we anticipate new business wins similar to past quarters, but we will face tough comparisons year over year. Last year we had strong performance in China during the first quarter, and this year we are dealing with the Chinese New Year and other impacts related to power disruptions during the Olympics. Automotive sector challenges will also continue to affect the market and the divested volumes. While we expect to benefit from pricing initiatives, raw material costs will keep rising and pressure our margins in Q1. All in all, we expect gross margins to be comparable to the fourth quarter, and as Andy mentioned, we hope for improvement thereafter. Consequently, we predict that the margins and earnings in the first quarter will likely be the lowest for the year. I’ll stop there and see if Andy wants to add anything.

Andy Tometich, CEO

Yeah, I just would like to reinforce, I think that there's nothing different here about the long term, it's not changing. I think we're dealing with a number of unique factors as Shane has characterized for us and I believe the team and our strategies are on top of that to continue to focus on our customer intimate strategy and what's required in this particular period. But the long term we continue to drive towards the growth that we've seen previously.

Mike Harrison, Analyst

All right. Very helpful. Thanks. And then in terms of the auto production situation, it seems like you were managing through that pretty well and didn't see a whole lot of impact from the chip shortage over the last couple of quarters and now it's showing up with a more pronounced impact in Q4. Was there some sort of inventory correction or anything that helps to explain why there seems to have become a bigger issue in Q4?

Andy Tometich, CEO

Maybe I'll start, Mike. I think the automotive chip shortage issue started earlier in 2021, but it's well-publicized that it continued to get worse and lingered. Even recent publications suggest that it can continue into 2023. I think that it's a matter of working its way through the supply chain and we started to see the impact, as Shane indicated, in Q4, and that impact kind of continues.

Mike Harrison, Analyst

All right. And then, the last question for now is on the Ukraine situation. I'm not going to ask you to forecast what's going to happen there, but can you talk about how much exposure you have in Eastern Europe generally and in Russia and Ukraine specifically? And I guess at this point, are you expecting the conflict and some of the sanctions that have been put in place to have a fairly broad impact on your EMEA business? Any color there would be helpful. Thanks.

Andy Tometich, CEO

Yeah, I'll start and then Shane can give some specifics. First and foremost, we do have customers and employees in the affected regions and we're staying on top of their conditions and circumstances. We're in regular contact with them and of course, we're all hoping for a peaceful resolution here and as soon as possible. We do have a crisis management team in place to manage through what's happening there as well as the broader impact. So with that as context, then I'll let Shane give some color to the details.

Shane Hostetter, CFO

Thanks, Andy. The direct impacts are relatively minor from a materiality standpoint. Our business in Russia, Ukraine, and Eastern Europe is challenging; it represents less than 2% of our sales, and we do not source anything from that region directly, which is an important point. The indirect foreign exchange effects are difficult to measure at this moment and largely depend on sanctions and other factors. However, the impact on oil prices could affect us since we use some products made from mineral oil derivatives. In the past, we have successfully managed pricing to offset any increases, and we will continue to do that. Additionally, there are other indirect effects we are monitoring, particularly concerning the automotive sector and other related factors.

Mike Harrison, Analyst

All right. Thanks very much.

Andy Tometich, CEO

Thanks, Mike.

Shane Hostetter, CFO

Thanks, Mike.

Operator, Operator

Thank you. Our next questions come from the line of Laurence Alexander with Jefferies. Please proceed with your questions.

Maria Molina, Analyst

Hi. Good morning. This is Maria Molina, for Laurence. I just have a couple of good questions. 1. Can you comment a bit on your appetite for acquisitions in 2022, and if there's one, what areas you're most interested in, and anything about the size of acquisitions, potential acquisitions?

Shane Hostetter, CFO

Sure. I will go into the sizing. So you might have seen in our press release. So we were to execute in the fourth quarter two acquisitions as well as early in 2022, two additional acquisitions. Exciting on the technology and other product breadth they bring. Even though the sizing of such is not too large, they bring roughly $4 million of adjusted EBITDA to the year. Andy, would you want to talk about anything with the product stuff?

Andy Tometich, CEO

I would just say that the additional technology is reinforcing our customer intimate model and having more solutions available for our customers, so this is a continuation of the strategy. And we believe these accretive deals are going to be very beneficial for us and for our customers.

Maria Molina, Analyst

Thank you. And the second one, do you have any comments on the working capital expectations in 2022?

Shane Hostetter, CFO

Yes. Sure, Maria. In my script, I mentioned the given year was quite an investment in working capital due to high increases in sales as well as inventory cost increases, as well as restocking due to some of the global supply chain pressures. We don't anticipate this to recur. We do anticipate probably a usage as we have sales going up in next year as well as slight cost increases, but nowhere near the level that we had this past year. So in general, we anticipate another strong year of free cash flow in line with prior years to this.

Maria Molina, Analyst

Thank you.

Andy Tometich, CEO

Maria.

Shane Hostetter, CFO

Thanks Maria.

Operator, Operator

Thank you. Our next questions come from the line of Marisa Hernandez with Sidoti. Please proceed with your questions.

Marisa Hernandez, Analyst

So this is Marisa Hernandez from Sidoti. Hopefully, I

Operator, Operator

I'm unable to provide that information.

Marisa Hernandez, Analyst

So I have a couple of questions. First, regarding the volume. You mentioned a 2% decrease in volumes year-over-year. Could you provide some insights on other end markets? I assume that figure was related to a specific market, but did volumes also decline in your other end markets?

Shane Hostetter, CFO

Hi, Marisa. Yes, sure. Overall, our volumes actually increased about 2%, but that included a 4% increase from acquisitions. The 2% decline you're referring to is that figure. In terms of the drivers, we saw healthy demand in most of our end markets, except for automotive and certain other segments like aerospace. There were also some one-time issues related to supply chain constraints, specifically with raw material availability and logistics, which delayed shipments by approximately 2%. Additionally, the volumes we divested in the quarter accounted for another 2% impact. Demand in China also affected our overall numbers. In summary, automotive was the primary market driver in this situation, along with the one-time items I mentioned.

Marisa Hernandez, Analyst

So by end-market, was auto the only one that declined year-over-year?

Shane Hostetter, CFO

I would say that was the primary driver, yes, Marisa.

Marisa Hernandez, Analyst

Okay. Did your shipments to metal customers go up and to what extent?

Shane Hostetter, CFO

So as I think about the metal side of things, they did, I'll correct myself, have a downward pressure into the fourth quarter as well, but that was mainly in the sequential side. From a steel perspective, the capacity in the Americas maintained pretty well, but they was offset in certain other regions having downward pressure in the fourth quarter. The aluminum side of things I think stayed a little bit strong globally. So those are just

Marisa Hernandez, Analyst

Got it. Thank you, Shane. So the other issue I wanted to explore on the quarter itself is on the drivers for the gross margin. Of course, you mentioned the raw material cost inflation, the mix and logistics issues. So to what extent was each of those driver there? You can elaborate on that?

Andy Tometich, CEO

Yeah. So maybe I'll start by highlighting the single biggest factor impacting, obviously, is the raw material escalation and then our ability to then capture that in our value pricing model with our customers as part of our customer intimate approach. So the biggest driver comes in that balance between raw materials and how we implement our pricing strategy. I think to a lesser degree, the mix in some of the supply chain challenges impact. But it is impacted regionally, so bigger impact in some areas than others. It's a little bit difficult to generalize.

Marisa Hernandez, Analyst

Thank you, Andy. So looking into 2022, are you thinking that autos will see some recovery in volumes throughout the year or that's being pushed out more than that?

Andy Tometich, CEO

I wish I had a clearer idea about that, Marisa, because there's quite a bit of discussion regarding this in public forums. Some believe that recovery may begin later in the year. However, new elements, particularly related to the situation in Ukraine, are complicating the outlook. Therefore, it's hard to predict how things will unfold, though we know that some challenges from earlier in the year persist.

Marisa Hernandez, Analyst

Okay. On the transportation side of things, the pressure that you may have had in your difficulty to deliver and difficulty to receive things in the fourth quarter, are you seeing any alleviation there or not yet?

Shane Hostetter, CFO

Marisa, just to remind you, we typically source and utilize products across different segments, including Europe and Asia-Pacific. This involves various modes of transport such as rail, car, and air freight. Overall, we are experiencing some easing, but not a complete alleviation.

Marisa Hernandez, Analyst

Okay. On the pricing side, there's definitely room for reduction, which applies to everyone. Is it becoming more challenging to pass on price increases?

Andy Tometich, CEO

I would say, Marisa, the more times you go to talk with a customer about a price increase, the less receptive they are to enjoy that conversation with you. But I think our team is working very hard. Again, we reinforced the value we bring to the customer, not just the raw material costs. So we're trying to bring that package of information to the customers as we're moving forward with them on pricing. I would say that in certain cases where we may be a little less intimate, it becomes a little more of a challenge and obviously competitors will continue to look for opportunities. But for the most part, we've been able to, because of our customer-intimate model and the value we bring to customers, with the time and the conversation with customers, we've been able to pass those price increases that we targeted on.

Marisa Hernandez, Analyst

Thank you so much.

Andy Tometich, CEO

Thank you, Marisa.

Operator, Operator

Thank you and my apologies on that firm name. Our next questions come from the line of Jon Tanwanteng with CJS Securities. Please proceed with your question.

Jon Tanwanteng, Analyst

Hi. Good morning, everyone. Just wanted to clarify. I think if I'm hearing you correctly, volumes will be down in Q1. I was wondering, could you talk about how much you expect pricing to be increased year-over-year on Q1 just given all the cumulative increases you've done over the last three or four quarters?

Shane Hostetter, CFO

Hey, John, I actually didn't comment on the first quarter on that side from a volume perspective, but I mean, from a pricing side, as I think about going into this year, we had 8% price and mix in the year-to-date, year-over-year. I'm not going to give the first quarter versus the year-to-date, but I would say you probably see something in the same area going into 2022. And depending upon where raw materials go, really, will depend upon the additional pricing on that side of things. So as I mentioned in my script, we're currently engaging in additional pricing for 2022 to offset the raw materials that continue to escalate.

Jon Tanwanteng, Analyst

Okay. Got it. And I was wondering, do you have any specific expectations for exchange rate impacts you're going to see this year?

Shane Hostetter, CFO

Yes. So just in general, as I think about year-over-year, right? The euro trailed at the end of the year compared to the U.S. dollar from a strong perspective. So we'll definitely see an impact year-over-year primarily related to the euro, and potentially the RMB depending upon where China goes, but Europe is definitely the most impactful one from our perspective.

Jon Tanwanteng, Analyst

Okay. And then last of all, just the investments you're making in SG&A. Can you talk about those? What are you expecting to get out of that? What are some of the projects you're thinking about?

Andy Tometich, CEO

Yeah. Maybe I'll start off with that one. In general, it's all around continuing to advance the strategy on customer intimacy, but doing it at an upgraded and scaled way. So I think we're looking at opportunities in our R&D space to be able to take advantage of the capabilities we have more broadly that came together as part of the combination to benefit more customers around the world. We're looking at our IT infrastructure and our ability to really connect in an instantaneous and comprehensive fashion not only internally, but with our customers. And we're going to continue to invest in our sustainability efforts in ways that we can help our customers in their own operations be more sustainable, but even in the ways that we're producing things and the types of raw materials we're sourcing and so forth. So those are the key areas.

Jon Tanwanteng, Analyst

Got it. Thank you very much.

Andy Tometich, CEO

Thanks, Jon.

Operator, Operator

Thank you. There are no further questions at this time. I would now like to turn the call back over to management for any closing comments.

Andy Tometich, CEO

Okay. Well, the future of Quaker Houghton really has never been brighter and I truly believe we are just getting started. We're committed to executing on delivering sustainable value for our shareholders. And I'm really looking forward to meeting with many of you during the course of the year. Thank you for your interest in Quaker Houghton. And of course, please reach out with any follow-up questions.

Operator, Operator

This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.