Earnings Call Transcript - KWR Q4 2024

Operator, Operator

Greetings, and welcome to Quaker Houghton Fourth Quarter and Full Year 2024 Earnings Conference Call. Operator provided instructions. 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.

Jeffrey Schnell, Vice President, Investor Relations

Thank you. Good morning. And welcome to our fourth quarter and full year 2024 earnings conference call. On the call today are Joe Berquist, our President and Chief Executive Officer; Tom Coler, 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 24, 2025. Our press release and accompanying slides can be found on our Investor Relations website. Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures and the company has provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measure in the appendix of the presentation materials, which are available on our website. For additional information, please refer to our filings with the SEC. Now it's my pleasure to hand the call over to Joe.

Joe Berquist, President and Chief Executive Officer

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 and 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 digit decline in the aggregate end markets we serve. We continue to outperform these difficult end markets. For the past nine quarters, volumes have been stable on both a year-over-year and sequential basis due to the strength of our business model and net new business wins, which continue to trend within our targeted 2% to 4% range on a global basis. We feel good about our ability to continue to consistently deliver above market performance regardless of the end market environment. Gross margins were 35.2% in 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 steady 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 multichannel 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 FluidCare 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 IKV and Sutai and recently acquired Chemical Solutions & Innovations or CSI in South Africa. We will remain disciplined and we will use excess cash to maintain a strong balance sheet and return cash to our shareholders. In 2024, we returned more than $80 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% 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 and another strong year of cash flow generation. The long term fundamentals of our industry are positive. We are effectively managing what we can control while investing in our capabilities to strengthen our business. Switching to the first 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.

Tom Coler, Executive Vice President and Chief Financial Officer

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 EMEA. 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 EMEA 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 onetime 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%, reflecting the impacts on gross margins in the quarter. Switching to our segment results. Net sales in our Asia Pacific segment increased approximately 5% compared to the prior year, driven by a 5% increase in sales volumes, a 3% contribution from the Sutai acquisition and partially offset by a 3% decrease in selling price and product mix. Volumes in the Asia Pacific segment increased 7% in 2024 driven by new business wins. Growth was consistent in both China and other Asia. 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 EMEA 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 IKV acquisition declined approximately 4% compared to the prior year. EMEA manufacturing PMIs remain in contraction and overall conditions weakened further in the fourth quarter. Segment earnings in EMEA decreased by approximately $5 million compared to the prior year. This was due to lower sales and a decline in segment margins. EMEA segment margins were impacted by manufacturing absorption due to softer volumes, sales mix, primarily lower revenues in the current period related to service revenue and higher raw material costs. We expect to deliver further productivity improvements and efficiencies in the EMEA segment in 2025. Net sales in the Americas declined 8% year-over-year due to lower selling price and product mix of approximately 3%, an unfavorable foreign exchange impact of 4% and a 1% decline in total sales volumes. Industrial activity in the Americas declined further in the fourth quarter, highlighted by broadly lower production rates. We were also impacted by lower sales into aerospace applications. The new business wins were strong in the quarter, equally in metals and metal working, helping to offset the challenging market conditions and customer order patterns into year end. Segment earnings in the Americas declined by $11 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 EMEA and Americas segments as industrial activity weakened further. We expect demand and margins to improve in the first quarter from these lows and believe we are entering 2025 well positioned with our customers to capitalize on an improvement in underlying market conditions. Turning to nonoperating 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 nonrecurring and noncore items, was approximately 34% in the fourth quarter or 29% for the full year. We expect our expected tax rate in 2025 will be approximately 29%. In the fourth quarter, our GAAP diluted earnings per share were $0.81 and our non-GAAP diluted earnings per share were $1.33. For the full year, GAAP and non-GAAP diluted earnings per share were $6.51 and $7.44 respectively. Switching to liquidity. We generated $63 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 2.5% to 3.5% of sales as we complete the buildout of our China facility and invest in some of our growth initiatives. In 2024, we closed on two strategic acquisitions, IKV and Sutai for a total of approximately $40 million. Earlier this month, we also closed on the acquisition of Chemical Solutions & 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 EMEA. 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.

Joe Berquist, President and Chief Executive Officer

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.

Operator, Operator

Operator provided instructions. Our first question is from Mike Harrison with Seaport Research Partners.

Mike Harrison, Analyst, Seaport Research Partners

Just looking at the gross margin performance in Q4, you're down quite a bit from where you started 2024. And I understand some of that seasonality, there's some fixed cost absorption, you mentioned mix, some raw material stuff, maybe kind of a perfect storm during the 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 is that a reasonable assumption for where you would expect to be in 2025?

Joe Berquist, President and Chief Executive Officer

I would say it's in the right ZIP code, 37 to 38. Those are pretty historically high marks for where that margin has been. We definitely saw mix factors and absorption in the fourth quarter. As you mentioned, we think in the first quarter that margin is coming back into that same ZIP code of where we were last year. 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, and as we look at our EBITDA margins we're driving for EBITDA margins into the high teens and eventually to the sort of 20% level. So that range you talked about may flex a little above or below at times. We have a lag in our pricing — we can go and get pricing but it takes time to do that. But I think that's the right ZIP code. We're doing things internally looking at our network, global procurement and initiatives around improving our raw material buying position and simplifying processes internally to become more efficient. So that's the right target range.

Mike Harrison, Analyst, Seaport Research Partners

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 EMEA as you think about starting to grow a little bit faster?

Joe Berquist, President and Chief Executive Officer

We are very happy with the performance in Asia Pacific last year. What's driving that is new business wins. Those markets themselves have also been challenged; they faced some headwinds in the second quarter last year, things slowed down a little. But we did a good job winning back customers that we lost in the '22/'23 pricing cycle. We've also been very successful in gaining new metals business, whether that's in steel or aluminum, and we're getting traction with new winners in battery electric vehicles. China has changed a lot. There are some new suppliers there, whether they're OEMs or component suppliers, and we've shifted our focus to be able to grow with them. You mentioned India. India is a market where manufacturing production is expected to grow significantly over the next decade, and we're very well positioned there. We are winning new mills and new lines in that region as well. Translating those wins back over to Europe and the Americas: a couple of things—2024 got worse in some regions than we had expected. Europe got worse and North America took a turn in the second half with idled capacity and lower operating rates, even in automotive. Despite that, we are seeing similar share gain in those markets. I mentioned Fluid Intelligence earlier — that is an enabler. As new mills are being built globally, we're offering equipment solutions to help get that first fill and support our service capabilities on those mills. So it's a mix of different things: focusing on the customer, enabling our people to make it easier for customers to do business with us, all those things together will help us get back on growth trajectory outside of Asia Pacific.

Mike Harrison, Analyst, Seaport Research Partners

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.

Joe Berquist, President and Chief Executive Officer

I'll let Tom fill in the gaps on FX and incentive comp rebuild. The markets we're in are uncertain, so we're committed to controlling what we can control. We feel good about our ability to continue to win new business and reduce churn. Net new business gains give us confidence; we have a healthy pipeline. We expect markets to gradually improve. When you look at '25 versus '24, the trough in the second half of 2024 gives us a favorable comp. Overall market performance we're anticipating markets will grow 1% to 2%. Even stability would be positive. Drivers include new production coming online and capacity that was taken offline as customers managed inventory in the second half of last year. We expect gross margins to be comparable to 2024 with the $20 million of cost actions, which should drive approximately $15 million of in-year savings and cover investments in growth and normal inflation. Net-net, we expect to grow revenue, EBITDA and earnings next year. Over the long term, our markets should grow 1% to 3%. We plan to continue taking net new business wins above that 2% to 4%. M&A is also part of the plan; the deals we did in 2024 and the recent CSI acquisition demonstrate we are active in the inorganic space and have a pipeline we hope will accelerate growth. You never know what you don't know, but at this point those are the assumptions we're baking into our outlook.

Tom Coler, Executive Vice President and Chief Financial Officer

Just a little bit more input relative to FX. We're viewing FX as likely to be a headwind for us in 2025. For our 2025 outlook we took a hybrid approach, a combination of current spot rates and the forward curve, bringing those two pieces together. In general, we're estimating FX to be a low single digit percent headwind to sales in 2025.

Operator, Operator

Our next question is from David Begleiter with Deutsche Bank.

David Begleiter, Analyst, Deutsche Bank

Joe, what are your expectations for raw materials in 2025?

Joe Berquist, President and Chief Executive Officer

David, we're expecting some stability in raw materials. We're not anticipating volatility one way or another at this point. There were items that hit us in the fourth quarter, primarily in Asia and Europe, but as we head into 2025 we're expecting raw materials to stabilize.

David Begleiter, Analyst, Deutsche Bank

And just on your Americas volumes, how would you expect them to trend in '25? Would it be — would a decline in the first half followed by growth in the second half be consistent with what you're thinking?

Joe Berquist, President and Chief Executive Officer

I think sequentially we'll see improvement from fourth quarter to first quarter. I do think as we go through the year overall conditions will get better. Probably the first quarter will be our lowest quarter. Traditionally, second and third quarters are stronger, then normal seasonal patterns follow. By fourth quarter of this year, we expect many of the new business wins to be a tailwind to the business.

David Begleiter, Analyst, Deutsche Bank

And last, Joe, you mentioned some new capacity coming on. Is that mostly in Asia that you referenced?

Joe Berquist, President and Chief Executive Officer

Actually, it's not only Asia. There is new capacity across Asia—China, India, Southeast Asia—and there is also some new capacity coming online in the U.S.

Operator, Operator

Our next question is from Laurence Alexander with Jefferies.

Laurence Alexander, Analyst, Jefferies

Just one quick follow-on. You mentioned in the remarks sort of secondary elements that dropped out. So does — start 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.

Tom Coler, Executive Vice President and Chief Financial Officer

As Joe mentioned, we've seen some of those gross margin impacts resolve as we move into Q1. We are anticipating the year will build as we go. We anticipate Q1 will be our lower quarter and will build through Q2 and Q3, which are seasonally our strongest periods throughout the year.

Operator, Operator

Our next question is from Jon Tanwanteng with CJS Securities.

Jon Tanwanteng, Analyst, CJS Securities

My first one is just on the refocusing of the market, go-to-market strategy, I guess, as part of the restructuring. Do you think that will improve the growth over the market that you've seen versus your historical rate of the 2% to 4% or does that remain to be seen?

Joe Berquist, President and Chief Executive Officer

I think the 2% to 4% is still the right number. We expect to be and have been on the higher end, mid to high of that range in the face of the markets we're in. Stability and even slight growth in our markets will show up in results. Execution of M&A is another way to get back to mid single digit or high single digit growth. We did a lot of internal work to build scale in critical functional support areas and drive out costs, and there is more to do. We're focused on making it easier for customers to do business with us. That includes branding—some legacy brands remain after acquisitions—optimizing channels, having services that make it easier for customers, rationalizing the portfolio externally and internally, and ensuring the right field coverage. We're prioritizing R&D around Fluid Intelligence and breakthrough innovation. All of these should help sustain the 2% to 4% growth target.

Jon Tanwanteng, Analyst, CJS Securities

Tom, maybe if you could take this one. On 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, maybe relative to growth or is it an absolute number?

Tom Coler, Executive Vice President and Chief Financial Officer

Largely, our cost savings initiatives are targeting SG&A as we refocus around customer intimacy and driving value for our customers. We are continuing to look at opportunities to optimize our manufacturing network, particularly in EMEA. 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 other items. We are balancing short term market dynamics with our long term focus on prudent investments to drive growth and enhance value for our customers.

Jon Tanwanteng, Analyst, CJS Securities

If I could squeeze one more in. Could you talk a little bit more about CSI and what that adds to the portfolio? And is there a bias towards M&A or more share repurchases as you go forward and your leverage continues to fall?

Joe Berquist, President and Chief Executive Officer

CSI is a business in South Africa with a few locations there. They serve the metalworking and metals businesses, and they also have capabilities in operating solutions and advanced solutions. It helps us fill out our portfolio down there, gives us better logistics and helps us grow in that part of the world. We see demand across Africa, especially eastern Africa, with new mills coming online for pipe and other construction metals. Over the next decade consumption and industrialization will continue, and CSI helps us serve that continent and adjacent regions. On capital allocation: the priority is investing in the business, which includes M&A and organic growth. We will continue to pay dividends—our dividend has been continuous since 1972. M&A is the best lever to increase shareholder value. We repurchased $49 million of shares last year and still have over $100 million available under our repurchase authorization. We'll balance share repurchases against other levers including M&A and investments in growth.

Operator, Operator

Our next question is from Arun Viswanathan with RBC Capital Markets.

Arun Viswanathan, Analyst, RBC Capital Markets

First off, on the 2025 comments. I know that there are a lot of price initiatives put in the '22 and '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 play out and should we expect that price dynamic to continue as you recapture some volumes as you move forward?

Joe Berquist, President and Chief Executive Officer

Right now, we're not actively increasing prices unless necessary. Some raw materials have increased and where that occurs we'll seek price adjustments. We also have natural index-based adjustments: as raw materials declined from historic highs, we've seen some deflation in index contracts. Overall for next year we're anticipating stability in raw materials and we expect the mix issues from the fourth quarter to work themselves out as we head into Q1.

Arun Viswanathan, Analyst, RBC Capital Markets

Could you flesh out whether the refocusing on the customer will require higher CapEx or conversely shutting down noncore areas and refocusing on faster growing regions like India? What are some specifics around that strategy?

Joe Berquist, President and Chief Executive Officer

On CapEx: we've been adding to our portfolio to expand the set of offerings we can sell to customers. Some production capabilities are regional—e.g., specialty greases are made in the U.S. and Europe but not elsewhere—so we're building a new plant in China which requires CapEx. We are also shifting resources to the front lines where we can grow, increasing investments in geographies like India and parts of Asia and pulling back in places like Europe as we adjust to new realities there. It's both targeted CapEx and redeploying resources to growth regions.

Tom Coler, Executive Vice President and Chief Financial Officer

Specifically on CapEx for 2025: we are an asset-light business and typically target CapEx as a percent of sales in the 1.5% to 2.5% range. On a normalized basis that's still our go-forward plan. We do have items pushing CapEx up to 2.5% to 3.5% of sales in 2025: the further build out of our new China facility and consolidating our Philadelphia footprint by bringing together R&D labs and administrative corporate facilities. Absent those two items, we'd be in the normalized range.

Arun Viswanathan, Analyst, RBC Capital Markets

On the volume front, Europe has been challenging and North America also. Is industrial production the main driver of better volumes or anything else we should keep in mind?

Joe Berquist, President and Chief Executive Officer

Industrial production is the primary driver—interest rates, consumer sentiment and other macro factors matter. We have a diversified portfolio: aluminum goes into beverage containers, automotive and aerospace; steel goes into construction and cars. So multiple demand drivers matter, but the industrial base is the main thing to watch for the environment we operate in.

Operator, Operator

With no further questions in the queue, I would like to turn the conference back over to Joe for closing remarks.

Joe Berquist, President and Chief Executive Officer

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

Operator, Operator

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