Market Overview

NewMarket Corporation Reports Second Quarter and First Half 2018 Results

Share:
  • Second Quarter Net Income of $52.9 Million and Earnings Per Share
    of $4.53
  • First Half Net Income and Earnings Per Share down 10.4% and 9.5%
    versus First Half of 2017
  • Continued Margin Compression Due to Raw Material Costs
  • 322,753 Shares Repurchased in the First Half of 2018

NewMarket Corporation (NYSE:NEU) Chairman and Chief Executive Officer,
Thomas E. Gottwald, released the following earnings report of the
Company's operations for the second quarter and first half of 2018.

Net income for the second quarter of 2018 was $52.9 million, a decrease
of 15.7% compared to net income of $62.7 million for the second quarter
of 2017. Earnings per share declined 14.4% to $4.53 per share from $5.29
per share in the prior year period. For the first half of 2018, net
income was $113.5 million, or $9.67 per share, compared to net income of
$126.7 million, or $10.69 per share, for the first half of last year.

Sales for the petroleum additives segment for the second quarter of 2018
were $596.2 million, up 9.6% versus the same period last year, due
mainly to higher shipments, increased selling prices, and foreign
currency exchange. Petroleum additives operating profit for the second
quarter of 2018 was $71.5 million, a 21.6% decrease over second quarter
operating profit last year of $91.3 million. The decrease was due mainly
to higher raw material and conversion costs plus, unfavorable changes in
foreign currency exchange, which were only partially offset by increased
selling prices and shipments. Petroleum additives operating margin for
the quarter was 12.0% compared to 16.8% in the prior-year quarter.
During the quarter, we continued to see raw material prices increase as
they have over the past several quarters. Shipments between quarterly
periods were up 2.3% from the same period last year with increases in
both lubricant additives and fuel additives shipments. Europe and Latin
America were the main regions contributing to the increase in lubricant
additives shipments, and Europe was the primary driver of the increase
in fuel additives shipments.

Petroleum additives sales for the first half of the year were $1.2
billion compared to sales in the first half of last year of $1.1
billion, or an increase of 9.1%. This increase was due mainly to higher
shipments, foreign currency exchange and increased selling prices.
Petroleum additives operating profit for the first half of the year was
$155.7 million compared to $186.7 million for the first half of 2017, or
a decrease of 16.6%. The decrease was due mainly to higher raw material
costs and conversion costs. Petroleum additives operating margin for the
first six months of 2018 was 13.2% compared to 17.2% in the prior-year
six month period. Shipments increased 1.3% between periods, with
increases in lubricant additives shipments partially offset by decreases
in fuel additives shipments. Europe, Latin America and Asia Pacific were
the main regions contributing to the increase in lubricant additives
shipments. Europe and North America were the primary drivers for the
decrease in fuel additives shipments, partially offset by increases in
Latin America.

The disappointing operating margins we have experienced this year in our
petroleum additives business are directly related to the continued
increases in raw material costs we have seen over the past two years.
Although we have made some progress in adjusting our selling prices to
offset the effects of the higher costs, we have not been able to adjust
sufficiently to offset the cost increases and the lag between when price
increases go into effect and when we begin to see margin recovery. This
lag will continue until we see a period where raw material costs
stabilize in the marketplace. Margin improvement will remain our top
priority throughout the rest of this year.

During the first half of 2018, we funded capital expenditures of $42.6
million, paid dividends of $40.8 million and repurchased 322,753 shares
of our common stock for a total of $123.3 million, through a combination
of borrowing under our revolving credit facility, cash on hand, and cash
from operations.

We are committed to providing long-term value for our shareholders and
customers, and we remain focused on our long-term objectives. We believe
the fundamentals of how we run our business - a long-term view,
safety-first culture, customer-focused solutions, technology-driven
product offerings, and world-class supply chain capability - will
continue to be beneficial for all of our stakeholders.

Sincerely,

Thomas E. Gottwald

The Company has disclosed the non-GAAP financial measure EBITDA and the
related calculation in the schedules included with this earnings
release. EBITDA is defined as income from continuing operations before
the deduction of interest and financing expenses, income taxes,
depreciation and amortization. The Company believes that even though
this item is not required by or presented in accordance with United
States generally accepted accounting principles (GAAP), this additional
measure enhances understanding of the Company's performance and period
to period comparability. The Company believes that this item should not
be considered an alternative to net income determined under GAAP.

As a reminder, a conference call and Internet webcast is scheduled for
3:00 p.m. EDT on Thursday, August 9, 2018, to review second quarter 2018
financial results. You can access the conference call live by dialing
1-877-407-9210 (domestic) or 1-201-689-8049 (international) and
requesting the NewMarket conference call. To avoid delays, callers
should dial in five minutes early. A teleconference replay of the call
will be available until August 16, 2018 at 3:00 p.m. EDT by dialing
1-877-481-4010 (domestic) or 1-919-882-2331 (international). The replay
ID number is 34112. The call will also be broadcast via the Internet and
can be accessed through the Company's website at www.NewMarket.com
or www.investorcalendar.com.
A webcast replay will be available for 30 days.

NewMarket Corporation, through its subsidiaries Afton Chemical
Corporation and Ethyl Corporation, develops, manufactures, blends, and
delivers chemical additives that enhance the performance of petroleum
products. From custom-formulated additive packages to market-general
additives, the NewMarket family of companies provides the world with the
technology to make engines run smoother, machines last longer, and fuels
burn cleaner.

Some of the information contained in this press release constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although NewMarket's management believes
its expectations are based on reasonable assumptions within the bounds
of its knowledge of its business and operations, there can be no
assurance that actual results will not differ materially from
expectations.

Factors that could cause actual results to differ materially from
expectations include, but are not limited to, the availability of raw
materials and distribution systems; disruptions at manufacturing
facilities, including single-sourced facilities; the ability to respond
effectively to technological changes in our industry; failure to protect
our intellectual property rights; failure to attract and retain a
highly-qualified workforce; hazards common to chemical businesses;
competition from other manufacturers; sudden or sharp raw material price
increases; the gain or loss of significant customers; the occurrence or
threat of extraordinary events, including natural disasters and
terrorist attacks; risks related to operating outside of the United
States; the impact of fluctuations in foreign exchange rates; an
information technology system failure or security breach; political,
economic, and regulatory factors concerning our products; current and
future governmental regulations; resolution of environmental liabilities
or legal proceedings; our inability to realize expected benefits from
investment in our infrastructure or from recent or future acquisitions,
or our inability to successfully integrate recent or future acquisitions
into our business; and other factors detailed from time to time in the
reports that NewMarket files with the Securities and Exchange
Commission, including the risk factors in Item 1A. "Risk Factors" of our
2017 Annual Report on Form 10-K, which is available to shareholders upon
request.

You should keep in mind that any forward-looking statement made by
NewMarket in the foregoing discussion speaks only as of the date on
which such forward-looking statement is made. New risks and
uncertainties arise from time to time, and it is impossible for us to
predict these events or how they may affect the Company. We have no duty
to, and do not intend to, update or revise the forward-looking
statements in this discussion after the date hereof, except as may be
required by law. In light of these risks and uncertainties, you should
keep in mind that the events described in any forward-looking statement
made in this discussion, or elsewhere, might not occur.

   

NEWMARKET CORPORATION AND SUBSIDIARIES

SEGMENT RESULTS AND OTHER FINANCIAL INFORMATION

(In thousands, except per-share amounts, unaudited)

 
Second Quarter Ended
June 30,
Six Months Ended
June 30,
2018   2017 2018   2017
Revenue:
Petroleum additives $ 596,202 $ 544,153 $ 1,183,110 $ 1,084,186
All other (a) 2,750   3,035   5,087   5,820  
Total $ 598,952   $ 547,188   $ 1,188,197   $ 1,090,006  
Segment operating profit:
Petroleum additives $ 71,530 $ 91,255 $ 155,670 $ 186,668
All other (a) 406   815   329   1,850  
Segment operating profit 71,936 92,070 155,999 188,518
Corporate unallocated expense (4,967 ) (4,681 ) (10,631 ) (11,027 )
Interest and financing expenses (5,565 ) (5,360 ) (10,729 ) (10,932 )
Other income (expense), net 8,161   3,261   16,237   6,964  
Income before income tax expense $ 69,565   $ 85,290   $ 150,876   $ 173,523  
Net income $ 52,885   $ 62,728   $ 113,450   $ 126,665  
Earnings per share - basic and diluted $ 4.53   $ 5.29   $ 9.67   $ 10.69  

Notes to Segment Results and Other Financial Information

Certain prior year amounts have been reclassified to reflect the
adoption of Accounting Standard Update No. 2017-07,
"Compensation-Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost". There was no impact to income before
income tax expense.

(a)   "All other" includes the results of our tetraethyl lead (TEL)
business, as well as certain contracted manufacturing and services.
   

NEWMARKET CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per-share amounts, unaudited)

 
Second Quarter Ended
June 30,
Six Months Ended
June 30,
2018   2017 2018   2017
Net sales $ 598,952 $ 547,188 $ 1,188,197 $ 1,090,006
Cost of goods sold 453,093   383,717   885,555   757,693
Gross profit 145,859 163,471 302,642 332,313
Selling, general, and administrative expenses 41,999 39,373 82,912 79,853
Research, development, and testing expenses 36,729   37,019   71,024   75,149
Operating profit 67,131 87,079 148,706 177,311
Interest and financing expenses, net 5,565 5,360 10,729 10,932
Other income (expense), net 7,999   3,571   12,899   7,144
Income before income tax expense 69,565 85,290 150,876 173,523
Income tax expense 16,680   22,562   37,426   46,858
Net income $ 52,885   $ 62,728   $ 113,450   $ 126,665
Earnings per share - basic and diluted $ 4.53   $ 5.29   $ 9.67   $ 10.69
Cash dividends declared per share $ 1.75   $ 1.75   $ 3.50   $ 3.50

Notes to Consolidated Statements of Income

Certain prior year amounts have been reclassified to reflect the
adoption of Accounting Standard Update No. 2017-07,
"Compensation-Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost". There was no impact to net income.

   

NEWMARKET CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands except share amounts, unaudited)

 
June 30,
2018
December 31,
2017
ASSETS
Current assets:
Cash and cash equivalents $ 109,789 $ 84,166
Trade and other accounts receivable, less allowance for doubtful
accounts ($182 - 2018; $215 - 2017)
372,156 335,317
Inventories 379,551 383,097
Prepaid expenses and other current assets 31,343   31,074  
Total current assets 892,839   833,654  
Property, plant, and equipment, at cost 1,450,101 1,474,962
Less accumulated depreciation and amortization 800,664   822,681  
Net property, plant, and equipment 649,437   652,281  
Intangibles (net of amortization) and goodwill 139,179 144,337
Prepaid pension cost 77,731 66,495
Deferred income taxes 4,149 4,349
Deferred charges and other assets 10,495   11,038  
Total assets $ 1,773,830   $ 1,712,154  
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 143,918 $ 159,408
Accrued expenses 94,635 107,999
Dividends payable 18,523 19,055
Income taxes payable 11,722 16,340
Other current liabilities 11,221   13,991  
Total current liabilities 280,019   316,793  
Long-term debt 759,843 602,900
Other noncurrent liabilities 181,487   190,812  
Total liabilities 1,221,349   1,110,505  
Shareholders' equity:
Common stock and paid-in capital (without par value; issued and
outstanding shares - 11,465,814 at June 30, 2018 and 11,779,978 at
December 31, 2017)
0 0
Accumulated other comprehensive loss (144,942 ) (145,994 )
Retained earnings 697,423   747,643  
Total shareholders' equity 552,481   601,649  
Total liabilities and shareholders' equity $ 1,773,830   $ 1,712,154  
 

NEWMARKET CORPORATION AND SUBSIDIARIES

SELECTED CONSOLIDATED CASH FLOW DATA

(In thousands, unaudited)

 
Six Months Ended
June 30,
2018   2017
Net income $ 113,450 $ 126,665
Depreciation and amortization 35,220 24,623
Cash pension and postretirement contributions (13,756 ) (12,936 )
Noncash pension and postretirement expense 3,223 4,055
Working capital changes (74,506 ) (51,376 )
Capital expenditures (42,601 ) (85,211 )
Net borrowings (repayments) under revolving credit facility 157,000 (129,574 )
Issuance of 3.78% senior notes 0 250,000
Repurchases of common stock (123,316 ) 0
Dividends paid (40,821 ) (41,484 )
All other 11,730   1,119  
Increase in cash and cash equivalents $ 25,623   $ 85,881  
   

NEWMARKET CORPORATION AND SUBSIDIARIES

NON-GAAP FINANCIAL INFORMATION

(In thousands, unaudited)

 
Second Quarter Ended
June 30,
Six Months Ended
June 30,
2018   2017 2018   2017
Net Income $ 52,885 $ 62,728 $ 113,450 $ 126,665
Add:
Interest and financing expenses, net 5,565 5,360 10,729 10,932
Income tax expense 16,680 22,562 37,426 46,858
Depreciation and amortization 17,270   12,045   34,649   24,079
EBITDA $ 92,400   $ 102,695   $ 196,254   $ 208,534

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