NEU NewMarket Corporation

• Petroleum Additives Sales Up 2.6% in the Third Quarter, 6.9% in the First Nine Months
• Third Quarter Net Income Down 2.2% and Earnings Per Share Up 1.6% versus Third Quarter of 2017
• Nine Months Net Income Down 7.8% and Earnings Per Share Down 6.0% versus Nine Months of 2017
• 385,181 Shares Repurchased in the First Nine Months 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 third quarter and first nine months of 2018.

Net income for the third quarter of 2018 was $58.5 million, compared to net income of $59.8 million for the third quarter of 2017. Earnings per share increased 1.6% to $5.12 per share from $5.04 per share in the prior year period. For the first nine months of 2018, net income was $171.9 million, or $14.78 per share, compared to net income of $186.4 million, or $15.73 per share, for the first nine months of last year.

Sales for the petroleum additives segment for the third quarter of 2018 were $560.5 million, up 2.6% versus the same period last year, due mainly to increased selling prices. Petroleum additives operating profit for the third quarter of 2018 was $75.8 million, a 9.9% decrease over third quarter operating profit last year of $84.2 million. The decrease was due mainly to higher raw material and conversion costs plus unfavorable changes in foreign currency rates, which were only partially offset by increased selling prices. Petroleum additives operating margin for the quarter was 13.5% compared to 15.4% in the prior-year quarter. Shipments between quarterly periods were down 3.6% from the same period last year with decreases in both lubricant additives and fuel additives shipments. All regions except Asia Pacific showed decreases in both lubricant additives and fuel additives shipments.

Petroleum additives sales for the first nine months of the year were $1.7 billion compared to sales in the first nine months of last year of $1.6 billion, or an increase of 6.9%. This increase was due mainly to selling prices, changes in foreign currency rates and product mix. Petroleum additives operating profit for the first nine months of the year was $231.5 million compared to $270.8 million for the first nine months of 2017, or a decrease of 14.5%. The decrease was due mainly to higher raw material and conversion costs, as well as unfavorable changes in foreign currency rates, partially offset by increased selling prices. Petroleum additives operating margin for the first nine months of 2018 was 13.3% compared to 16.6% in the prior-year nine month period. Shipments decreased slightly between periods, with increases in lubricant additives shipments offset by decreases in fuel additives shipments. Asia Pacific was the region contributing to the increase in lubricant additives shipments. Europe and North America were the primary drivers for the decrease in fuel additives shipments.

The effective income tax rate for the third quarter of 2018 was 14.4%, down from the rate of 22.4% in the same period last year. The effective rate for the first nine months of 2018 was 21.6%, down from the rate in 2017 of 25.6%. The rates in both 2018 periods were lower due mainly to the Tax Cuts and Jobs Act of 2017, including the reduction of deferred tax liabilities related to pension contributions.

We have continued to see downward pressure on our operating margins, consistent with the last few quarters, which is directly related to the steady rise in raw material costs we have seen over the past two years. While we have made some progress in adjusting our selling prices to help compensate for the increase in costs, we have continued to experience the lag between when the price increases go into effect and when we start to see margins improve. We expect this lag to continue until raw material prices stabilize. Margin improvement will continue to be our number one priority for the remainder of this year and into 2019.

During the first nine months of 2018, we funded capital expenditures of $55.1 million, paid dividends of $60.8 million and repurchased 385,181 shares of our common stock for a total of $148.6 million, through a combination of borrowing under our revolving credit facility and cash from operations.

We make decisions that we believe will promote the greatest long-term value for our shareholders, customers and employees. We will remain focused on our long-term objectives, including margin improvement in the coming months. 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, October 25, 2018, to review third 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 November 1, 2018 at 11:59 p.m. EDT by dialing 1-877-481-4010 (domestic) or 1-919-882-2331 (international). The replay ID number is 37828. 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 3 months.

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)

        Third Quarter EndedSeptember 30,     Nine Months EndedSeptember 30, 2018     2017 2018     2017 Revenue: Petroleum additives $ 560,522 $ 546,159 $ 1,743,632 $ 1,630,345 All other (a)   2,644     2,257     7,731     8,077   Total $ 563,166   $ 548,416   $ 1,751,363   $ 1,638,422   Segment operating profit: Petroleum additives $ 75,824 $ 84,173 $ 231,494 $ 270,841 All other (a)   (2,295 )   1,093     (1,966 )   2,943   Segment operating profit 73,529 85,266 229,528 273,784 Corporate unallocated expense (5,402 ) (6,534 ) (16,033 ) (17,561 ) Interest and financing expenses (7,807 ) (5,564 ) (18,536 ) (16,496 ) Other income (expense), net   7,994     3,809     24,231     10,773   Income before income tax expense $ 68,314   $ 76,977   $ 219,190   $ 250,500   Net income $ 58,481   $ 59,772   $ 171,931   $ 186,437   Earnings per share - basic and diluted $ 5.12   $ 5.04   $ 14.78   $ 15.73    

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 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)

        Third Quarter EndedSeptember 30,     Nine Months EndedSeptember 30, 2018     2017 2018     2017 Net sales $ 563,166 $ 548,416 $ 1,751,363 $ 1,638,422 Cost of goods sold   422,283   389,539   1,307,838   1,147,232 Gross profit 140,883 158,877 443,525 491,190 Selling, general, and administrative expenses 37,741 43,633 120,653 123,486 Research, development, and testing expenses   34,994   36,545   106,018   111,694 Operating profit 68,148 78,699 216,854 256,010 Interest and financing expenses, net 7,807 5,564 18,536 16,496 Other income (expense), net   7,973   3,842   20,872   10,986 Income before income tax expense 68,314 76,977 219,190 250,500 Income tax expense   9,833   17,205   47,259   64,063 Net income $ 58,481 $ 59,772 $ 171,931 $ 186,437 Earnings per share - basic and diluted $ 5.12 $ 5.04 $ 14.78 $ 15.73 Cash dividends declared per share $ 1.75 $ 1.75 $ 5.25 $ 5.25  

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)

        September 30, 2018     December 31, 2017 ASSETS Current assets: Cash and cash equivalents $ 147,935 $ 84,166 Trade and other accounts receivable, less allowance for doubtful accounts ($178 - 2018; $215 - 2017) 347,903 335,317 Inventories 388,986 383,097 Prepaid expenses and other current assets   30,343     31,074   Total current assets   915,167     833,654   Property, plant, and equipment, at cost 1,417,732 1,474,962 Less accumulated depreciation and amortization   770,925     822,681   Net property, plant, and equipment   646,807     652,281   Intangibles (net of amortization) and goodwill 137,533 144,337 Prepaid pension cost 125,618 66,495 Deferred income taxes 4,628 4,349 Deferred charges and other assets   10,174     11,038   Total assets $ 1,839,927   $ 1,712,154   LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 152,624 $ 159,408 Accrued expenses 94,235 107,999 Dividends payable 18,257 19,055 Income taxes payable 10,866 16,340 Other current liabilities   3,263     13,991   Total current liabilities   279,245     316,793   Long-term debt 818,477 602,900 Other noncurrent liabilities   178,133     190,812   Total liabilities   1,275,855     1,110,505   Shareholders' equity: Common stock and paid-in capital (without par value; issued and outstanding shares - 11,404,031 at September 30, 2018 and 11,779,978 at December 31, 2017) 0 0 Accumulated other comprehensive loss (148,453 ) (145,994 ) Retained earnings   712,525     747,643   Total shareholders' equity   564,072     601,649   Total liabilities and shareholders' equity $ 1,839,927   $ 1,712,154      

NEWMARKET CORPORATION AND SUBSIDIARIES

SELECTED CONSOLIDATED CASH FLOW DATA

(In thousands, unaudited)

        Nine Months EndedSeptember 30, 2018     2017 Net income $ 171,931 $ 186,437 Depreciation and amortization 53,463 39,196 Cash pension and postretirement contributions (61,860 ) (19,566 ) Noncash pension and postretirement expense 4,129 5,976 Working capital changes (69,190 ) (34,945 ) Deferred income tax expense 10,257 8,639 Capital expenditures (55,136 ) (120,973 ) Acquisition of business (net of $1,131 cash acquired) 0 (183,930 ) Net borrowings (repayments) under revolving credit facility 215,619 (146,000 ) Issuance of 3.78% senior notes 0 250,000 Repurchases of common stock (148,649 ) 0 Dividends paid (60,778 ) (62,227 ) All other   3,983     (9,765 ) Increase (decrease) in cash and cash equivalents $ 63,769   $ (87,158 )                  

NEWMARKET CORPORATION AND SUBSIDIARIES

NON-GAAP FINANCIAL INFORMATION

(In thousands, unaudited)

    Third Quarter EndedSeptember 30, Nine Months EndedSeptember 30, 2018 2017 2018 2017 Net Income $ 58,481 $ 59,772 $ 171,931 $ 186,437 Add: Interest and financing expenses, net 7,807 5,564 18,536 16,496 Income tax expense 9,833 17,205 47,259 64,063 Depreciation and amortization   17,958   14,301   52,607   38,380 EBITDA $ 94,079 $ 96,842 $ 290,333 $ 305,376  

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NewMarket CorporationBrian D. Paliotti, 804.788.5555Investor RelationsFax: 804.788.5688investorrelations@newmarket.com