July 27, 2016 - 5:01 PM EDT
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NewMarket Corporation Reports Second Quarter and First Half 2016 Results

  • NewMarket Posts First Half Net Income of $126 Million and Earnings Per Share of $10.65
  • Petroleum Additives First Half Operating Profit of $203 Million
  • Continued Investment in R&D and Capital Expenditures to Fuel Long-Term Growth

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 2016.

Net income for the second quarter of 2016 was $64.4 million, or $5.43 per share, compared to net income of $58.7 million, or $4.72 per share, for the second quarter of 2015. For the first half of 2016, net income was $126.3 million, or $10.65 per share, compared to net income of $122.7 million, or $9.86 per share, for the first half of last year. Net income for all periods included the impact of valuing an interest rate swap at fair value. Excluding this item, second quarter 2016 earnings were $65.3 million, or $5.50 per share, compared to $57.8 million, or $4.65 per share, last year. On the same basis, earnings for the first half of this year were $129.6 million, or $10.92 per share, compared to $123.2 million, or $9.90 per share, last year (see Summary of Earnings table below).

Sales for the petroleum additives segment for the second quarter of 2016 were $516.1 million, down 7.4% versus the same period last year, due mainly to changes in selling prices, mix and lower shipments. Petroleum additives operating profit for the second quarter of 2016 was $102.5 million, a 9.0% increase over second quarter operating profit last year of $94.1 million. The increase was primarily due to lower raw material and conversion costs, partially offset by decreases in selling prices and shipments. Shipments between the quarterly periods were down 1.5% from the same period last year, as the decrease in lubricant additive shipments was only partially offset by an increase in fuel additives shipments. North America and Latin America were the main regions contributing to lower lubricant additives shipments, and North America and Asia Pacific were the primary drivers for the increase in fuel additives shipments.

Petroleum additives sales for the first half of the year were $1,022 million compared to sales in the first half of last year of $1,112 million, or a decrease of 8.1%. This decrease was due mainly to changes in selling prices, mix and lower shipments. Petroleum additives operating profit for the first half of the year was $202.9 million compared to $199.1 million for the first half of 2015, or an increase of 1.9%. The increase was primarily due to lower raw material and conversion costs, partially offset by decreases in selling prices and shipments. Shipments decreased 2.4% between periods, as the decrease in lubricant additives shipments was partially offset by an increase in fuel additives shipments. North America and Latin America were the main regions contributing to lower lubricant additives shipments, and North America and Asia Pacific were the primary drivers for the increase in fuel additives shipments, although those increases were partially offset by a decline in our European region.

We continued to generate solid operating cash flows in the first half of 2016. During this period, we paid dividends of $37.9 million, funded capital expenditures of $64.3 million which included the continued investment in our new manufacturing facility in Singapore, and repurchased 98,867 shares of our common stock for a total of $35.8 million, or an average cost of $362.25 per share.

Our petroleum additives segment continued its solid performance in the second quarter and first half of 2016. Our operating margins remain strong and consistent with our long-term expectations for the performance of our business. We are committed to providing our customers with products and innovative solutions to meet their ever-changing business needs, evidenced by our ongoing robust investments in research and development. In addition, we have completed construction of phase one of our new manufacturing facility in Singapore. Phase two is expected to be completed in 2018 and will more than double our investment there. 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 our stakeholders.

   
Summary of Earnings

(In millions, except per-share amounts)

Second Quarter Ended
June 30,
    Six Months Ended
June 30,
2016     2015 2016     2015
Net Income:
Net income $ 64.4 $ 58.7 $ 126.3 $ 122.7
Loss (gain) on interest rate swap agreement   0.9   (0.9 )   3.3   0.5
Income excluding the above special item $ 65.3 $ 57.8   $ 129.6 $ 123.2
Diluted Earnings Per Share:
Net income $ 5.43 $ 4.72 $ 10.65 $ 9.86
Loss (gain) on interest rate swap agreement   0.07   (0.07 )   0.27   0.04
Income excluding the above special item $ 5.50 $ 4.65   $ 10.92 $ 9.90
 

Sincerely,

Thomas E. Gottwald

The results for this year and last year include the impact of valuing an interest rate swap at fair value. The Company is reporting net income and related per share amounts including this item, as well as excluding it, in the Summary of Earnings table included in the earnings release. The Segment Results and Other Financial Information table included in this earnings release includes a non-GAAP financial measure, Income before Special Items and Income Tax Expense, which is reconciled to a GAAP measure. The Company has also included the non-GAAP financial measure EBITDA in this earnings release. A schedule following the financial statements included in this earnings release is provided reflecting the calculation of EBITDA, defined as income from continuing operations before the deduction of interest and financing expenses, income taxes, depreciation and amortization. EBITDA is shown on the schedule both including and excluding the interest rate swap agreement. The Company believes that even though these items are not required by or presented in accordance with United States generally accepted accounting principles (GAAP), these additional measures enhance understanding of the Company’s performance and period to period comparability. The Company believes that these items 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, July 28, 2016 to review second quarter and first half 2016 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. 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 teleconference replay of the call will be available until August 4, 2016 at 11:59 p.m. EDT by dialing 1-877-660-6853 (domestic) or 1-201-612-7415 (international). The conference ID number is 13640355. 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 (including the additional risks and uncertainties introduced by the recent referendum on the United Kingdom’s membership in the European Union); the impact of fluctuations in foreign exchange rates; an information technology system failure; political, economic, and regulatory factors concerning our products; future governmental regulation; resolution of environmental liabilities or legal proceedings; and our inability to realize expected benefits from investment in our infrastructure or future acquisitions or our inability to successfully integrate 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 2015 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 come up 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,
2016     2015 2016     2015
Revenue:
Petroleum additives $ 516,112 $ 557,363 $ 1,022,255 $ 1,112,128
All other (a)   5,695     3,346     9,479     8,147  
Total $ 521,807   $ 560,709   $ 1,031,734   $ 1,120,275  
Segment operating profit:
Petroleum additives $ 102,531 $ 94,052 $ 202,920 $ 199,077
All other (a)   1,355     216     1,591     2,315  
Segment operating profit 103,886 94,268 204,511 201,392
Corporate unallocated expense (6,136 ) (5,540 ) (11,406 ) (12,555 )
Interest and financing expenses (3,954 ) (3,582 ) (8,142 ) (7,398 )
Other income (expense), net   (197 )   368     1,436     120  
Income before special item and income tax expense 93,599 85,514 186,399 181,559
Gain (loss) on an interest rate swap agreement (b)   (1,527 )   1,522     (5,381 )   (886 )
Income before income tax expense $ 92,072   $ 87,036   $ 181,018   $ 180,673  
Net income $ 64,389   $ 58,733   $ 126,320   $ 122,680  
Earnings per share - basic and diluted $ 5.43   $ 4.72   $ 10.65   $ 9.86  
 

Notes to Segment Results and Other Financial Information

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

The gain (loss) on an interest rate swap agreement represents the change, since the beginning of the reporting period, in the fair value of an interest rate swap which we entered into on June 25, 2009. We are not using hedge accounting to record the changes to fair value of the interest rate swap and, accordingly, any change in the fair value is immediately recognized in earnings.

 
 

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,
2016     2015 2016     2015
Net sales $ 521,807 $ 560,709 $ 1,031,734 $ 1,120,275
Cost of goods sold   343,407     391,001   677,784     769,295  
Gross profit 178,400 169,708 353,950 350,980
Selling, general, and administrative expenses 40,388 40,655 81,328 82,464
Research, development, and testing expenses   40,720     40,118   79,936     79,803  
Operating profit 97,292 88,935 192,686 188,713
Interest and financing expenses, net 3,954 3,582 8,142 7,398
Other income (expense), net (a)   (1,266 )   1,683   (3,526 )   (642 )
Income before income tax expense 92,072 87,036 181,018 180,673
Income tax expense   27,683     28,303   54,698     57,993  
Net income $ 64,389   $ 58,733 $ 126,320   $ 122,680  
Earnings per share - basic and diluted $ 5.43   $ 4.72 $ 10.65   $ 9.86  
Cash dividends declared per share $ 1.60   $ 1.40 $ 3.20   $ 2.80  
 

Notes to Consolidated Statements of Income

 
(a) On June 25, 2009, we entered into an interest rate swap. Other income (expense), net includes a loss on the interest rate swap of $1.5 million for the second quarter ended June 30, 2016, a gain of $1.5 million for the second quarter ended June 30, 2015, and losses of $5.4 million for the six months ended June 30, 2016 and $0.9 million for the six months ended June 30, 2015. We are not using hedge accounting to record the changes to fair value of the interest rate swap, and accordingly, any change in the fair value is immediately recognized in earnings.
 
 

NEWMARKET CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands except share amounts, unaudited)

 
 
    June 30,
2016
    December 31,
2015
ASSETS
Current assets:
Cash and cash equivalents $ 158,136 $ 93,424
Trade and other accounts receivable, less allowance for doubtful accounts ($439 - 2016; $487 - 2015) 303,899 287,967
Inventories 303,475 351,631
Prepaid expenses and other current assets   31,142     35,370  
Total current assets   796,652     768,392  
Property, plant, and equipment, at cost 1,192,321 1,128,989
Less accumulated depreciation and amortization   746,660     726,543  
Net property, plant, and equipment   445,661     402,446  
Prepaid pension cost 26,538 20,430
Deferred income taxes 40,741 44,729
Intangibles (net of amortization) and goodwill 9,242 10,907
Deferred charges and other assets   39,448     39,345  
Total assets $ 1,358,282   $ 1,286,249  
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 135,639 $ 128,745
Accrued expenses 80,303 99,511
Dividends payable 17,449 17,594
Income taxes payable 17,596 12,773
Other current liabilities   7,024     5,057  
Total current liabilities   258,011     263,680  
Long-term debt 521,264 490,920
Other noncurrent liabilities   146,793     144,085  
Total liabilities   926,068     898,685  
Shareholders' equity:
Common stock and paid-in capital (without par value); issued and outstanding shares - 11,848,384 in 2016 and 11,948,446 in 2015 1,109 0
Accumulated other comprehensive loss (153,838 ) (144,526 )
Retained earnings   584,943     532,090  
Total shareholders' equity   432,214     387,564  
Total liabilities and shareholders' equity $ 1,358,282   $ 1,286,249  
 
 

NEWMARKET CORPORATION AND SUBSIDIARIES

SELECTED CONSOLIDATED CASH FLOW DATA

(In thousands, unaudited)

 
 
    Six Months Ended
June 30,
2016     2015
Net income $ 126,320 $ 122,680
Depreciation and amortization 21,082 20,566
Cash pension and postretirement contributions (13,058 ) (13,354 )
Noncash pension and postretirement expense 6,111 11,626
Working capital changes 24,942 (18,365 )
Capital expenditures (64,289 ) (50,047 )
Net borrowings (repayments) under revolving credit facility 25,000 (2,000 )
Repurchases of common stock (35,815 ) (8,000 )
Dividends paid (37,917 ) (34,824 )
All other   12,336     (5,113 )
Increase in cash and cash equivalents $ 64,712   $ 23,169  
 
 

NEWMARKET CORPORATION AND SUBSIDIARIES

NON-GAAP FINANCIAL INFORMATION

(In thousands, unaudited)

 
 
    Second Quarter Ended
June 30,
    Six Months Ended
June 30,
2016     2015 2016     2015
Net Income $ 64,389 $ 58,733 $ 126,320 $ 122,680
Add:
Interest and financing expenses, net 3,954 3,582 8,142 7,398
Income tax expense 27,683 28,303 54,698 57,993
Depreciation and amortization   10,129   10,109     20,539   20,023
EBITDA 106,155 100,727 209,699 208,094
Plus (less): loss (gain) on interest rate swap agreement   1,527   (1,522 )   5,381   886
EBITDA, as adjusted $ 107,682 $ 99,205   $ 215,080 $ 208,980
 

NewMarket Corporation
Brian D. Paliotti
Investor Relations
Phone: 804.788.5555
Fax: 804.788.5688
Email: [email protected]


Source: Business Wire (July 27, 2016 - 5:01 PM EDT)

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