NewMarket Corporation Reports Second Quarter and First Half 2016 Results

27 July 2016
•
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

Richmond, VA, July 27, 2016 – 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.



FOR INVESTOR INFORMATION CONTACT:
Brian D. Paliotti
Investor Relations
Phone:
804.788.5555
Fax:
804.788.5688
Email:
investorrelations@newmarket.com





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