NewMarket Q4 2023 Earnings Report

NewMarket EPS Results

• Actual EPS: $8.38
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

NewMarket Revenue Results

• Actual Revenue: $643.35 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

NewMarket Announcement Details

• Quarter: Q4 2023
• Date: 1/31/2024
• Time: N/A
• Conference Call Date: Thursday, February 1, 2024
• Conference Call Time: 3:00PM ET

NewMarket (NYSE:NEU) is a specialty chemicals and lubricants company headquartered in Richmond, Virginia. Through its Valvoline business, the company markets a broad portfolio of automotive aftermarket products, including engine oils, transmission fluids, greases and vehicle care solutions. Valvoline products are distributed through retail and commercial channels as well as a network of quick-lube service centers that provide oil changes, preventive maintenance and related services.

In its chemical additives segment, NewMarket develops, manufactures and sells performance additives for fuels, lubricants and industrial fluids. These additives are engineered to improve fuel economy, reduce emissions, extend equipment life and enhance engine cleanliness across on-road, off-road and marine applications. The division serves customers in transportation, energy, manufacturing and other heavy-duty industrial markets worldwide.

Founded in 1919, NewMarket has expanded its global footprint through strategic acquisitions and internal growth. The company operates manufacturing and technical centers in North America, Europe, Asia Pacific and Latin America to support local market needs and regulatory requirements. NewMarket’s leadership team emphasizes investment in research and development to advance formulation technologies that meet evolving environmental standards and performance expectations.

NewMarket Q4 2023 Earnings Call Transcript

Key Takeaways

• Full-year 2023 net income rose to $389 million ($40.44/share) from $280 million ($27.77/share), despite Q4 net income dipping to $80 million ($8.38/share) from $91 million ($9.26/share).
• Petroleum Additives operating profit increased to $514 million in 2023 from $378 million in 2022, driven by higher selling prices and favorable product mix, though shipments declined 10.7%.
• Global shipment volumes fell amid economic weakness and inventory rationalization, with only Europe showing modest growth in fuel additive shipments.
• Strong cash generation improved working capital by $134 million, enabled $361 million of debt repayments, and pushed net debt/EBITDA to 0.9 from 2.0, while returning $128 million to shareholders.
• The acquisition of American Pacific Corporation for $700 million expands into critical performance additives for space launch and defense, supported by a new $900 million revolver and $250 million term loan.

Presentation

[Operator]

Good day and welcome to the NewMarket Corporation scheduled conference call and webcast to review the fourth quarter and full year 2023. At this time, all participants are placed on a listen-only mode, and it is now my pleasure to turn the floor over to your host, Mr. Bill Skrobacz. Sir, the floor is yours.

[Bill Skrobacz, VP and CFO at NewMarket Corporation]

Thank you, Ali, and thanks to everyone for joining me this afternoon. As a reminder, some of the statements made during this conference call may be forward-looking. Relevant factors that could cause actual results to differ materially from those forward-looking statements are contained in our earnings release and in our SEC filings, including our most recent Form 10-K. During this call, we will also discuss the non-GAAP financial measures included in our earnings release. The earnings release, which can be found on our website, includes a reconciliation of the non-GAAP financial measures to the comparable GAAP financial measures. We intend to file our 2023 10-K in the middle of February. It will contain significantly more details on the operations and performance of our company. Please review it. I will be referring to the data that was included in last night's release.

[Bill Skrobacz, VP and CFO at NewMarket Corporation]

Net income for the fourth quarter of 2023 was $80 million or $8.38 per share, compared to net income of $91 million or $9.26 per share for the fourth quarter of 2022. Net income for 2023 was $389 million or $40.44 per share, compared to net income of $280 million or $27.77 per share for 2022. Petroleum additive sales for the fourth quarter of 2023 were $642 million, compared to $680 million for the same period in 2022. Petroleum additives operating profit for the fourth quarter of 2023 was $110 million, compared to $117 million for the fourth quarter of 2022.

[Bill Skrobacz, VP and CFO at NewMarket Corporation]

The decrease in operating profit was mainly due to higher operating costs and lower shipments, partially offset by lower raw materials costs. We also experienced lower selling prices, offset by favorable product mix. It's also worth noting that the operating results for both fourth quarter periods were very strong when compared to our historical fourth quarter operating results. Sales for petroleum additives segment for 2023 were $2.7 billion, compared to $2.8 billion in 2022. Petroleum additives operating profit for 2023 was $514 million, compared to $378 million for 2022. The increase in operating profit was a result of selling prices, including favorable product mix, partially offset by lower shipments and higher raw material and operating costs.

[Bill Skrobacz, VP and CFO at NewMarket Corporation]

Shipments decreased 10.7% when comparing 2023 to 2022, with decreases in both lubricant additives and fuel additive shipments in all regions except Europe, which reported a small increase in fuel additive shipments. During 2023, our shipments were impacted by the overall global economic weakness and inventory rationalization, which persists in the chemical industry. We remain challenged by the ongoing inflationary environment and continue to experience increased operating costs. We are maintaining our focus on managing our operating costs, our inventory levels, and our portfolio profitability while continuing our investment in technology. We are very pleased with the performance of our petroleum additives business in 2023 and the work done by our team to achieve four quarters of strong operating profit. We generated solid cash flows throughout the year.

[Bill Skrobacz, VP and CFO at NewMarket Corporation]

Our working capital improved by $134 million, and we made payments of $361 million on our revolving credit facility. We returned $128 million to our shareholders through dividends of $85 million and share repurchases of $43 million. As of December 31st, 2023, our net debt to EBITDA ratio was 0.9%, which was a significant improvement over the December ratio of 2.0% last year. On January 16th, 2024, we completed the acquisition of American Pacific Corporation for approximately $700 million. AMPAC is the leading North American manufacturer of critical performance additives used in solid rocket motors for space launch and military defense applications. The acquisition was funded by cash on hand and borrowings under our revolving credit facility. We expect that AMPAC will be accretive to our net income in 2024.

[Bill Skrobacz, VP and CFO at NewMarket Corporation]

The additional borrowing associated with the AMPAC acquisition increased our net debt to EBITDA ratio, but we remain within our target operating range of 1.5%-2.0%. On January 22nd, we entered into a new five-year, $900 million revolving credit facility that replaced our prior $900 million facility and also entered into a two-year, $250 million unsecured term loan. This term loan gave us additional flexibility to repay borrowings under our revolving credit facility and support our business needs. As we look ahead to 2024 and beyond, we anticipate continued strength in our petroleum additive segment. We also look forward to the integration of AMPAC into the NewMarket family of companies. We continue to make decisions to promote long-term value for our shareholders and customers, and we remain focused on our long-term objectives.

[Bill Skrobacz, VP and CFO at NewMarket Corporation]

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. Ali, that concludes our planned comments. We are available for questions via email or by phone, so please feel free to contact me directly. Thank you all again, and we will talk to you next quarter.

[Operator]

Thank you, sir. This concludes today's call. You may disconnect your lines at this time. Have a wonderful day, and we thank you for your participation.

Participants

Executives

• Bill Skrobacz, VP and CFO