RICHMOND, Va.--(BUSINESS WIRE)--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 2016.
Net income for the third quarter of 2016 was $71.4 million, or $6.03 per share, compared to net income of $62.0 million, or $5.08 per share, for the third quarter of 2015. For the first nine months of 2016, net income was $197.8 million, or $16.68 per share, compared to net income of $184.7 million, or $14.94 per share, for the first nine months of last year. Net income for all periods included the impact of valuing an interest rate swap at fair value. Excluding this item, third quarter 2016 earnings were $71.1 million, or $6.00 per share, compared to $64.1 million, or $5.25 per share, last year. On the same basis, earnings for the first nine months of this year were $200.7 million, or $16.93 per share, compared to $187.4 million, or $15.16 per share, last year (see Summary of Earnings table below). In September 2016, the interest rate swap agreement was terminated.
Petroleum additives operating profit for the third quarter of 2016 was $106.4 million, a 5.8% increase over third quarter operating profit last year of $100.5 million. The increase was primarily due to lower raw material and conversion costs, partially offset by decreases in selling prices. Sales for the petroleum additives segment for the third quarter of 2016 were $512.4 million, down 4.4% versus the same period last year, due mainly to changes in selling prices and mix. Shipments between the quarterly periods were flat compared to the same period last year, as the decrease in lubricant additive shipments was offset by an increase in fuel additives shipments. Lower lubricant additives shipments in the North America, Latin America, and European regions were partially offset by an increase in Asia Pacific. North America was the primary driver for the increase in fuel additives shipments.
For the first nine months of the year, operating profit for the petroleum additives segment was $309.3 million compared to $299.6 million for the first nine months of 2015, or an increase of 3.2%. The increase was primarily due to lower raw material and conversion costs, partially offset by decreases in selling prices and shipments. Sales for the first nine months of the year were $1,535 million compared to sales in the first nine months of last year of $1,648 million, or a decrease of 6.9%. This decrease was due mainly to changes in selling prices, mix and lower shipments. Shipments decreased 1.6% between periods, as the decrease in lubricant additives shipments was partially offset by an increase in fuel additives shipments. The regional drivers for those increases and decreases were consistent with the drivers in the third quarter discussed above.
We continued to generate solid operating cash flows in the first nine months of 2016. During this period, we paid dividends of $56.9 million, funded capital expenditures of $101.7 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 cost of $35.8 million, or an average cost of $362.25 per share. Also during the period, our cash balance increased $94.5 million while our long-term debt increased by $40.5 million.
The petroleum additives segment continues to deliver solid operating results. We remain committed to making investments in order to meet our customers’ ever-changing business needs. 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) | |||||||||||||||
| Third Quarter Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Net Income: | |||||||||||||||
| Net income | $ | 71.4 | $ | 62.0 | $ | 197.8 | $ | 184.7 | |||||||
| Loss (gain) on interest rate swap agreement | (0.3 | ) | 2.1 | 2.9 | 2.7 | ||||||||||
| Income excluding the above special item | $ | 71.1 | $ | 64.1 | $ | 200.7 | $ | 187.4 | |||||||
| Diluted Earnings Per Share: | |||||||||||||||
| Net income | $ | 6.03 | $ | 5.08 | $ | 16.68 | $ | 14.94 | |||||||
| Loss (gain) on interest rate swap agreement | (0.03 | ) | 0.17 | 0.25 | 0.22 | ||||||||||
| Income excluding the above special item | $ | 6.00 | $ | 5.25 | $ | 16.93 | $ | 15.16 | |||||||
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, October 27, 2016 to review third quarter and first nine months 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 November 3, 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 13647401. 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; 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 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) |
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| Third Quarter Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Revenue: | ||||||||||||||||
| Petroleum additives | $ | 512,405 | $ | 536,184 | $ | 1,534,660 | $ | 1,648,312 | ||||||||
| All other (a) | 3,685 | 4,749 | 13,164 | 12,896 | ||||||||||||
| Total | $ | 516,090 | $ | 540,933 | $ | 1,547,824 | $ | 1,661,208 | ||||||||
| Segment operating profit: | ||||||||||||||||
| Petroleum additives | $ | 106,385 | $ | 100,515 | $ | 309,305 | $ | 299,592 | ||||||||
| All other (a) | 373 | 1,207 | 1,964 | 3,522 | ||||||||||||
| Segment operating profit | 106,758 | 101,722 | 311,269 | 303,114 | ||||||||||||
| Corporate unallocated expense | (4,990 | ) | (4,196 | ) | (16,396 | ) | (16,751 | ) | ||||||||
| Interest and financing expenses | (4,320 | ) | (3,538 | ) | (12,462 | ) | (10,936 | ) | ||||||||
| Other income (expense), net | 270 | 177 | 1,706 | 297 | ||||||||||||
| Income before special item and income tax expense | 97,718 | 94,165 | 284,117 | 275,724 | ||||||||||||
| Gain (loss) on an interest rate swap agreement (b) | 498 | (3,479 | ) | (4,883 | ) | (4,365 | ) | |||||||||
| Income before income tax expense | $ | 98,216 | $ | 90,686 | $ | 279,234 | $ | 271,359 | ||||||||
| Net income | $ | 71,449 | $ | 62,009 | $ | 197,769 | $ | 184,689 | ||||||||
| Earnings per share - basic and diluted | $ | 6.03 | $ | 5.08 | $ | 16.68 | $ | 14.94 | ||||||||
|
Notes to Segment Results and Other Financial Information |
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| (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. We terminated the interest rate swap on September 7, 2016. | |
| NEWMARKET CORPORATION AND SUBSIDIARIES | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||
|
(In thousands, except per-share amounts, unaudited) |
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| Third Quarter Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net sales | $ | 516,090 | $ | 540,933 | $ | 1,547,824 | $ | 1,661,208 | ||||||||
| Cost of goods sold | 338,689 | 366,162 | 1,016,473 | 1,135,457 | ||||||||||||
| Gross profit | 177,401 | 174,771 | 531,351 | 525,751 | ||||||||||||
| Selling, general, and administrative expenses | 38,848 | 38,298 | 120,176 | 120,762 | ||||||||||||
| Research, development, and testing expenses | 36,715 | 38,849 | 116,651 | 118,652 | ||||||||||||
| Operating profit | 101,838 | 97,624 | 294,524 | 286,337 | ||||||||||||
| Interest and financing expenses, net | 4,320 | 3,538 | 12,462 | 10,936 | ||||||||||||
| Other income (expense), net (a) | 698 | (3,400 | ) | (2,828 | ) | (4,042 | ) | |||||||||
| Income before income tax expense | 98,216 | 90,686 | 279,234 | 271,359 | ||||||||||||
| Income tax expense | 26,767 | 28,677 | 81,465 | 86,670 | ||||||||||||
| Net income | $ | 71,449 | $ | 62,009 | $ | 197,769 | $ | 184,689 | ||||||||
| Earnings per share - basic and diluted | $ | 6.03 | $ | 5.08 | $ | 16.68 | $ | 14.94 | ||||||||
| Cash dividends declared per share | $ | 1.60 | $ | 1.40 | $ | 4.80 | $ | 4.20 | ||||||||
|
Notes to Consolidated Statements of Income |
||
| (a) | On June 25, 2009, we entered into an interest rate swap, which we terminated on September 7, 2016. Other income (expense), net includes a gain on the interest rate swap of $0.5 million for the third quarter ended September 30, 2016, and losses of $3.5 million for the third quarter ended September 30, 2015, $4.9 million for the nine months ended September 30, 2016 and $4.4 million for the nine months ended September 30, 2015. We did not use hedge accounting to record the changes to fair value of the interest rate swap, and accordingly, any change in the fair value was immediately recognized in earnings. | |
| NEWMARKET CORPORATION AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
|
(In thousands except share amounts, unaudited) |
||||||||
| September 30, | December 31, | |||||||
| 2016 | 2015 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 187,908 | $ | 93,424 | ||||
| Trade and other accounts receivable, less allowance for doubtful accounts ($764 - 2016; $487 - 2015) | 302,931 | 287,967 | ||||||
| Inventories | 328,523 | 351,631 | ||||||
| Prepaid expenses and other current assets | 29,785 | 35,370 | ||||||
| Total current assets | 849,147 | 768,392 | ||||||
| Property, plant, and equipment, at cost | 1,232,343 | 1,128,989 | ||||||
| Less accumulated depreciation and amortization | 757,624 | 726,543 | ||||||
| Net property, plant, and equipment | 474,719 | 402,446 | ||||||
| Prepaid pension cost | 29,135 | 20,430 | ||||||
| Deferred income taxes | 32,084 | 44,729 | ||||||
| Intangibles (net of amortization) and goodwill | 8,835 | 10,907 | ||||||
| Deferred charges and other assets | 9,465 | 39,345 | ||||||
| Total assets | $ | 1,403,385 | $ | 1,286,249 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 127,953 | $ | 128,745 | ||||
| Accrued expenses | 93,621 | 99,511 | ||||||
| Dividends payable | 17,460 | 17,594 | ||||||
| Income taxes payable | 17,388 | 12,773 | ||||||
| Other current liabilities | 11,671 | 5,057 | ||||||
| Total current liabilities | 268,093 | 263,680 | ||||||
| Long-term debt | 531,404 | 490,920 | ||||||
| Other noncurrent liabilities | 126,925 | 144,085 | ||||||
| Total liabilities | 926,422 | 898,685 | ||||||
| Shareholders' equity: | ||||||||
| Common stock and paid-in capital (without par value); issued and outstanding shares - 11,848,654 in 2016 and 11,948,446 in 2015 | 2,096 | 0 | ||||||
| Accumulated other comprehensive loss | (162,571 | ) | (144,526 | ) | ||||
| Retained earnings | 637,438 | 532,090 | ||||||
| Total shareholders' equity | 476,963 | 387,564 | ||||||
| Total liabilities and shareholders' equity | $ | 1,403,385 | $ | 1,286,249 | ||||
| NEWMARKET CORPORATION AND SUBSIDIARIES | ||||||||
| SELECTED CONSOLIDATED CASH FLOW DATA | ||||||||
|
(In thousands, unaudited) |
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| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2016 | 2015 | |||||||
| Net income | $ | 197,769 | $ | 184,689 | ||||
| Depreciation and amortization | 32,739 | 31,378 | ||||||
| Cash pension and postretirement contributions | (19,432 | ) | (20,007 | ) | ||||
| Noncash pension and postretirement expense | 9,609 | 16,946 | ||||||
| Working capital changes | 890 | (32,291 | ) | |||||
| Deferred income tax expense (benefit) | 14,661 | (1,472 | ) | |||||
| Capital expenditures | (101,706 | ) | (84,206 | ) | ||||
| Net borrowings under revolving credit facility | 35,000 | 144,000 | ||||||
| Repurchases of common stock | (35,815 | ) | (180,609 | ) | ||||
| Dividends paid | (56,875 | ) | (51,605 | ) | ||||
| All other | 17,644 | 501 | ||||||
| Increase in cash and cash equivalents | $ | 94,484 | $ | 7,324 | ||||
| NEWMARKET CORPORATION AND SUBSIDIARIES | |||||||||||||||
| NON-GAAP FINANCIAL INFORMATION | |||||||||||||||
|
(In thousands, unaudited) |
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| Third Quarter Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Net Income | $ | 71,449 | $ | 62,009 | $ | 197,769 | $ | 184,689 | |||||||
| Add: | |||||||||||||||
| Interest and financing expenses, net | 4,320 | 3,538 | 12,462 | 10,936 | |||||||||||
| Income tax expense | 26,767 | 28,677 | 81,465 | 86,670 | |||||||||||
| Depreciation and amortization | 11,385 | 10,540 | 31,924 | 30,563 | |||||||||||
| EBITDA | 113,921 | 104,764 | 323,620 | 312,858 | |||||||||||
| Plus (less): loss (gain) on interest rate swap agreement | (498 | ) | 3,479 | 4,883 | 4,365 | ||||||||||
| EBITDA, as adjusted | $ | 113,423 | $ | 108,243 | $ | 328,503 | $ | 317,223 | |||||||