NewMarket (NEU) Q4 2024 Earnings Call Transcript

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DATE

Tuesday, February 4, 2025 at 3 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Matthew
• Operator

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TAKEAWAYS

• Net income -- $111 million, or $11.56 per share, for the quarter, compared to $80 million, or $8.38 per share, in the prior year period.
• Full-year net income -- $462 million, or $48.22 per share, for 2024, up from $389 million, or $40.44 per share.
• Petroleum additives sales -- $626 million for the quarter, down from $642 million, and $2.6 billion for the year, compared to $2.7 billion previously.
• Petroleum additives operating profit -- $136 million for the quarter, versus $110 million prior; $592 million for the year, compared to $514 million prior year, driven by lower costs.
• Specialty Materials segment sales -- $27 million for the quarter and $141 million for the year, attributed primarily to the AMPAC acquisition and above pre-acquisition expectations.
• Specialty Materials segment operating profit -- $1.5 million for the quarter and $17.5 million for the year, with full-year profit affected by zero-margin sales of acquired AMPAC inventory recorded at fair value.
• Inventory and shipment levels -- Flat full-year shipments, with a small lubricant additives increase offset by a fuel additives decline; quarterly shipments decreased as customers adjusted year-end inventories.
• Net debt-to-EBITDA ratio -- 1.2 at year-end, improving from 1.9 at the end of Q1, reflecting $373 million of revolving credit facility payments.
• Shareholder returns -- $128 million returned through $96 million in dividends and $32 million in share repurchases.
• Strategic acquisition -- AMPAC acquisition completed January 16, 2024, integrating North America’s top manufacturer of additives for rocket motors into the Specialty Materials segment.
• Management outlook -- Management emphasized a continued focus on “operational efficiency,” technology investment, and “long-term objectives.”

SUMMARY

NewMarket Corporation (NYSE:NEU) reported a year-over-year decline in petroleum additives sales but achieved higher operating profit, pointing to cost reductions and operational efficiency. The AMPAC acquisition contributed new revenue to the Specialty Materials segment and was characterized as surpassing management’s financial expectations. Leverage declined as major debt repayment followed the acquisition, and management highlighted consistent cash flows supporting both debt reduction and capital returns.

• Chief Executive Officer Matthew said, “We are very pleased with the performance of our petroleum additives business during 2024 and the work done by our team to achieve four quarters of strong operating profit.”
• The full-year Specialty Materials segment profit included non-recurring, zero-margin sales from acquired AMPAC inventory sold at fair value, potentially impacting year-over-year profitability comparability in future periods.
• Management acknowledged persistent inflationary pressures despite efficiency initiatives.

INDUSTRY GLOSSARY

• AMPAC: Refers to American Pacific Corporation, a manufacturer of performance additives for solid rocket motors, now the core of NewMarket's Specialty Materials segment.

Full Conference Call Transcript

Net income for the fourth quarter of 2024 was $111 million or $11.56 per share, compared to net income of $80 million or $8.38 per share for the fourth quarter of 2023. Net income for the full year 2024 was $462 million or $48.22 per share compared to net income of $389 million or $40.44 per share for 2023. Petroleum additives sales for the fourth quarter of 2024 were $626 million compared to $642 million for the same period in 2023. Petroleum additives operating profit for the fourth quarter of 2024 was $136 million compared to $110 million for the fourth quarter of 2023. The increase in operating profit was mainly due to lower operating costs.

We continue to focus on operational efficiency while still making investments in technology to support our customers. These gains were partially offset by a decrease in shipments, as customers manage year-end inventory levels. For the full year 2024, sales for the petroleum additives segment were $2.6 billion compared to $2.7 billion in 2023. Petroleum additives operating profit for 2024 was $592 million compared to $514 million for 2023. The increase in operating profit was a result of lower operating costs driven by our efficiency efforts, as well as lower raw material costs, offset by lower selling prices. Shipments were flat when comparing 2024 to 2023, with a small increase in lubricant additives offset by a decline in fuel additives.

We are very pleased with the performance of our petroleum additives business during 2024 and the work done by our team to achieve four quarters of strong operating profit. However, we remain challenged by the ongoing inflationary environment despite our efforts to improve efficiency and manage our operating costs. We continue to focus on investing in technology to meet customer needs, optimizing our inventory levels and improving our portfolio profitability. On January 16, 2024, we completed the acquisition of American Pacific Corporation. AMPAC is the leading North American manufacturer of critical performance additives used in solid rocket motors for space launch and military defense applications. We report the financial results of our AMPAC business in our Specialty Materials segment.

Specialty Materials sales were $27 million for the fourth quarter of 2024 and $141 million for the full year, surpassing our pre-acquisition expectations. Specialty Materials operating profit was $1.5 million for the fourth quarter of 2024 and $17.5 million for the full year. The Specialty Materials full year results include the sale of AMPAC finished goods inventory that we acquired at closing and it was recorded at fair value and sold during the year at no margin. We generated solid cash flows throughout the year and made payments of $373 million on our revolving credit facility since the AMPAC acquisition. We returned $128 million to our shareholders through dividends of $96 million and share repurchases of $32 million.

As of December 31, 2024, our net debt-to-EBITDA ratio was 1.2, which was a significant improvement over the 1.9 times, we reported at the end of Q1. As we look ahead to 2025 and beyond, we anticipate continued strength in our petroleum additives and Specialty Materials segments. We’re committed to making decisions that promote long-term value for our shareholders and customers, while staying focused on our long-term objectives. We believe that the core principles guiding our business, a long-term perspective, the safety first culture, customer focused solutions, technology-driven products and a world-class supply chain will continue to all our stakeholders. Matthew, that concludes our planned comments. We are available for questions via e-mail phone.

So please feel free to contact me directly. Thank you all again, and we will talk to you next quarter.

Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.

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