NewMarket Corp (NEU) 2016 Q1 法說會逐字稿

Greetings, and welcome to the NewMarket Corporation's first-quarter 2016 financial results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Brian Paliotti, CFO for NewMarket Corporation. Thank you, Sir. You may begin.

Thank you, Michelle, and thanks to everyone for joining us this afternoon. With me today is Teddy Gottwald, our Chairman and CEO.

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 our SEC filings included in our most recent Form 10-K.

During this call, we may also discuss non-GAAP financial measures included in our earnings release. The earnings release, which can be found on our website, includes a reconciliation of these non-GAAP financial measures to comparable GAAP financial measures.

We intend to file our 10-Q later today. It contains significantly more details on the operations and performance of the Company. Please take time to review it. Our comments today will be referring to the data that was included in last night's press release.

Net income was $62 million or $5.22 a share compared to net income of $64 million or $5.14 a share for the first quarter of last year. Earnings for both first-quarter periods include the impact of valuing an interest rate swap at fair value. Excluding that special item from both periods, earnings for this year's first-quarter would've been $64 million or $5.42 a share. This is an earnings decrease of approximately 2% and an earnings-per-share increase of 3% from last year's performance.

Petroleum additives operating profit for the quarter was $100 million, which is a $5 million or 4.4% lower than last year decrease. Sales for the quarter decreased 8.8% to $508 million compared to sales for the same period last year of $555 million. The decrease in revenue and petroleum additives in the quarterly comparison was mainly driven by lower volumes and price/mix of products.

Petroleum additive shipments for the quarter of -- first quarter of 2016 were down 3.4% from the same period last year. Decreases in lubricant additive shipments in North America and Latin America were partially offset by increases in Asia-Pacific and Europe, and fuel additive decreases in North America and Europe were partially offset by increases in Asia-Pacific and Latin America.

Of the $49 million reduction in revenue, price and shipments accounted for the majority of the change. In the first quarter, we continued to see the impact of destocking early in the period, similar to what we saw at the end of Q4. The rapid decline in crude oil prices in the fourth quarter likely led to some customer destocking in anticipation of lower base oil prices.

On to cash flow for the quarter. Items of note, including our funding of normal dividends of $19 million, and using more cash to fund the normal variations of working capital. We bought back approximately 98,900 shares of stock or $36 million back in the quarter. We continue to operate with very low leverage, with debt to EBITDA remaining below 1.5 times.

For 2016, we expect to see an increase in the level of our capital expenditures to a little higher than 2015, which includes the anticipated spending on our Phase II Singapore investment, as well as a number of improvements to our manufacturing and R&D infrastructure around the globe. In Q1, we ramped up spending to $28 million.

This includes the ongoing spending of the completion of Phase I of our manufacturing facility in Singapore and the continuation of the Phase II investment at that site. Phase I will be operational soon, and the Phase II will be commercially ready in 2018.

We expect the capital expenditures to remain in the higher-than-normal range for each of the next several years in support of our growth plans. This is no change from the position that we discussed at the end of 2015.

Over the past several years, we have made significant investments to expand our capabilities around the world. These investments have been in people, technology, technical centers and production capacity, and we intend to use those new capabilities, along with the new investments mentioned, to improve our abilities to deliver the goods and services that our customers value, and grow shareholder value.

Michelle, that concludes our planned comments. We'd like to open up the lines for questions, please.

(Operator Instructions). Todd Vencil, Sterne Agee.

Brian, would you do me a favor of breaking down the $49 million change in petroleum additive sales year-over-year between shipments, price mix and FX, please?

Sure. Shipments was $14.5 million; price was $27 million; and foreign exchange was approximately $8 million.

Thank you for that. Now looking at it the way we look at it, which is obviously more simplistic than reality, but it looks like we stand a chance of having FX at current levels be a tailwind for the rest of the year. Does that kind of jibe with what you're thinking about? Or am I just being overly simplistic?

Certainly, FX is a little bit better than our horrible first-quarter compare last year. So, not knowing what FX is going to do for the balance of the year, the compare was a difficult compare versus a really bad last year.

If you look at where currency -- various currencies versus the dollar right now, that was -- does it stand to be a benefit this year, based on just where it is today without forecasting?

Based on where it is today, if you take a look at where it was last year, it's better.

Okay. Good. (multiple speakers) Right. Good, thanks. SG&A was a little --

It's still down -- but, Todd, to that point, it's still down versus historical, so.

Still --? Okay. Fair enough. And then SG&A came in -- it was basically, I guess, a little bit below 4Q and below where we are looking for. What's a good level to think about on SG&A for this year?

I would use where we were over the last few years, which has been pretty consistent from an S&A perspective. And then, obviously, the investments in R&D, we've continued to invest there a little bit. Yes, so I would use the last couple of years of growth rates as a pretty good parameter.

Kind of that -- kind of low-to-mid-160's kind of range?

I think that would be fair.

Okay. All right. Thanks a lot.

Sure.

Ivan Marcuse, KeyBanc Capital Markets.

Thanks for taking my questions. Nice quarter. In your -- you talked about a little bit of destocking in the fourth quarter. And then I guess in your prepared remarks, you mentioned a little bit of destocking at the beginning of the quarter.

Did you start to see, and have you seen, a restock with oil? And I'm assuming people are going to assume base oil and everything else are going to follow a rise. So would you expect to see a little bit of a snapback in the second quarter? Or would you start to see that in the first quarter?

Ivan, this is Teddy. We did see considerably better shipments in March than we did in the first part of the quarter, and we are encouraged by that.

Got you. Okay. And then was there a similar -- I've always assumed fuel additives are a little bit more real-time type of deliveries. Did you see some destocking there? or is it all pretty much in the lubricants?

The biggest impact is on the lube side. The supply line is a lot shorter on the fuel side.

Okay. And then the one area where I've been sort of surprised over the last couple of quarters, I would've thought you would've seen some nice growth trends with some low gas prices, and miles driven rising in North America is in the fuel additives. But that's been down. Is there something going on there where maybe some share loss? Or what do you -- how would you explain sort of the opposite direction of the trends? Or does that not make sense?

I think the trends on fuel additives are good. And I think they are tracking somewhat of an upward trend on miles driven. I'm not sure what comparison you're making between quarters, but as I see it --

Well, just year-over-year, you were saying that they are down. And so I was -- and miles driven has been up, because people seem to be driving more. So I was just curious of why that would be.

I don't know. But the miles driven have improved. And a big improvement on a large swing in oil prices is plus or minus 5% in miles driven. So, it's a positive impact when people drive more, but it's not huge.

Okay, great. And then the CapEx you said up, is it still sort of in that $150 million range for the next couple of years? $150 million?

We expect the capital to be higher versus last year over the next couple of years.

Okay. Have you been saying $150 million? Has that changed or no?

No, I mean, we did $126 million last year, so I mean, we are going to have elevated CapEx over the next few years.

All right, thanks.

Yes.

Dmitry Silversteyn, Longbow Research.

Good afternoon and good start to the year. A couple of questions, if I could, just a follow-up. With the lube additives being sort of flattish to down, I think, for four quarters in a row now. And the last couple of quarters were a little bit more intense, due to destocking.

You mentioned that you saw a little bit stronger March. So if we look into the balance of the year, and kind of looking at your order book and what your customers are doing, any reason to believe that volumes aren't going to improve, particularly lube adds as we proceed through the year, either because of restocking may have begun in the second-half, or just because we're in the second quarter, just because you've lapped whatever caused you to have a volume decline over the previous four quarters?

No, Dmitry, fundamentally, nothing has changed from our view of the market as far as the growth of the market and where we play in the market. So, we expect the market to continue to grow at a 1% to 2% rate, and we expect that our volumes will be a little bit better than that over the longer term period. So nothing to read into the last two quarters.

Thanks, Brian, but actually I'm looking sort of the last four quarters, which, targetly, can be called a trend. So, I'm just trying to understand sort of -- in this 1% to 2% market growth environment, you've not been keeping up with it. So, is it a question of your geographic exposure or customer partnerships that you have? Perhaps they are losing some share in the market. Or is it kind of just a delayed reaction to higher base oil price?

I guess my second question is base oil has been trying to move up. We are seeing more and more consistent. Almost every week now, there's a price increase announcement for somebody in base oil for group one, two, three or all three. What have you seen in your raw material purchase basket? And do you expect base oil to sort of pick up for the year in 2016 versus 2015? And if so, at what point are you going to be in a position to be needing to raise prices?

Dmitry, we are seeing the same posted base oil prices that you see. And so we have obviously seen, as crudes moved up from the lows in the fourth quarter to today, we've seen base oil pick up as well. So, as far as that's concerned, we are seeing the same thing that you are articulating.

As far as for the balance of the year, I guess it's anybody's guess on what oil price is going to do. But at this point, we don't see much of a change. We think oil is going to be pretty much close to where it is today.

Okay. So basically going forward, as we look at sort of your margins and your revenue progression, it really will be driven more by volume and mix. And then, in that context, hopefully, we will see flattish to up margins for the balance of the year?

I think that would be fair.

Okay. Thank you, Brian.

Sure.

(Operator Instructions). Todd Vencil, Sterne Agee.

Just a quick follow-up. Interest expense came in, I guess, a little bit higher, a little over $4 million, even sub-$4 million for each quarter all last year. Brian, how are you thinking about that running for the rest of the year?

Hey, Todd, I would think around the $4 million would be sort of like the number you would think about for the balance of the year.

Perfect. Okay, thank you.

And just, Ivan, following up on a question concerning the fuel shipments, inside of the fuel shipments, the mix has an impact from a year-to-year perspective. So, that's one other thing to account for when you're looking at the regional distribution of the fuel shipments from a year-to-year perspective as well.

Okay, Mr. Paliotti, there are no further questions at this time. I would like to turn the floor back over to you for any closing remarks.

All right, Michelle. Thank you very much, and thank you, everyone, for calling in. We'll talk to you next quarter.