Newmarket (NYSE: NEU) reported Q4 EPS of $4.48, $0.68 worse than the analyst estimate of $5.16. Revenue for the quarter came in at $534.45 million versus the consensus estimate of $540 million.

Profit before income taxes for 2019 was $331.6 million compared to $290.3 million for 2018. Net income for 2019 was $254.3 million, or $22.73 per share compared to net income of $234.7 million, or $20.34 per share, for 2018. Profit before income taxes for the fourth quarter of 2019 was $66.6 million compared to $71.1 million in 2018. Net income for the fourth quarter of 2019 was $50.1 million, or $4.48 per share compared to net income of $62.8 million, or $5.58 per share for the fourth quarter of 2018.

Sales for the petroleum additives segment for the fourth quarter of 2019 were $531.8 million, down 1.0% compared to the same period last year. Petroleum additives operating profit for the fourth quarter of 2019 was $73.6 million, compared to $79.5 million for the fourth quarter of 2018. The decrease was primarily due to changes in selling prices, and foreign currency rates, partially offset by lower raw material costs. Shipments increased 1.4% between periods, with increases in lubricant additives shipments, partially offset by decreases in fuel additives shipments. North America and Europe were the primary drivers for the lubricant additive increases, partially offset by decreases in Asia Pacific. The decrease in fuel additives shipments was primarily driven by Latin America. The increase in shipments between the fourth quarter periods represents the first time since the second quarter 2018 that we have had an increase, with steady improvement reflected in each of the quarters in 2019.

For the year, petroleum additives sales were $2.2 billion compared to sales in 2018 of $2.3 billion. This decrease was due mainly to lower shipments and changes in foreign currency rates, partially offset by increased selling prices. Petroleum additives operating profit for 2019 was $359.2 million compared to $311.0 million for 2018. The increase was mainly due to improved selling prices and lower raw material costs, partially offset by lower shipments. Shipments decreased 5.5% versus 2018 with decreases in both lubricant additives and fuel additives shipments across all regions except North America, which reported an increase in lubricant additives shipments and Asia Pacific, which reported an increase in fuel additives shipments.

In 2019, we began to see a turnaround in the operating performance of petroleum additives as compared to the prior year. In the two years prior to 2019, our operations were affected by a challenging economic environment marked by a sustained increase in raw material costs. While we have seen evidence that this trend improved in 2019, we will continue to make operating margin stability a priority. Petroleum additives operating margin for the rolling four quarters ended December 31, 2019 was 16.5% which is more in line with the historical ranges our shareholders have come to expect.

We are proud of the performance of our petroleum additives business in 2019. As we look forward to 2020 and beyond, we expect continued strength in our operations and the petroleum additives industry as a whole. We will focus our attention on managing our business and operating margins to help ensure a robust future for our company. Our views toward the fundamentals of our industry remain unchanged with the petroleum additives market growing at 1% to 2% for the foreseeable future. We continue to believe that we will exceed that growth rate.

The effective income tax rate for 2019 was 23.3% compared to 19.1% for 2018. While the rate for 2018 was lower due to one-time benefits recorded in 2018 associated with the Tax Reform Act, the rate for 2019 is more consistent with management’s expectations in the post-tax reform environment.

Our business continues to generate strong cash flows. During the year we funded capital expenditures of $59.4 million, paid dividends of $81.7 million, and repaid $123.5 million of borrowings on our revolving credit facility.

We focus our business decisions on promoting the greatest long-term value for our shareholders, customers and employees. This will be evidenced through our ongoing commitment to provide customers with innovative solutions to meet their business needs, investments in our supply capabilities, and technology-driven initiatives. We believe the way 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.

Sincerely,

Thomas E. Gottwald

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