NewMarket Earnings Call Insights: Analysis of Europe and Pricing Pressure

NewMarket Corporation (NYSE:NEU) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Analysis of Europe

Ivan Marcuse – KeyBanc Capital Markets: Real quick and the one thing you said in your planned remarks Europe was flat year-over-year I know last year it was down a little bit, but for every other company it seems to – Europe seems to be drag. So what do you think explains your ability to sort of keep the market flat is just where you’re at or is it just I don’t know if you can talk a little bit about that?

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David A. Fiorenza – VP and CFO: Ivan as we’ve discussed a lot of times our business is a little bit contrary economic in the sense that people tend to maintain their cars. So, we didn’t see a big drop off and we haven’t seen certainly any big recovery. Also when I see Europe we always speak about how we the management look at the business and Europe to us is Europe and the Middle East and some other parts of the world so maybe that’s also part of that.

Ivan Marcuse – KeyBanc Capital Markets: Then sequentially did raw materials were – was the basket down a little bit fourth quarter versus – first quarter versus fourth quarter?

David A. Fiorenza – VP and CFO: Yeah, we were talking about that earlier. Raw materials have been as a basket a remarkably benign or flattish. Some are up some are down, sequentially just very modestly lower very, very modestly, year-on-year about the same. So, we’re not seeing big movements in raw materials…

Ivan Marcuse – KeyBanc Capital Markets: And then there has been some base oil price announcements and I know crude is bouncing around and you had some shortages in some other material. So would you expect that basket to sort of increase going through the year?

David A. Fiorenza – VP and CFO: Our planning base from our purchasing team is relatively flattish for the year. They do recognize what you said that some are going up, but some others are going down, so that’s our planning view, relatively flat as a basket.

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Ivan Marcuse – KeyBanc Capital Markets: And then your volumes were flat for the quarter on a year-over-year basis. My understanding is that the market was maybe down 1% to 2%. Are you seeing the same – would you agree with that and do you think, even though your volumes are slight outperforming the overall market?

Thomas E. Gottwald – President and CEO: This is Teddy. I think when we look at last year just anecdotally, a number of our customers saw volume declines in the market in the 5% range. Into this year we’ve been expecting to see better recovery. Is a 1% or 2% decline number a good one? I guess it depends on compared to what time period, but we’re just not seeing good recovery that we expected. We’re still expecting a good year. We’re not counting on the industry turning, but a couple of percentage point improvements would be very welcomed by our customers and by us.

Pricing Pressure

Dmitry Silversteyn – Longbow Research: If you look at, I guess, everything else had a volume in the Petroleum Additives segment, and it looked like it was slightly, slightly positive. I know there’s foreign exchange in there and price and mix and what not and you’ve talked about mix being positive. We’ve had some price concessions by your downstream customers amongst the lube blenders, are you experiencing any kind of pricing pressure in your markets either in lubes or in fuels?

Thomas E. Gottwald – President and CEO: Dmitry, we generally don’t talk about our pricing, but I’m not aware of a lot of price concessions among our customers with their customers.

Dmitry Silversteyn – Longbow Research: Well, I think there was a fairly public announcement in December that in the mass merchant business at least there were some price concessions given. But so, okay, I guess what I’m driving at is as David mentioned on the earlier question, the base oil pricing is a little bit more benign these days and maybe not so much in Group I, but certainly in Group II and III which you buy less off and that’s not as big of a contributor to your raw material basket as some of the additives. But even the additive guys are talking about some softness in pricing. So I was just wondering, if you’re experiencing any kind of pressure for customers or if you’re still selling value and are able to hold onto pricing?

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Thomas E. Gottwald – President and CEO: Yes, we’re still selling value and our general answer is that the industry fundamentals haven’t shifted and we’re still able to price according to the value that we provide.

Dmitry Silversteyn – Longbow Research: You talked about the lube volumes in your lube additives business being up and then the fuel additives being down this quarter. Can you talk about sort of what the drivers of that are and what’s your expectations are for these businesses going through the rest of the year?

Thomas E. Gottwald – President and CEO: I also made the comment that none of those movements were significant. We do have an obligation to report that sort of data we’ve agreed with the SEC, but it wasn’t significant enough for us to draw any conclusion from that what so ever.

Dmitry Silversteyn – Longbow Research: So, it sounds like it was just sort maybe quarterly variations but not so much of a trend in…?

Thomas E. Gottwald – President and CEO: That is correct. We did have that 6% plus improvement from 4Q.

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Dmitry Silversteyn – Longbow Research: So, there’s no issues with fuel additives that would make you in anyway concerned about the year?

Thomas E. Gottwald – President and CEO: That’s correct.

Dmitry Silversteyn – Longbow Research: You’ve talked about sort of targeting the emerging markets and obviously part of the European sales goes into emerging markets. Can you update us on your progress in Asia and Latin America as far as the market opportunities and what you are doing about exporting those?

Thomas E. Gottwald – President and CEO: Sure. We’ve expanded quite a bit in our geographic presence in terms of sales force, in terms of technical presence and seeing on the ground and getting closer to the customer and understanding their needs is the critical part of it. We’ve spent a lot more money in developing products specifically for customers in those regions and that’s been helpful. We’re seeing significant growth in those regions over the last five years. They continue to be important to us as we look ahead…

Dmitry Silversteyn – Longbow Research: Final question on the tax rate for the year, given the R&D tax credit and how you are going to be accounting for them as well as other considerations? What should we expect for, for the balance of the year in terms of tax rate?

David A. Fiorenza – VP and CFO: 32%.

Dmitry Silversteyn – Longbow Research: So, that would be for the year as a whole which means that since you’ve delivered…

David A. Fiorenza – VP and CFO: Instead of Q2, Q3 and Q4, each we should pay around 32%.

Dmitry Silversteyn – Longbow Research: Then finally, you talk about M&A opportunities or wanted to get or accelerate your growth by some bolt-on acquisition. Obviously, you’re willing to talk about anything that’s growing, but in terms of your overall market environment, seller’s willingness to sell, the fit with your business. Can you talk a little bit about where you are in pursuing some of these opportunities?

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Thomas E. Gottwald – President and CEO: Happy to. We can’t help but, mention the word patience every time we talk about M&A. Our focus is very much on our industry from and M&A standpoint and we continue to scour the world for opportunities, talk with our business team about what’s on their wish list and which ones would be the best fit. They are in the whole lot of desire that we’re aware of on the part of sellers right now, but we continue to stay abreast and try to open doors where we can.

A Closer Look: NewMarket Earnings Cheat Sheet>>

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