NewMarket Corp
NYSE:NEU
Earnings Call Analysis
Q4-2023 Analysis
NewMarket Corp
NewMarket Corporation reviewed its fourth quarter and full-year performance for 2023, noting a mix of strengths and challenges. Net income for the fourth quarter of 2023 reported a decline to $80 million or $8.38 per share from $91 million or $9.26 per share in the same quarter of the previous year. However, full-year net income saw an impressive rise to $389 million or $40.44 per share from $280 million or $27.77 per share in 2022. Despite a reduction in sales from $680 million to $642 million in Q4 and from $2.8 billion to $2.7 billion year-on-year, the Petroleum Additives segment's annual operating profit increased to $514 million from $378 million. This increase was credited to improved selling prices, a favorable product mix, and continued strong operating performance, even in the face of a 10.7% drop in shipments due to global economic weakness and ongoing inflation, impacting both lubricant and fuel additives shipments across the globe, except for a small increase in fuel additives in Europe.
The company has been actively managing its finance strategy by improving working capital by $134 million and reducing its revolving credit facility debt by $361 million. It has been generous to shareholders, returning $128 million through dividends and share repurchases. Their solid cash flow management resulted in a net debt-to-EBITDA ratio of 0.9, a notable improvement from the previous year's ratio of 2.0.
NewMarket Corporation made a strategic move by acquiring American Pacific Corporation for approximately $700 million, a deal expected to positively impact net income in 2024. While this acquisition increased the net debt-to-EBITDA ratio, the company's strong financial structure kept it within the targeted range of 1.5 to 2.0. The new $900 million revolving credit facility and a $250 million unsecured term loan provide additional financial flexibility to support business needs and manage borrowings.
Looking ahead to 2024, NewMarket Corporation is optimistic about its Petroleum Additives segment and the integration of its latest acquisition, AMPAC. The company remains committed to creating long-term value for shareholders and ensuring a strong financial foundation for continued growth, guided by its emphasis on safety-first culture, customer-focused solutions, technology-driven products, and a world-class supply chain.
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Good day, and welcome to the NewMarket Corporation scheduled conference call and webcast to review the fourth quarter and full year 2023. [Operator Instructions] And it is now my pleasure to turn the floor over to your host, Mr. Bill Skrobacz. Sir, the floor is yours.
Thank you, Ali, and thanks to everyone for joining me this afternoon. 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 in our SEC filings, including our most recent Form 10-K.
During this call, we will also discuss the non-GAAP financial measures included in our earnings release. The earnings release, which can be found on our website, includes a reconciliation of the non-GAAP financial measures to the comparable GAAP financial measures. We intend to file our 2023 10-K in the middle of February. It will contain significantly more details on the operations and performance of our company. Please review it. I will be referring to the data that was included in last night's release.
Net income for the fourth quarter of 2023 was $80 million or $8.38 per share, compared to net income of $91 million or $9.26 per share for the fourth quarter of 2022. Net income for 2023 in was $389 million or $40.44 per share compared to net income of $280 million or $27.77 per share for 2022.
Petroleum additives sales for the fourth quarter of 2023 were $642 million compared to $680 million for the same period in 2022. Petroleum additives operating profit for the fourth quarter of 2023 was $110 million compared to $117 million for the fourth quarter of 2022. The decrease in operating profit was mainly due to higher operating costs and lower shipments, partially offset by lower raw material costs. We also experienced lower selling prices offset by favorable product mix.
It's also worth noting that the operating results for both fourth quarter periods were very strong when compared to our historical fourth quarter operating results.
Sales for Petroleum Additives segment for 2023 were $2.7 billion compared to $2.8 billion in 2022. Petroleum additives operating profit for 2023 was $514 million compared to $378 million for 2022. The increase in operating profit was a result of selling prices, including favorable product mix, partially offset by lower shipments and higher raw material and operating costs. Shipments decreased 10.7% when comparing '23 to 2022, with decreases in both lubricant additives and fuel additives shipments in all regions except Europe, which reported a small increase in fuel additives shipments.
During 2023, our shipments were impacted by the overall global economic weakness and inventory rationalization, which persists in the chemical industry. We remain challenged by the ongoing inflationary environment and continue to experience increased operating costs. We are maintaining our focus on managing our operating costs, our inventory levels and our portfolio profitability while continuing our investment in technology.
We are very pleased with the performance of our Petroleum Additives business in 2023 and the work done by our team to achieve 4 quarters of strong operating profit. We generated solid cash flows throughout the year. Our working capital improved by $134 million and we made payments of $361 million on our revolving credit facility. We returned $128 million to our shareholders through dividends of $85 million and share repurchases of $43 million. As of December 31, 2023, our net debt-to-EBITDA ratio was 0.9, which was a significant improvement over the December ratio of 2.0 last year.
On January 16, 2024, we completed the acquisition of American Pacific Corporation for approximately $700 million. AMPAC is the leading North American manufacturer of critical performance additives used in solid rocket motors for space launch and military defense applications. The acquisition was funded by cash on hand and borrowings under our revolving credit facility. We expect that AMPAC will be accretive to our net income in 2024. The additional borrowing associated with the AMPAC acquisition increased our net debt-to-EBITDA ratio, but we remain within our target operating range of 1.5 to 2.0.
On January 22, we entered into a new 5-year, $900 million revolving credit facility that replaced our prior $900 million facility and also entered into a 2-year, $250 million unsecured term loan. This term loan gave us additional flexibility to repay borrowings under our revolving credit facility and support our business needs.
As we look ahead to 2024 and beyond, we anticipate continued strength in our Petroleum Additives segment. We also look forward to the integration of AMPAC into the new market family of companies. We continue to make decisions to promote long-term value for our shareholders and customers, and we remain focused on our long-term objectives. 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.
Ali, that concludes our planned comments. We are available for questions via e-mail or by phone. So please feel free to contact me directly.
Thank you all again, and we will talk to you next quarter.
Thank you, sir.
This concludes today's call. You may disconnect your lines at this time, and have a wonderful day, and we thank you for your participation.