Q3 2019 Earnings Call
Ladies and gentlemen, good day and thank you all for joining this Newmarket Corporation conference call at webcast to review third quarter 2019 financial results. All telephone lines are presently in listen only mode and instructions on how to submit a question will be shared after today's prepared remarks. During today's meeting if you should require operator assistance simply press star.
Zero on your telephone keypad and now for opening remarks, and introductions I'm pleased to turn the floor over to your host Chief Financial Officer Mr., Brian Paliotti. Please go ahead Sir.
Thank you Jim and thanks for joining us this afternoon.
As a reminder of the statements made during this conference call me maybe forward looking.
Factors that could cause actual results to differ materially from those forward looking statements are contained in our earnings release, and our SEC filings, including our most recent Form 10-K .
During this call. We may also discuss non-GAAP financial measure, including our earnings release.
The earnings release, which can be found out on the website includes a reconciliation of non-GAAP financial measure to the comparable GAAP financial measure.
With all their 10-Q. This morning. It contains significantly more details on the operations and performance of our company. Please take time to review it how are you referring to the data that was included in last nights release.
Net income was $68 million or $6. Its extensive share compared to net income of $58 million or $5 in 12 cents a share for the third quarter of last year.
Sales for the petroleum additives segment for the third quarter of 2019 were $551 million compared to sales in the third quarter of 2018 of $561 million.
Decrease was primarily due to lower shipments, partially offset by increased selling prices.
We're pleased with the year to date cost to serve efforts undertaken by our team to operate more efficiently and better serve our customers.
This is evidenced in the lower conversion costs as we gain experience operating a broader supply network with our newer Singapore and Mexico facilities.
It is also showing showing in our lower selling general and administrative costs. This year.
[laughter] shipments decreased 1.6% between the periods, mainly due to decreases in lubricant additive shipments with Asia Pacific in Latin America being the primary drivers for the decrease.
Well this quarter. This year the volume gap has narrowed versus last year, our shipments were off 12% in the first quarter, 8% in the site and 8% in the second.
Well some markets continued to be solved to reduce the size of the overall trends improving.
[noise], we're encouraged by the strong operating property results of our petroleum additives business in 2019 compared to last year. The we must acknowledge that our 2018 results were disappointing.
Our operations for the previous two years were adversely impacted by challenging economic environment marked by multiple quarters of rising raw material cost and softening global demand.
Petroleum additives operating margin for the most recent rolling four quarters, the 16.7%, which is back in the historical mid to upper teen range that we expect from our business.
We will continue to make margin improvement a priority until we see.
Stability.
The effective income tax rate for the third quarter of 2819 was sorry for the third quarter 2019 was 22.4%, which is up from the rate of 14.4% for the same period last year.
In 2018, we had a one time.
Impact in our rate for the third quarter related to the taxi format.
On the casual for the quarter items and don't include our funding over an old dividends up $21 million and our capital spending for the quarter, a $14 million, bringing the year to date capital spend $37 million.
We continue to operate with very little leverage with net debt to EBITDA at 1.3 times.
For 2019, we do expect to see capital expenditures in the 60 $70 million range with several major expansions behind us our capex is focused on quality safety and environmental improvement in our cost to serve efficiency gains.
We continue to make decisions to promote long term value for our shareholders in customers and remain focused on our long term objectives. We believe the fundamentals of the industry as a whole remain unchanged with the petroleum additives market growing at a 1% to 2%.
Annual rate for the foreseeable future. We continue to believe that we will exceed that growth rate over the long term and our team is very focused on generating profitable new business.
[noise], Jim that concludes our remarks, and we'd like to open all forms of Washington.
Absolutely. Thank you and your phone audience joining today, if you'd like to ask a life question over your bank line simply first started one at this time nothing from one because you're right into a Q and a friendly reminder, that if you're joining us today on the speakerphone. Please return to your handset prior to pressing star and want to ensure that your signal does reach our equipment. Once again that is star and.
One if you'd like to ask the life question over the telephone line. We'll go first to line up Dimitri or excuse me Dmitri Silverstein with Buckingham Research. Please go ahead. Your line is open.
[laughter].
Hello Dimitri Your line is open did you signal for a question.
I did and I'm I'm can you hear me.
Yes, Sir please go ahead all right so.
Good afternoon. Thank you for taking my call or couple of questions first of all on how many you if I'm kind of looking up the.
Margin improvement year over year, Oh, you mentioned a.
Raw material and conversion costs, if you look at kind of price and raw material, having him and doesn't have a lower processing and conversion cost that you guys talked about how wide split that up in two buckets in terms of at least relative size up the so drivers.
In a in a margin perspective Dimitri.
I'll have to give me the exact from a dollar perspective that would relate back to margin. So I can give that to your after the call. If that's okay, but from a perspective of what was a larger driver of the two raw materials was a larger driver versus <unk>.
Gotcha, Okay, Dennis I guess I kind of looking at your 10-Q data and the difference between a performance in fuels a little it looks like stepped up though the price mix seems jewels was up mid to high single digits in I'm, sorry, If you will see I'd looks it was you know it was very different it was it looks like be flattish maybe off.
A little bit so was it was it mostly price, but you're still trying to push or was there a mix shift a in terms of no within the product portfolio itself.
On the field and lose side it was more of a product mix shift versus a price.
Okay, that's more of a maximum price okay. If I get all your questions of raw materials was was the bigger driver. If you look at year over year, you haven't quarter on quarter, Oh, how does how did your raw material basket fair talking about third quarter versus third quarter last year versus second quarter <unk>. This year and how do you see that shaping up for for the fourth quarter.
Sure.
In general terms, the your raw material basket, we saw more stability from second quarter third quarter. This year and we didnt see that in 2018 in the third quarter and from a Gulfport perspective, you know, we don't give guidance on what raw materials or we think raw materials are gonna do but from a standpoint of what we saw.
In the two quarters and third in the second this year, we saw more stability that we did last year. Okay. So it sounds like sequentially.
Pricing stable more or less but on year over year was down meaningfully.
Greetings and under really from a raw material perspective, yeah. We saw more stability. This year than we saw the fluctuation of last year that's correct.
Okay.
Have you guys look back they got the IMO 2020 impact on possible impact it didn't happen on the loop and M. fuel industry and you have any kind of have you on what the implementation of low sulfur fuels and im not marine diesel is going to do for your business I'm not sure If York or even in all major player in Marine doesn't but I was just wondering what the English.
Overall, if you got bought about what the impact would be.
We understand so being impact to the additives business and the marine business is not a business that we participate heavily in today and so from the perspective of the industry there'll be an impact and from our perspective, we don't see that much of impacts were not that heavily.
In that segment.
What what kind of an impact would you where you were you thinking about seeing or the industry was thinking about see well I mean, the industry is going to see an impact I mean like I said, we don't play in that market. So I can't comment on what the other players are gonna see or what their impact is gonna be on them.
I I guess my question as Brian want more in general I mean impact doesn't have to get negative so I mean.
Yes, if they're going to be opportunity to do you got more sophisticated loops into the market or or or fuel additives or or vice versa. I'm just trying to understand overall, what the impact is going to be in the industry positive or negative.
Hi, Dimitri I guess.
What I'm trying to articulate is that the direct impact from what I am always gonna do on the market, we don't see immaterial impact to our business I think that there'll be an impact from the players that play in that segment of the could have new products that go into that segment, but we would not have knowledge to what those would be and they were.
Other they'd be positive or negative too.
That segment of the petroleum additives industry gotcha. Okay. Thanks for clarifying that sure you talked about you know various regions experiencing different sort of give me I'm trends both in fuel in lube additives.
I'm sure. If you look at your major regions getting from couldn't can you talk to sort of what the current environment is like it was how it's a different between regions and what's your outlook is for the balance of the year.
Yeah, I would say a what we've seen to this point from a region to region perspective is is sorted follows along with what you've seen from a macro perspective, so you've seen a the north American market be a a little bit more resilient to ups and downs from an economic perspective more softness in a Europe , mainly driven by.
Hi, Germany, and then from a new car sales perspective, and Asia, specifically, China, you're seeing softness and you know we don't know what is going to look like for the balance of this year, but that's what we've seen and that's been reflected in the comments that we made from a regional perspective.
Roger It's all a you didn't mention Latin America anything specific happened in Latin American <unk> not to drive your volumes down this quarter or is it just gives US is macro is Argentina no no nothing specific to meet your I mean, it's just a softness your your continue to see softness just in the then the macro auto industry everywhere in it and so.
As you know some of the regions are more impacted than others due to the demand.
Gotcha Gotcha, well why shouldn't.
In terms of she has generation into cash use how should we think about you're deploying cash you're already pretty onto a levered. So I'm assuming that you Don is not going to be a big user of cash those are gonna be a dividend increases, which we haven't thought leader was gonna be mostly share repurchases.
Well I.
I can tell you that a the uses of cash if all the.
Three steps that we think about one is giving the business everything than it needs in order to continuing to grow from a capex perspective, and we commented on what the Capex is going to look like the second a dividend and we did increase the dividend last quarter. So that is a a potential use of cash and then a acquisitions is a in the petroleum additives space is going to be.
Another use of cash if we can find an opportunity.
And then buybacks are always something from a shareholder is your word perspective that we potentially look out.
Okay. So it okay. So excluding the started liberty of acquisitions that sounds like dividend increases in buybacks would be sort of once you and not much in terms of <unk> needing to pay downs out here.
Oh, well one's going to be given the capex for the business and then we'll evaluate all the other uses of cash in that order of priority.
Right. Okay got it thank you very much.
Okay. Thank you.
Thank you for the question once again, we'll take just a moment or two to allow everyone. Our phone audience to press Star then one if you would like to ask a question or simply need clarification on anything covered in today's release.
A few more moments gentlemen.
[laughter].
Mr. Probably already we have no signals from the phones I'll turn it back to yourself and our leadership team for any additional or closing remarks.
Okay, well, thanks, everyone for calling it and we'll talk to your next quarter.
Ladies and gentlemen, this does conclude todays conference. We thank you all for your participation you may now disconnect your lines and we hope that you enjoy the rest of your day.