NewMarket (NEU) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis of operations, market risk disclosures, and internal controls Financial Statements NewMarket Corporation's unaudited financial statements show mixed results with increased Q3 net income despite lower sales, and stable balance sheet Consolidated Statements of Income Q3 2020 net income significantly increased to $95.8 million despite lower net sales, while nine-month net income remained flat Consolidated Statements of Income Highlights (in thousands, except per-share amounts) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $512,869 | $555,817 | $1,483,150 | $1,655,850 | | Gross profit | $166,607 | $162,727 | $444,252 | $486,429 | | Operating profit | $98,804 | $88,218 | $236,247 | $269,765 | | Net income | $95,794 | $67,805 | $203,684 | $204,184 | | Earnings per share | $8.77 | $6.06 | $18.52 | $18.26 | Condensed Consolidated Balance Sheets Total assets remained stable at $1.88 billion, while reduced long-term debt led to an increase in shareholders' equity Balance Sheet Summary (in thousands) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total current assets | $854,362 | $879,398 | | Total assets | $1,880,122 | $1,885,132 | | Total current liabilities | $308,899 | $308,895 | | Long-term debt | $608,702 | $642,941 | | Total liabilities | $1,156,596 | $1,202,034 | | Total shareholders' equity | $723,526 | $683,098 | Condensed Consolidated Statements of Cash Flows Operating cash flow was $216.3 million, with significant cash used for share repurchases and dividends, leading to a net cash decrease Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Cash from operating activities | $216,320 | $233,247 | | Cash from investing activities | $(41,060) | $(37,132) | | Cash from financing activities | $(200,210) | $(188,579) | | (Decrease) increase in cash | $(26,696) | $6,931 | | Cash at end of period | $117,701 | $79,971 | Notes to Condensed Consolidated Financial Statements Notes detail segment performance, debt structure, and accounting policies, highlighting petroleum additives sales and a new $900 million credit facility Net Sales by Geographic Area (in thousands) | Region | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | United States | $175,086 | $191,830 | $476,858 | $551,875 | | Europe, Middle East, Africa, India | $161,484 | $179,685 | $483,051 | $526,597 | | China | $56,531 | $49,219 | $159,771 | $170,627 | Net Sales by Segment (in thousands) | Segment | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Lubricant additives | $432,938 | $448,629 | $1,240,042 | $1,348,508 | | Fuel additives | $77,342 | $101,997 | $236,313 | $295,621 | | Total Petroleum additives | $510,280 | $550,626 | $1,476,355 | $1,644,129 | - In March 2020, the company entered into a new five-year, $900 million multicurrency revolving credit facility, with $888 million unused at September 30, 2020[49][50][56] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses COVID-19's impact on sales, Q3 recovery, improved operating margins, and the company's strong financial position and capital allocation Impact of COVID-19 and Results of Operations COVID-19 led to a 7.5% decline in nine-month shipment volumes, though Q3 showed recovery and improved petroleum additives operating profit - The COVID-19 pandemic led to a 7.5% decrease in shipment volumes for the first nine months of 2020[74] - Q3 2020 showed signs of recovery, with shipments increasing over 25% from Q2 2020 due to rebounding industrial production[76] Petroleum Additives Segment Operating Profit (in millions) | Period | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Q3 Operating Profit | $102.2 | $94.8 | +$7.4 | | Nine Months Operating Profit | $248.9 | $285.6 | -$36.7 | - The operating profit margin for petroleum additives improved to 20.0% in Q3 2020 from 17.2% in Q3 2019, though slightly decreased to 16.9% for the nine-month period[92] Cash Flows, Financial Condition, and Liquidity The company maintains a strong financial position with $216.3 million in operating cash flow, reduced long-term debt, and compliance with debt covenants - Cash from operations for the first nine months of 2020 was $216.3 million[107] - The company repurchased $101.4 million of common stock and paid $62.7 million in dividends during the first nine months of 2020[111] - Total long-term debt as a percentage of total capitalization decreased from 48.5% at December 31, 2019, to 45.7% at September 30, 2020[116] - Total capital spending for 2020 is expected to be in the range of $75 million to $85 million[110] Outlook Management anticipates market stabilization and long-term growth of 1-2% for petroleum additives, while continuing strategic investments and evaluating cash uses - The company aims to provide a 10% compounded return per year for shareholders over any five-year period[119] - The petroleum additives market is expected to grow 1% to 2% annually long-term, with the company planning to exceed this rate[120] - Acquisitions primarily target the petroleum additives industry, with ongoing evaluation of cash uses including stock repurchases and dividends[122] Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risk were reported as of September 30, 2020, compared to the 2019 Annual Report - As of September 30, 2020, no material changes in market risk were reported compared to the 2019 Annual Report disclosures[123] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Disclosure controls and procedures were concluded to be effective by management as of the reporting period end[124] - No material changes to internal control over financial reporting occurred during the quarter ended September 30, 2020[125] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, and details on equity security sales and use of proceeds Legal Proceedings No material changes to the company's legal proceedings were reported compared to the 2019 Annual Report - No material changes to legal proceedings were reported compared to the 2019 Annual Report disclosures[127] Risk Factors No material changes to the company's risk factors were reported for the nine months ended September 30, 2020 - No material changes to risk factors were reported for the nine months ended September 30, 2020[128] Unregistered Sales of Equity Securities and Use of Proceeds The company has a $500 million share repurchase program, with $399 million remaining as of September 30, 2020, after Q3 repurchases - A share repurchase program authorizes up to $500 million in common stock buybacks until December 31, 2021[129] Issuer Purchases of Equity Securities (Q3 2020) | Period | Total Shares Purchased | Average Price Paid per Share | Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | | July 1 to July 31 | 3,835 | $373.88 | $398,566,341 | | August 1 to August 31 | 0 | $0.00 | $398,566,341 | | September 1 to September 30 | 0 | $0.00 | $398,566,341 | | Total | 3,835 | $373.88 | $398,566,341 |