NewMarket (NEU) - 2022 Q1 - Quarterly Report

Part I Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for Q1 2022, highlighting a decrease in net income and significant balance sheet changes from debt redemption and marketable securities sales Consolidated Statements of Income For Q1 2022, net sales increased to $662.6 million from $566.6 million year-over-year, but net income decreased to $59.3 million from $69.7 million due to higher cost of goods sold and a $7.5 million loss on early debt extinguishment Consolidated Statements of Income (Q1 2022 vs Q1 2021) | (in thousands, except per-share amounts) | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | Net sales | $662,552 | $566,615 | | Gross profit | $155,163 | $161,753 | | Operating profit | $83,290 | $88,501 | | Loss on early extinguishment of debt | $7,545 | $0 | | Net income | $59,318 | $69,712 | | Earnings per share - basic and diluted ($) | $5.75 | $6.38 | | Cash dividends declared per share ($) | $2.10 | $1.90 | Condensed Consolidated Balance Sheets As of March 31, 2022, total assets decreased to $2.28 billion from $2.56 billion at year-end 2021, primarily due to the sale of marketable securities and redemption of long-term debt Condensed Consolidated Balance Sheet Highlights | (in thousands) | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Total current assets | $1,114,334 | $1,388,173 | | Marketable securities | $0 | $375,918 | | Total assets | $2,281,553 | $2,558,436 | | Total current liabilities | $411,699 | $725,087 | | Current portion of long-term debt | $0 | $349,434 | | Total liabilities | $1,521,463 | $1,796,307 | | Total shareholders' equity | $760,090 | $762,129 | Condensed Consolidated Statements of Cash Flows For Q1 2022, operating cash flow sharply decreased to $6.8 million, while investing activities provided $359.4 million from marketable securities sales, and financing activities used $365.8 million for debt redemption and stock repurchases Consolidated Statements of Cash Flows (Q1 2022 vs Q1 2021) | (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--- | :--- | :--- | | Cash provided from (used in) operating activities | $6,781 | $49,371 | | Cash provided from (used in) investing activities | $359,447 | $(20,524) | | Cash provided from (used in) financing activities | $(365,849) | $369,442 | | Increase in cash and cash equivalents | $1,246 | $397,233 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations for financial statement line items, including net sales breakdowns, debt redemption specifics, marketable securities sales, and fair value measurements Net Sales by Geographic Area (Q1 2022 vs Q1 2021) | (in thousands) | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | United States | $224,688 | $170,324 | | China | $52,703 | $73,988 | | Europe, Middle East, Africa, India | $195,987 | $176,650 | | Asia Pacific, except China | $104,841 | $82,597 | | Other foreign | $84,333 | $63,056 | | Total Net sales | $662,552 | $566,615 | Net Sales by Segment (Q1 2022 vs Q1 2021) | (in thousands) | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Petroleum additives | | | | Lubricant additives | $570,042 | $494,556 | | Fuel additives | $90,262 | $70,342 | | Total Petroleum additives | $660,304 | $564,898 | | All other | $2,248 | $1,717 | | Total Net sales | $662,552 | $566,615 | - On March 15, 2022, the company redeemed its 4.10% senior notes with a principal amount of $350 million, recognizing a loss of $7.5 million on the early extinguishment[54] - During the first three months of 2022, the company sold all of its debt and equity marketable securities, which had a fair value of $375.9 million at the end of 2021[41][43] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022 results, noting a 16.9% increase in petroleum additives net sales offset by higher costs, leading to a 7.6% decrease in segment operating profit, alongside key financial activities including stock repurchases, debt redemption, and marketable securities sales Results of Operations Consolidated net sales increased 16.9% to $662.6 million in Q1 2022 due to higher selling prices, but segment operating profit declined by $7.2 million as raw material costs outpaced price increases, reducing the operating profit margin to 13.2% Change in Petroleum Additives Net Sales (Q1 2021 to Q1 2022) | (in millions) | Amount (in millions) | | :--- | :--- | | Net Sales at March 31, 2021 | $564.9 | | Lubricant additives shipments | $(0.4) | | Fuel additives shipments | $2.6 | | Selling prices | $102.3 | | Foreign currency impact, net | $(9.1) | | Net Sales at March 31, 2022 | $660.3 | - Petroleum additives operating profit margin decreased to 13.2% for Q1 2022 from 16.7% for Q1 2021, reflecting the impact of significantly higher raw material costs[90] - The company continues to experience a lag between when raw material cost increases occur and when selling price adjustments can be implemented to recover margins[92] Cash Flows, Financial Condition, and Liquidity The company's financial position remains strong with a $1.2 million cash increase in Q1 2022, despite operating cash flow decreasing to $6.8 million due to working capital investment, while major cash movements included marketable securities sales, debt redemption, and stock repurchases, improving the long-term debt to total capitalization ratio to 52.5% - Cash from operating activities for Q1 2022 was $6.8 million, adjusted for a $67.0 million use of cash to fund higher working capital requirements[106] - Capital expenditures for 2022 are projected to be between $65 million and $75 million[109] - The company redeemed its 4.10% senior notes for $350 million and repurchased $37.3 million of its common stock during the quarter[110][112] - The total long-term debt as a percentage of total capitalization decreased from 59.9% at December 31, 2021 to 52.5% at March 31, 2022[116] Outlook The company aims for a 10% compounded annual return for shareholders over five years, expects the petroleum additives market to grow 1-2% annually, and plans to exceed this rate while continuing investments and evaluating cash uses like acquisitions, stock repurchases, and dividends - The company's stated goal is to provide a 10% compounded return per year for shareholders over any five-year period, defined by EPS growth plus dividend yield[120] - Management expects the petroleum additives market will grow in the 1% to 2% range annually for the foreseeable future, and the company plans to exceed that growth rate over the long-term[121] - The company's primary focus for acquisitions remains on the petroleum additives industry, and it will continue to evaluate all alternative uses of cash, including stock repurchases and dividends, to enhance shareholder value[123] Quantitative and Qualitative Disclosures About Market Risk There were no material changes in market risk from the 2021 Annual Report, except for the elimination of marketable securities price risk and increased interest rate risk from higher variable-rate debt - Marketable securities price risk was eliminated due to the sale of all outstanding securities during the quarter[124] - At March 31, 2022, the company had $199 million in outstanding variable rate debt, where a hypothetical 10% increase in variable interest rates would impact earnings and cash flow by approximately $1.2 million more than at December 31, 2021[125] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report[127] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, the company's internal controls[128] Part II Legal Proceedings There have been no material changes to the company's legal proceedings as disclosed in the 2021 Annual Report - No material changes to legal proceedings were reported for the quarter[130] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 115,796 shares of common stock for $37.3 million in Q1 2022 under its $500 million share repurchase program, with approximately $444 million remaining available as of March 31, 2022 Issuer Purchases of Equity Securities (Q1 2022) | Period | Total Number of Shares Purchased (shares) | Average Price Paid per Share ($) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($) | | :--- | :--- | :--- | :--- | | January 1 to January 31 | 15,359 | $333.89 | $476,686,367 | | February 1 to February 28 | 44,214 | $317.31 | $462,656,920 | | March 1 to March 31 | 56,223 | $323.52 | $444,467,566 | | Total | 115,796 | $322.52 | $444,467,566 | - A share repurchase program authorizing up to $500 million was approved on October 28, 2021, and is effective until December 31, 2024, with approximately $444 million remaining available as of March 31, 2022[131] Exhibits This section lists the exhibits filed with the Form 10-Q, including amended corporate documents, CEO and CFO certifications, and Inline XBRL documents - The report includes certifications from the Principal Executive Officer (Thomas E. Gottwald) and Principal Financial Officer (Brian D. Paliotti) pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[135] Signatures