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NewMarket (NEU) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net income for Q2 2019 was $74.2 million or $6.63 per share, compared to $52.9 million or $4.53 per share in Q2 2018 [4] - Petroleum additive net sales decreased to $560.8 million from $596.2 million year-over-year, primarily due to lower shipments [4] - Operating profit for petroleum additives increased to $103 million from $71.5 million in the same quarter last year [5] - The effective income tax rate decreased to 23.3% from 24% year-over-year [7] - The rolling operating profit margin for the four quarters ended June 30, 2019, was 15.8%, the highest since 2017 [6][7] Business Line Data and Key Metrics Changes - Shipments of petroleum additives were down 8.4% year-over-year, mainly due to decreases in lubricant additive shipments in Europe and Latin America, and fuel additive shipments in Europe, North America, and Latin America [4] - The decline in shipments was attributed to the decision not to renew certain low-margin business and softening global demand [5] Market Data and Key Metrics Changes - The petroleum additives market is expected to grow at an annual rate of 1% to 2% for the foreseeable future [8] - The company anticipates exceeding this growth rate over the long term [8] Company Strategy and Development Direction - The company is focused on managing its business to meet customer needs while generating solid operating profit [7] - The strategy includes shedding low-margin business to promote long-term value for shareholders [5][8] Management's Comments on Operating Environment and Future Outlook - Management noted signs of a turnaround from the challenging economic environment faced over the past two years, characterized by rising raw material prices and softening global demand [6] - The company does not provide specific guidance but believes the business will operate in the mid- to high-teens margin range over the long term [18][25] Other Important Information - Capital expenditures for 2019 are expected to be in the range of $60 million to $70 million, slightly revised downward due to the timing of larger capital projects [7] Q&A Session Summary Question: Impact of foreign exchange on margins - Management confirmed that the positive impact on margins was a translation effect related to manufacturing and sales locations [11][12] Question: Volume loss in petroleum additives - The volume loss was attributed to a combination of market slowdown and the decision to divest low-margin business, with approximately 3% of the 8% decline due to divestitures [14][15] Question: Sustainability of EBIT margins - Management indicated that there was nothing in the current quarter's margin drivers that would not be repeatable in the second half of the year [19]