NewMarket - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered resilient results amid shipment softness: revenue $0.699B and EPS $11.84, roughly flat year over year, with petroleum additives operating profit down due to a 2.5% shipment decline and higher technology investment, partially offset by favorable mix.
• Specialty Materials (AMPAC) was a bright spot: sales rose to $42.0M and operating profit more than doubled to $10.5M on higher volumes.
• Balance sheet strength improved: Net Debt/EBITDA fell to 1.0 vs 1.2 at year-end; long-term debt declined to $841.8M as of June 30, 2025, and the company returned $129M to shareholders in H1 via repurchases and dividends.
• Dividend maintained at $2.75 per share (10% increase announced in Feb); board declared the next $2.75 quarterly dividend payable Oct 1, 2025—an ongoing capital return anchor.
• Stock reaction catalysts: improving leverage (Net Debt/EBITDA 1.0), steady margins despite shipment declines, and AMPAC capacity expansion plans supporting medium-term growth.

What Went Well and What Went Wrong

What Went Well

• Specialty Materials momentum: Q2 sales $42.0M (+10.6% y/y) and operating profit $10.5M vs $5.0M last year, driven by increased volumes; management reiterated segment variability but highlighted strategic importance of AMPAC.
• Margin resilience: despite lower shipments, operating profit and gross profit held up (Q2 gross profit $221.0M vs $218.5M y/y) amid ongoing efficiency initiatives and favorable product mix.
• Deleveraging: Net Debt/EBITDA improved to 1.0 by June 30; long-term debt declined and cash returns continued (H1 repurchases $77.2M, dividends $51.9M).
  • Quote: “Our team’s focus on enhancing efficiency has resulted in strong operating profit margins this year.” — Tim Fitzgerald, CFO.

What Went Wrong

• Petroleum additives softness: Q2 operating profit $139.8M vs $147.8M y/y, driven by a 2.5% decline in shipments and increased technology investments; shipments down 4.9% for H1 vs prior year.
• Shipment pressure broad-based: Lubricant additives were the main driver of shipment declines; fuel additives also down for H1 (small Q2 increase), reflecting macro/trade/tariff headwinds.
• R&D spend elevated: research, development, and testing expenses rose to $32.4M in Q2 vs $28.7M y/y, pressuring near-term operating profit while supporting customer-focused innovation.

Transcript

Speaker 0

Good day, everyone, and welcome to the Newmarket Corporation Conference Call and Webcast to review Second Quarter twenty twenty five Financial Results. At this time, all participants are on a listen only mode. It is now my pleasure to turn the floor over to your host, Tim Fitzgerald. Sir, the floor is yours.

Speaker 1

Thank you, Matt, 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 ks. 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 non GAAP financial measures to the comparable GAAP financial measures.

We filed our 10 Q for the 2025 earlier today, and it contains significantly more details on the operations and performance of our company. Today, I will be referring to the data that was included in last night's press release. Net income for the 2025 was a $111,000,000 or $11.84 per share compared to net income of a $112,000,000 or $11.63 per share for the 2024. Net income for the 2025 was a record $237,000,000 or $25.11 per share compared to net income of $219,000,000 or $22.87 per share for the 2024. Petroleum additive sales for the 2025 were $654,000,000 compared to $670,000,000 for the same period in 2024.

Petroleum additives operating profit for the 2025 was $140,000,000 compared to $148,000,000 for the 2024. The decrease in operating profit compared to prior year was mainly due to a 2.5% decline in shipments, along with an increase in research and development investments to support our customers' needs. For the 2025, sales for the petroleum additives segment were $1,300,000,000 essentially flat compared to the same period in 2024. Petroleum additives operating profit for the 2025 was $282,000,000 compared to $299,000,000 for 2024. The drivers for the decrease in operating profit were consistent with those affecting the second quarter comparison.

Shipments were down by 4.9 when comparing the 2025 with the same period in 2024. We are very pleased with the performance of our petroleum additives business during the 2025. Our team's focus on enhancing efficiency has resulted in strong operating profit margins this year. However, we remain challenged by the ongoing inflationary environment and the impact of tariffs, despite our efforts to improve efficiency and manage our operating costs. We continue to focus on investing in technology to meet customer needs, optimizing our inventory levels, and improving our portfolio profitability.

We report the financial results of our Impact business in our Specialty Materials segment. Specialty Materials sales for the 2025 were $42,000,000 compared to $38,000,000 for the same period in 2024. Specialty Materials operating profit for the 2025 was $11,000,000 compared to $5,000,000 for the 2024. The increase in operating profit was mainly due to an increase in volume within the quarter. As previously stated, we will see substantial variation in quarterly results for the Specialty Materials segment on an ongoing basis due to the nature of the business.

For the 2025, sales for the Specialty Materials segment were $96,000,000 compared to $55,000,000 for the same period in 2024. Specialty Materials operating profit for the 2025 was $34,000,000 compared to slightly above breakeven for the 2024. We view AMPAC as a strategic national asset with a mission critical role in global safety, security, and space programs. As we announced in April, we are committed to investing in additional capacity at Ampak to meet our customers' growing needs while adding additional redundancy and security of supply into our production system. Our company generated solid cash flows throughout the 2025, which allowed us to return $129,000,000 to our shareholders through share repurchases of $77,000,000 and dividends of $52,000,000 The share repurchases includes $20,000,000 that was completed in the 2025.

As of 06/30/2025, our net debt to EBITDA ratio is one point zero, which is an improvement over the 1.2 times we reported at the 2024. As we look ahead to the 2025 and beyond, we anticipate continued strength in our petroleum additives and specialty materials segments. We are committed to making decisions that promote long term value for our shareholders and customers while staying focused on our long term objectives. We believe that the core principles guiding our business, a long term perspective, a safety first culture, customer focused solutions, technology driven products, and a world class supply chain will continue to benefit all of our stakeholders. Matt, that concludes our planned comments.

We are available for questions via email or by phone, so please feel free to contact me directly. Thank you all again, and we will talk to you next quarter.

Speaker 0

Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you

Speaker 1

for

Speaker 0

your participation.