NewMarket - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 net sales were $690.3M and EPS were $10.67, down year-over-year versus Q3 2024 ($724.9M, $13.79) as one-time charges from global manufacturing network optimization and softer shipments weighed on profitability.
• Petroleum Additives OP fell to $131.3M from a record $157.5M in Q3 2024 on a 4.1% shipment decline and increased technology/R&D investments; Specialty Materials OP was $6.0M on lower volumes.
• Balance sheet and cash flow remained strong: Net Debt reduced by $213.2M year-to-date, Net Debt/EBITDA down to 0.9x; quarterly dividend increased 9% to $3.00 per share payable Jan 2, 2026.
• Strategic catalyst: completion of Calca Solutions acquisition (Oct 1) and ~$1B committed since 2024 to Specialty Materials capacity, expected to come online in 2H 2026, bolstering diversification and long-term growth.

What Went Well and What Went Wrong

What Went Well

• Strong balance sheet progress and deleveraging: Net Debt fell to $680.6M with Net Debt/EBITDA at 0.9x as of Sept 30, 2025, supported by solid operating cash flows.
• Shareholder returns and confidence: Board raised the quarterly dividend 9% to $3.00 per share; $77.2M of share repurchases in the first nine months.
• Specialty Materials expansion: closed Calca acquisition and reiterated ~$1B commitment to resilient, high-technology segment; “we have committed approximately $1 billion… to this resilient, high-technology specialty materials segment”.

What Went Wrong

• YoY contraction in core segment profitability: Petroleum Additives OP decreased to $131.3M from $157.5M on one-time optimization charges, softer shipments (-4.1% QoQ) and higher technology/R&D spend.
• Volume pressure: Shipments down 4.6% year-to-date, reflecting market softness and a strategic pullback from low-margin business, with lubricant additives weakness partially offset by fuel additives.
• Specialty Materials variability: Q3 sales/OP declined YoY ($38.2M/$6.0M vs. $59.1M/$16.0M) due to lower volumes, underscoring ongoing quarterly variation inherent to the segment.

Transcript

Speaker 1

Good day, everyone, and welcome to the NewMarket Corporation conference call and webcast to review third quarter 2025 financial results. At this time, all participants are placed on a listen-only mode. It is now my pleasure to turn the floor over to your host, Tim Fitzgerald, Vice President and CFO. Sir, the floor is yours.

Speaker 0

Thank you, Matthew, 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-K. 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 the non-GAAP financial measures to the comparable GAAP financial measures. We filed our 10-Q for the third quarter of 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 third quarter of 2025 was $100 million, or $10.67 per share, compared to net income of $132 million, or $13.79 per share, for the third quarter of 2024. Net income for the first nine months of 2025 was $337 million, or $35.78 per share, compared to net income of $352 million, or $36.66 per share, for the first nine months of 2024. Petroleum additive sales for the third quarter of 2025 were $649 million, compared to $663 million for the same period in 2024. Petroleum additive operating profit for the third quarter of 2025 was $131 million, compared to $157 million for the third quarter of 2024, which was a record quarter for this segment.

The decrease in operating profit compared to the prior year was primarily driven by one-time charges during the quarter, including those related to optimizing our global manufacturing network, which will enable us to deliver products to our customers more efficiently in the years ahead. A 4.1% decline in shipments between quarterly periods and an increase in R&D investments to support our customer needs also contributed to the decrease in petroleum additive operating profit. For the first nine months of 2025, sales for the petroleum additive segment were $1.9 billion, compared to $2 billion for the same period in 2024. Petroleum additive operating profit for the first nine months of 2025 was $413 million, compared to $456 million for the same period in 2024. The drivers for the decrease in operating profit were consistent with those affecting the third quarter comparison.

Shipments were down by 4.6% when comparing the first nine months of 2025 with the same period in 2024, driven by softness in the market and our strategic decision to manage the profitability of our portfolio by reducing low-margin business. We are very pleased with the performance of our petroleum additives business during the first nine months of 2025. However, we remain challenged by the ongoing inflationary environment and the impact of tariffs, as well as softness in the market impacting shipments. 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 AMPAC business in our specialty materials segment. Specialty materials sales for the third quarter of 2025 were $38 million, compared to $59 million for the same period in 2024.

Specialty materials operating profit for the third quarter of 2025 was $6 million, compared to $16 million for the third quarter of 2024. The decrease in operating profit was mainly due to lower 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 first nine months of 2025, sales for the specialty materials segment were $134 million, compared to $114 million for the period of January 16th to September 30th, 2024. Specialty materials operating profit for the first nine months of 2025 was $40 million, compared to $16 million for the period of January 16th to September 30th, 2024. As previously announced, we expanded our investment in the specialty materials segment through the October 1st, 2025, acquisition of Calca Solutions, LLC.

Calca is the nation's leading producer of ultra-pure hydrazine propellants used in advanced aerospace and defense applications. Since 2024, through our acquisitions of AMPAC and Calca and our investments to expand capacity at both operations, we have committed approximately $1 billion to this resilient, high-technology specialty materials segment. Our company generated solid cash flows throughout the first nine months of 2025, which allowed us to return $155 million to our shareholders through share repurchases of $77 million and dividends of $78 million. We also reduced our net debt by $213 million in the first nine months of 2025, driving our net debt-to-EBITDA ratio down to 0.9 times as of September 30, 2025. This strong cash flow performance enables us to continue to provide value to our shareholders through reinvestment of capital into our businesses for growth and efficiency, acquisitions, share repurchases, and dividends.

Yesterday, the company's Board of Directors approved raising the quarterly dividend by 9%, up from $2.75 per share on our common stock to $3 per share for the dividend that is payable January 2, 2026. 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. Matthew, 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.