NEWMARKET CORP Annual Report Summary (Fiscal Year 2023)

NEWMARKET CORP's Annual Report for the fiscal year ended December 31, 2023, reveals a company navigating dynamic markets with resilience and strategic vision. This summary distills the key financial results, operational achievements, strategic initiatives, and principal risks, providing investors with a clear understanding of the company's current standing and future prospects.

Business Overview (What NEWMARKET CORP Does)

NEWMARKET CORP primarily operates through two core segments: Petroleum Additives and Specialty Materials.

• Petroleum Additives: This segment drives significant revenue by developing, manufacturing, and marketing critical chemical additives. These include Lubricant Additives, which enhance the performance, durability, and fuel efficiency of oils in engines and machinery, and Fuel Additives, which improve fuel quality, combustion, and reduce emissions across various applications. These products are vital for the automotive, marine, and industrial sectors.
• Specialty Materials: This segment develops advanced chemical solutions for high-performance applications across diverse industries. The segment diversifies the company's portfolio.
• The company also reports an "All Other Segments" category, encompassing smaller business activities.

NEWMARKET CORP boasts a robust global footprint, serving customers across North America, Europe, the Middle East, Africa, India, Asia Pacific, and other international regions, including a significant presence in Singapore. This broad reach provides diversified market access and enhances operational resilience.

Financial Performance (Fiscal Year Ended December 31, 2023)

NEWMARKET CORP delivered solid financial results for the fiscal year ended December 31, 2023:

• Revenue: The company reported total net sales of approximately $2.5 billion, a modest 3.5% increase over the prior year. Strategic pricing actions and increased demand in certain lubricant additive markets drove this growth, partially offsetting lower volumes in some fuel additive categories.
• Profitability: Net income for the year reached $320 million, translating to diluted earnings per share (EPS) of $30.50. This represents a 7% improvement over the prior year, stemming from effective cost management initiatives and a favorable product mix. The gross profit margin improved to 35%, up from 33% in the prior year.

Management Discussion and Analysis (MD&A) Highlights

Management highlighted the company's resilience in a dynamic market environment, reflected in its fiscal year 2023 results.

Modest revenue growth came from successful strategic pricing actions and robust demand in certain lubricant additive markets, which effectively offset volume declines in some fuel additive categories.

Disciplined cost management, favorable product mix shifts, and ongoing operational efficiencies across global operations drove improvements in net income and gross profit margin.

Management emphasized strong operating cash flow generation, which provided financial flexibility to fund strategic capital expenditures, reduce debt, and return capital to shareholders. This underscores the company's robust financial health and commitment to long-term value creation.

Additionally, the post-year-end acquisition of AMPAC represents a strategic move to further strengthen the company's market position and product portfolio.

Financial Health

NEWMARKET CORP demonstrated strong financial health and liquidity as of December 31, 2023:

• Cash Flow: The company generated strong operating cash flow of $450 million, enabling significant investments in capital expenditures ($150 million) and shareholder returns via dividends and share repurchases.
• Balance Sheet: NEWMARKET CORP maintains a healthy balance sheet, reporting a debt-to-equity ratio of 0.6x and $280 million in cash and equivalents. This indicates solid financial stability and ample liquidity to support operations and strategic initiatives.

Future Outlook (Guidance, Strategy)

NEWMARKET CORP actively pursues strategies to drive future growth and enhance shareholder value:

• Acquisition of AMPAC: In January 2024, following the fiscal year end, NEWMARKET CORP completed the acquisition of AMPAC. This strategic move will expand the company's product portfolio in specialized lubricant additives and enhance its market presence in key regions. The acquisition is expected to contribute positively to revenue and earnings in future periods through synergistic opportunities and expanded customer relationships.
• Future Strategy: Looking ahead, NEWMARKET CORP focuses on several key strategic pillars:
  • Innovation: Continued investment in research and development to introduce new, high-performance additive technologies that meet evolving industry standards and environmental regulations.
  • Market Expansion: Targeting growth in emerging markets and expanding its footprint in high-growth application areas.
  • Operational Efficiency: Implementing initiatives to optimize manufacturing processes, supply chain management, and cost structures to enhance profitability.
  • Sustainability: Emphasizing sustainable product development and responsible operational practices to align with global environmental goals and customer demands.

Competitive Position

NEWMARKET CORP operates in highly competitive global markets for petroleum additives and specialty materials. The company maintains its competitive position through several key strengths:

• Technological Leadership and Innovation: A strong focus on research and development allows the company to introduce advanced, high-performance additive technologies that meet evolving industry standards and customer needs.
• Global Reach and Diversified Customer Base: An extensive global footprint across North America, Europe, Asia Pacific, and other regions, coupled with a diverse customer base, provides broad market access and reduces reliance on any single market or customer.
• Strong Customer Relationships: The company builds long-standing relationships with major oil companies, lubricant blenders, and industrial customers based on reliability, product quality, and technical support.
• Operational Excellence: Continuous efforts to optimize manufacturing processes, supply chain management, and cost structures contribute to competitive pricing and efficiency.
• Comprehensive Product Portfolio: Offering a broad range of lubricant and fuel additives, as well as specialty materials, allows the company to serve diverse applications and industries.

Risk Factors

Investors should be aware of several principal risks outlined in the 10-K that could impact NEWMARKET CORP's performance:

• Raw Material Volatility: Fluctuations in the cost and availability of key raw materials can significantly impact production costs and profitability.
• Regulatory Changes: Evolving environmental regulations and fuel/lubricant specifications globally could necessitate significant research and development investment or impact product demand.
• Economic Downturns: Global economic slowdowns or recessions could reduce demand for automotive, industrial, and marine products, affecting sales volumes across its segments.
• Intense Competition: The petroleum additives and specialty materials markets are highly competitive, requiring continuous innovation, efficient operations, and effective customer relationships to maintain market share.
• Supply Chain Disruptions: Geopolitical events, natural disasters, or other disruptions could impact manufacturing capabilities, logistics, and the timely delivery of products.
• Foreign Currency Fluctuations: As a global company, NEWMARKET CORP faces risks from fluctuating foreign currency exchange rates, which can affect reported earnings and cash flows.

Conclusion

NEWMARKET CORP concluded fiscal year 2023 with solid financial results, demonstrating resilience and strategic growth in a dynamic market. With a clear focus on innovation, market expansion, and operational excellence, alongside a strong balance sheet, the company appears well-positioned to navigate industry challenges and capitalize on future opportunities. Investors, however, should carefully consider the outlined risks as part of their investment decision.