NEWMARKET CORP Q3 FY2026 earnings call

• Petroleum Additives Resilience: Despite an 8% decline in lubricant additive shipments due to market softness, the company maintained profitability by implementing surcharges to offset higher costs stemming from Middle East supply chain disruptions.
• Strategic Portfolio Adjustment: The 6% shipment decline in the first nine months reflects a strategic decision to reduce low-margin business alongside broader market weakness, which management views positively for margin management.
• Specialty Materials Growth Drivers: Strong performance in Specialty Materials was driven by a shift in shipment mix and the inclusion of the Calcus Solutions business acquired in October 2025.
• Capacity Expansion: Capacity expansion projects for ammonium perchlorate and high-purity hydrazine are underway and expected to complete by end of 2026, strengthening capabilities for aerospace and defense applications.
• Financial Discipline & Capital Allocation: Operations generated solid cash flow, funding $88 million in capital expenditures, $83 million in dividends, and $126 million in share repurchases. Net debt to EBITDA improved significantly to 1.0x.
• Operational Focus: Management emphasized ongoing focus on operational efficiency, cost control, and technology investment amidst geopolitical uncertainty and changing trade relations.

Petroleum Additives: Reported sales of $651 million for Q3 2026, essentially flat compared to $649 million in Q3 2025. Operating profit was $131 million, also flat year-over-year. For the first nine months, sales were $1.9 billion (flat YoY) with operating profit of $415 million vs $413 million. This segment accounted for approximately 91% of total reported revenue ($813M combined with Specialty Materials). Specialty Materials: Q3 2026 sales rose to $62 million from $38 million in Q3 2025, with operating profit increasing to $16 million from $6 million. First-nine-month sales reached $187 million vs $134 million, and operating profit grew to $51 million from $40 million. This segment represented approximately 9% of total revenue.

• No specific forward-looking financial guidance (revenue or EPS targets) for the remainder of 2026 or fiscal year 2026 was provided in this transcript.
• Management indicated that surcharges and operational actions implemented earlier in the year remain in place.
• Guidance is qualitative: Management expects to continue delivering 'solid results' by adjusting approaches as market conditions evolve, particularly regarding Middle East conflict impacts and international trade tariffs.

• Geopolitical and Supply Chain Disruptions: Ongoing conflicts in the Middle East are causing supply chain disruptions and higher costs, necessitating surcharge implementations.
• Market Softness: Broader softness in lubricant additive demand has led to significant declines in shipments (8% in Q3, 6% YTD).
• Macroeconomic and Trade Uncertainty: Changing trade relations, potential tariffs, and general macroeconomic environment pose risks to future operations.
• Seasonal/Quarterly Variability: Results for the Specialty Materials segment are expected to continue varying quarter-to-quarter due to the nature of the business.

Q: Can you elaborate on the sustainability of the surcharges in Petroleum Additives and whether they fully offset the volume loss?

A: Management confirmed that surcharges are currently effective in offsetting higher costs from Middle East disruptions. They stated these measures remain in place and will be adjusted as needed, indicating a defensive posture to protect margins despite an 8% volume decline. The strategy prioritizes margin management over volume growth in the current soft market.

Q: What is the expected timeline and impact of the Calcus Solutions acquisition on Specialty Materials?

A: The acquisition, closed in October 2025, contributed to the strong Q3 and YTD performance in Specialty Materials through favorable shipment mix changes. Management highlighted that this acquisition, along with upcoming capacity expansions for ammonium perchlorate and hydrazine, strengthens their position in critical aerospace and defense markets, supporting long-term growth in this segment.