David A. Fiorenza - Chief Financial Officer and Vice President Thomas E. Gottwald - Chief Executive Officer, President, Director and Member of Executive Committee.

Edward H. Yang - Oppenheimer & Co. Inc., Research Division Ivan M. Marcuse - KeyBanc Capital Markets Inc., Research Division L. Todd Vencil - Sterne Agee & Leach Inc., Research Division.

Greetings, and welcome to the NewMarket Corporation First Quarter 2014 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, David Fiorenza. Thank you. You may begin..

foreign exchange, product mix and income taxes. As a global business, we are impacted by changes in the exchange rates when we remeasure our profits into U.S. dollars. Our Petroleum Additive results for this quarter included a small unfavorable impact due to rates, but last year's first quarter included a relatively large favorable impact.

The difference in the quarterly comparison is in the pretax $5 million to $6 million range. It is not our position to actively hedge foreign exchange rates. We take a long-term view of the business and believe we will benefit in some quarters and lose in others. We do review this position periodically.

As you might expect, our customers' near-term demand determines the mix of business we sell in any given quarter. This usually evens out over larger periods of time. This is why we often describe a range of mid- to upper-teens of operating profits when we discuss our business.

While our demand was strong in the quarter, the mix of products sold was unfavorable compared to last year's first quarter. Regarding income taxes, you will note that the effective tax rate for the quarter was about 31.4%, while the effective tax rate in last year's first quarter was 27.6%.

In our last conference call, we discussed the impact that the R&D credit can have on our results. This year's first quarter, taxes include no benefit for this credit as Congress has not yet voted to extend this benefit for 2014. Comparatively, last year's first quarter included all of the benefit for 2012 in one quarter of 2013.

If you take this change in the effective tax rates in this year's pretax earnings, meaning the delta in effective tax rates times pretax earnings, you'll see this is in the $3 million unfavorable impact. I hope that discussion was helpful.

We are pleased with the performance of the business in the first quarter, and we're off to a good start for the year. On cash flow for the quarter, items of note include funding on normal dividends, repurchasing $81 million of our stock and using more cash to fund the normal variation in working capital.

We continue to operate with very low leverage, with debt-to-EBITDA remaining below 1. During the quarter, where repurchased 232,200 shares of our stock at a cost of about $81 million averaging about $351 a share.

For 2014, we expect to see an increase in the level of our capital expenditures, which includes the anticipated spending on our new manufacturing facility in Singapore, as well as several improvements to our manufacturing and R&D infrastructure around the world.

We expect capital expenditures to remain in a higher than normal range for each of the next several years. This is no change from the position we discussed at the end of the year. We continue to have expectations that our petroleum additives segment will again deliver solid results in 2014.

We expect that petroleum additives' market shipment demand will continue to grow in an average annual rate of 1% to 2% over the next 5 years, as there have been no significant change in the fundamentals of the business. Over the long term, we plan to exceed the industry growth rate.

Over the past several years, we have made significant investments to expand our capabilities around the world.

These investments have been in people, technology, technical centers and production capacity, and we intend to use those new capabilities, along with the new investments mentioned to improve our ability to deliver the goods and services that our customers value and to grow shareholder value.

Our business continues to generate significant amounts of cash beyond what is necessary for the expansion and growth of our current offerings.

We continue to assess the many internal opportunities we have to utilize this cash, both from a geographic and product line perspective, and continue our search for acquisitions in the petroleum additives industry. We expect that we will continue to repurchase shares in 2014. Brenda, that concludes our planned comments.

We'd like to open up the lines for any questions, please..

[Operator Instructions] And our first question comes from the line of Edward Yang with Oppenheimer..

Just starting with the margin, margins were down 150 basis points year-over-year in Petroleum Additives. Is that -- would you classify that as more noise or you mentioned unfavorable product mix, some other companies have mentioned weather as well, but I would like to understand some of the volatility around margins..

Yes, Edward, that's good question there. This time, it was driven by the mix of business that I addressed in my planned comments..

And David, what do you mean by product mix? Is it just more engine oil versus driveline or industrial or....

Yes. Directionally, that's exactly correct, that you may sell more -- you may have more demand for a product that at one end of a range of profitability and less at the other end. But as I mentioned in my comments, those tend to level out over longer periods of time..

Okay.

And you think some of that will reverse in the subsequent quarters?.

Quarters, yes. I would expect that, yes..

Okay. And moving to the shipment side of the equation, almost 6% shipment growth, that was pretty robust. You mentioned that the industry grows at 1% to 2%.

So could you provide some color in terms of the strength there above and beyond what the industry is growing?.

Edward, this is Teddy. To begin with, it is our view that the industry over time will grow at 1% to 2%. It's my view that the industry is seeing a little bit above that right now, just on the strength of some rebound in the economies around the world as they impact our customers' business.

We've mentioned that 1% to 2%, we've mentioned that as a company, we aim to exceed that by a couple of percentage points, and that's certainly still our view..

And our next question comes from the line of Ivan Marcuse with KeyBanc..

Just curious on -- again, on the volumes, so you've been growing at this mid-single-digit growth over the last 3 quarters. So it's been pretty, pretty strong.

So is there a certain region where you're seeing more strength than others or a certain product line that you've gotten into recently that maybe you weren't in on the prior year, just because you are growing at basically triple the market right now.

So I'm just curious of how you stable that is going forward?.

From a regional standpoint, for us, we've seen particular growth in our European region, which is a pretty broad region. It includes the Middle East, Africa, India, as well as Asia Pacific region.

Sorry, Ivan, what -- any other aspects of your question?.

Is there a product line or specific or is it just more of a regional function where you're seeing the growth? So, for instance, have you gotten into a -- you've gotten bigger in the diesel in India or some different region versus where you may not have been prior?.

I wouldn't characterize it as any one product or product in a region, no..

Great, and then if you look at your SG&A line, you were able -- at least on a year-over-year basis, I know it's just this one quarter, but you were able to keep it flat even though you have volumes rise.

So how do you look at, going forward, your SG&A? Do you still expect that for an -- on an annual basis, sort of growing that 3% to 5% type of range, and then the same question, I guess, for R&D. R&D over the past year, I guess it was up considerably in '13 versus '12.

How are you budgeting that now for 2014 versus 2013?.

Ivan, it's David, I'll take those separately. SG&A or S&A in a quarterly comparison is not particularly instructive. Year-on-year, it's going to go up 3%, 4% a year. I mean, people get increases in salaries, we have programs going on, so I expect it will revert to that by the time the year's out.

Now on the R&D side, we tend to spend more than that range and you've seen that in the past, and we continue to spend money in R&D in support of the demands that our customers are placing on us..

Okay, great. And then last question, on your revenue, your year-over-year revenue, $23 million was in shipments.

How much was FX?.

FX was actually quite benign in the quarter, it was $700,000 adverse..

Okay, then how is the $6 million -- I may have -- you may have commented on this and I missed it, I believe you're saying in the release that you had $6 million -- FX hit you by $6 million on the operating line. Was that a loan translation or....

No, no, no -- the -- great question, great question. What we're communicating or trying to communicate is that the quarter itself had a very small negative FX impact. So when you look at how much money we made this quarter, it was very small. That's consistent with the sales FX number being very small.

And what we're saying is by delta, you get the bigger number because in the first quarter of last year, the impact was favorable, $5 million or so..

Got you. So by -- so you had a $5 million favorable of last year versus this year it's sort of a neutral event. So that's how to look at it. Got it..

Directionally, that's correct..

[Operator Instructions] And our next question comes from the line of Todd Vencil with Sterne Agee..

I suspect, David, that you've already answered this question, but I'll ask it this way anyway and let you answer it again. You have mentioned that a shift in mix was the biggest factor on the price, which I have no trouble believing.

Has either one of you guys seen any kind of near-term market share shifts, anybody sort of pricing to pick up volume, or has that all been a fairly stable kind of situation?.

We're not seeing anything unusual compared with historical actions..

Got it.

And then David, just to beat the -- beat a little more of the dead horse on the FX and the shipments, would it be possible for you to provide the detail that you usually provide in the K which is the roll up of shipments and product mix versus selling prices and customer mix versus FX on the year-over-year dollar comparison?.

I have 3Q to 3Q right in front of me, is that what you want or did you want something else?.

Well, 1Q to 1Q, yes..

Yes, I'm sorry, 1Q to 1Q. Okay. The lubricant additive, shipments favorable, 28.6%; fuel additives, unfavorable with shipments, 5.3%; price and customer mix, negative 7%; and FX, negative 0.7%..

Thank you. And it seems that we have no further questions at this time. I'd like to turn the floor back over for any closing remarks..

Well, thanks, everyone, for joining us, and we'll be talking to you next quarter. Have a good afternoon..

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation..