Brian Paliotti - CFO Teddy Gottwald - Chairman & CEO.

Ivan Marcuse - KeyBanc Todd Vencil - Sterne Agee Dmitry Silversteyn - Longbow Research.

Welcome to the NewMarket Corporation's Fourth Quarter 2014 and Year-End Financial Results. [Operator Instructions]. It is now my pleasure to introduce your host, Mr. Brian Paliotti, CFO. Thank you Mr. Paliotti. You may begin..

Thank you, Rob. Good morning. With me today are Teddy Gottwald, Chairman and CEO and David Fiorenza, our Former CFO who will be retiring in March after four years of dedicated service for the company. We’re glad to have you with us today discuss our 2014 fourth quarter and full year performance.

As a reminder some of the comments we will make today are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We believe we based our statements on reasonable expectations and assumptions within the bounds of what we know about our business and our operations.

However, we offer no assurance that results will not differ materially from our expectations due to uncertainties and factors that are difficult to predict and beyond our control. A full discussion of those factors can be found in our 2013 10-K.

We intend to file our 2014 10-K towards the end of February, it will contain significantly more details on the operations and performance of our company. Please take the time to review us. Now I will be referring to the data that was included in last night's release.

For the most part I will focus on the performance of the fourth quarter, all comparisons I mentioned will be the fourth quarter of '14 to the fourth quarter of '13 unless I indicate otherwise. We had an excellent fourth quarter which produced solid results. Our net income was $52.1 million which calculates into $4.17 per share.

The unit results reflect record fourth quarter operating profit performance by our petroleum additive segments. Net income for the fourth quarter of 2013 was 54 million or $4.08 per share. Earnings for the full year of '13 includes a results from an operation of discontinued business and related gain on the sale of the discontinued business.

The effects on net income of these and certain other special items are presented in the summary of earnings table in the press release. Excluding the special items detailed on that schedule from all periods, earnings for this year of fourth quarter would have been 53.7 million or $4.30 per share, an increase of 1.3% compared to last year.

Petroleum additives operating profit for the quarter was $85.5 million, an improvement of about 7% over last year's comparable quarter. Sales for the quarter were 547.9 million down slightly compared to the sales for the same period last year, or 553.9 million. Shipments were up approximately 1% versus Q4 of '13.

Our petroleum additives business continues to deliver solid results as we execute on our strategy. A couple other items in note for the quarter were cash generation and usage.

During the quarter we utilized the cash generated by investing $21 million as we execute our long range capital plan repurchasing $39 million of our stock and funding $17 million of dividend. We ended the year in the quarter with variable leverage, the debt to EBITDA remaining below one.

We have purchased 95,644 shares in the fourth quarter at an average price of $381.38. I believe that covers the items in the fourth quarter that I wanted to address. So I will now make just a few comments on the total year. The results of the total year are detailed in the press release, so I will not simply read all those to you.

It was a good year with the company posting solid earnings and the petroleum additive segment posting it's 10th consecutive record annual operating profit. Petroleum additive shipments increased 4.2% for the year which is within our long range expectations for our performance in this market.

We commit substantial resources each year to R&D to maintain and enhance our technological capabilities to provide our customers innovative products and solutions to meet their business needs. Those investments continued in 2014 and will increase in 2015. Our business continues to generate strong cash flows.

During 2014 we paid dividends of $59.4 million, funded capital expenditures of $59.7 million, repurchased 664,204 shares on our stock at a cost of $248.5 million at an average price of $374.12. At the end of '14 we had $256.7 million remaining on our stock repurchase authorization from our Board which expires at the end of 2016.

Please note that the dividend at a $1.40 per quarter per share represents a ratio pattern [ph] of 30% of our 2014 net income. This is in middle of the 25% to 30% range that is our target payout. For 2015 we expect to see an increase in the capital expenditures to approximately $140 million.

This includes the ongoing spend 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 or about a $100 million for each of the next three years to support our business.

The Singapore Facility is expected to be completed late this year, the total investment of over $100 million. We expect to have commercial production from the plant in Q1 of 2016.

The initial capacity will represent a modest increase and our overall goal of production, but will enable us to provide quick and effective service to our Asia Pacific customers as well as those in India and Middle-East.

The facility will be scalable to allow for growth as demand warrants and it is likely that we will see Phase 2 undergoing not long after Phase 1 is up and running. We continue to have expectations that our petroleum additive segment will deliver solid results in 2015 after having posted record operating profit for each of the last 10 years.

We expect that the petroleum additive industry demand will continue to grow in an average annual rate of 1% to 2% over the next five years.

Continue to grow in China and that leads the growth, North America has seen solid economic growth and together with lower gasoline prices this should result in more miles driven offsetting some of the continued weakness in other regions. Over the long term we plan to exceed the industry growth rate by a couple of percentage points.

As you know the price of crude oil has dropped about 50% in the last six months while exchange rates have also moved dramatically during this period. Some of our raw materials will see the benefit of lower crude oil pricing although it's subject to it's own demand and supply picture and not all move as crude moves.

In addition, there is generally a lag of 2 to 5 months before we see these changes in our results. At the same time the rapid changes in currency particularly the euro and pound versus the dollar and the yen versus the dollar are having a negative impact on our results. While the movements in oil and currency have been unusually large and rapid.

They are not without precedence in our market. We intend to maintain our margins through this change, this is -- we’ve in recent years and as there has been no significant changes in fundamentals of the business. Currency and raw materials are two significant factors among many and their impacts are managed in a normal course of our business.

For this and other reasons we don’t disclose the magnitude of their impacts on our short term results. Over the past several years we have made significant investments to expand our capabilities around the world. These investments have been in talent, technology and technical centers as well as production capacity.

Intend to use these new capabilities to improve our abilities to deliver the goods and services that our customers value and to expand our business and improve profits. Our business continues to generate significant amounts of cash beyond what is necessary for expansion and growth of our current offerings.

We regularly review the many internal opportunities we have that utilize this cash both from a geographic and product line [ph] perspective. We continue our efforts to investigate potential acquisitions as both of use cash and to generate shareholder value. Our primary focus in acquisition area remains in petroleum additive industry.

It is our view that the industry will provide the greatest opportunity for a long term return on our investment while minimizing risk. We remain focused on the strategy and we will patiently evaluate any future opportunities.

We will continue to evaluate all alternative uses the cash to enhance shareholder value including stock and repurchases and dividends. Rob that’s the end of my planned remarks, we can open up the line for questions..

[Operator Instructions]. Our first question comes from the line of Ivan Marcuse with KeyBanc. Please go ahead with your question..

Couple of quick questions, if you look at the raw material basket you talked about the movement in crude oil is going to be 2 to 5 months.

So did you see any movement in this in the fourth quarter or do you anticipate same movement to happen in the second quarter than be to a bigger degree in the second quarter -- I mean first quarter second quarter..

We expect to start see a larger movement in the first half of next year and again start to see in '15.

In '09 you saw a 1000 basis points improvement in your gross margin roughly around there for the year kind of year-over-year basis. Would you expect you know an oils move deposit same way? Volume is dramatically better than it was then.

So why wouldn’t you see that same type of improvement this year and what are some of the key differences if you don’t expect to see that between now and then?.

Off the top of my head I don’t have explanation of why our margin moved in 2009. When I look at where we’re I don’t expect any significant changes in our margins as a result of the forces that are impacting the business right now.

We’re certainly seeing down with raw materials, we’re seeing negative exchange rates working against this and we’re -- we will certainly respond to these market forces and it remains to be seen what the remainder of 2015 will look like in terms of both oil prices and currency movements..

If everything were to stand today, where do you see the I guess the negative delta with currency.

How much of it impact the fourth quarter and what do you expect for '15 if all else holding equal?.

We don’t disclose the amounts that impacts us on the bottom-line certainly on the sales line.

We do comment on that, Brian any comments on that?.

Yes, in the fourth quarter the currency impact was a negative of $11 million on revenue..

So has the industries -- I guess I don’t follow you on if you don’t see any changes in the industry from today versus '09, I think in '09 you’re able to hold price -- it was a very rational market and then your raw materials came down, so your margins exploded and we also had an FX issue at that point as well.

So the industry got more competitive and you would expect pricing to come in a little bit more or has there been any key changes in customers or geographies or market share size or -- I'm just trying to get an idea of why those margins -- you wouldn’t see the same sort of expansion if nothing has changed?.

Ivan, again, I'm not going to speculate the changes in '09 versus '08 but I just don’t have that information handy. But it's a pretty stable and competitive industry today and there is a lot of change in the world from '08 to '09 there is not that much change we’re seeing in our industry from 2014 to 2015..

And Brian, real quick couple of [inaudible] question, what are you budgeting for SG&A R&D looking in 2015 and also what's your expectations at this current time for tax rate?.

As I said in the remarks we expect to continue to invest in R&D again in 2015 and from a tax rate perspective I would use this year's rate as a good parameter for what next year would look like..

The next question comes from the line of Todd Vencil with Sterne Agee. Please go ahead with your question..

Going back to kind of the comparisons to '09 which is obviously the last time we saw oil kind of do what it did this time, okay, my recollection is you saw volumes drop off pretty sharply in sort of 4Q, '08 while the -- as customers sort of sat on their hand as a way to see where they were going to go and from what you guys reported last night, it doesn’t look like that happened the same extensive time [ph].

Am I right about that?.

That’s right, we did see some slowdown in ordering but not nearly the amount that we saw in '08 - '09 time frame..

And on the currency issue, just come out from a slightly different angle, make sure I understand it. I think I had somewhere in my note that about 75% of your sales were conducted in U.S.

dollars, am I right about that?.

You’re directionally right..

The direction I got to go from there?.

I don’t have that number on the top of my head but it sounds about right..

And just kind of continuing to sort of dig around as well all try to figure out what lower oil is going to mean.

Again from conversations with David and with you my recollection is, do you guys have chopped a lot of wood since kind of '08 and '09 in terms of changing the way your contract terms are to sort of make a closer alignment between price adjustments within the contracts with your raw materials prices as well as maybe shortening the overall [inaudible] contracts in order to make pricing sort of more responsive to changes in laws [ph], am I right about that directionally?.

You’re right about the first part of that about us trying to tie the contract, formulas driven change in price closer to the timing of raw material changes. I will point out to you that we have a wide range of contracts, some have price formulas in it, many of them don’t..

Any sort of broad brush, way to think about what fraction of your contracts have quite suggestions in them?.

No. I'm sorry..

Okay. Capital allocation and maybe this is one for Brian, although obviously the other two as well. Cash balance was pretty steady through the year, so net leverage was pretty steady through the year.

It kind of feels like you guys have moved into a mode of sort of I don’t want to put words in your mouth, but it kind of feels you’re sort of targeting that and buying back stock with any excess cash over what you’re using for investment, is that a far way to think about it?.

I think it's fair. We would like to maintain debt to EBITDA in the 1x range, all things being equal and certainly stock repurchases are the biggest short term lever we have on that..

Our next question comes from Dmitry Silversteyn with Longbow Research. Please go ahead with your question..

Couple of questions if I may, you have given us an advantage of foreign exchange headwind.

If you look at sort of price mix, can you provide some granularity on the fourth quarter results as far as price mix changes?.

The breakdown was currency, they stated 11 unfavorable negative price up positive to and shipments plus three..

Secondly you mentioned that you saw a little of [inaudible] by customers in the fourth quarter in terms of kind of waiting potential lower prices of holding that [ph] and purchases not to the extent that we obviously we saw in 2008.

As you have January under your bulk now, you’ve a few you know a couple of weeks at least of information probably are you seeing that trend accelerate? In other words are customers sort of holding back more than they did in the fourth quarter or they have sort of resided themselves that the prices aren't changing anytime soon and resume normal buying patterns..

Dmitry, we really don’t watch the volumes by month. So we don’t have any insight to a quarter-to-quarter variation..

But you’re not seeing anything from your sales guide as in the field as to why they are either or exceeding or falling short of their goals?.

No we haven't seen any fundamentals in the business,.

Okay.

The pricing piece that you have got in the fourth quarter, that was sort of tail end proudly from some earlier base oil price increases that took place in 2014, would you expect pricing for you to be more of a headwind into 2015 and offset some of the 3% to 4% let's say volume growth that you expect to see?.

Well we expect as we have stated many times in our margins, we manage our margins in the 16% to 18% range and that’s what we think they will be across the balance of next year..

Would it be fair to say that that in 2015 given the raw material dynamics that you are going to be at the upper end of that range?.

It's hard to say at this point..

You mentioned euro and the yen being a headwind for you, how -- sort of what percentage of your revenues are exposed to the euro and to the yen?.

We really don’t disclose this numbers..

So are we to judge what the foreign exchange headwind would be for you on 2015, can you give that at least?.

I guess the best way is to take a look at the fourth quarter and the FX movement in the fourth quarter..

Okay.

Is the foreign exchange impact only a transitional impact for you? Or does it impact your profit dollars not on the transitional but because you’re manufacturing in region and selling in another currency?.

We have a global supply chain and a global network for our business and as you know we sell in all regions around the world..

Okay. Let me ask this question differently, how much of your production is done in the U.S. versus sales denominated in U.S.

dollars?.

We don’t disclose that..

So there is no way for me to figure out what your margin impact of foreign exchange is. Okay. Thank you..

There are no additional questions at this time. I will turn the call back to Mr. Paliotti for closing comments..

All right, well thank you everyone and we will talk to you again next quarter..

This conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation..