Brian Paliotti - Vice President & Chief Financial Officer Teddy Gottwald - Chairman and CEO.

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

Greetings and welcome to the NewMarket Corporation’s Second Quarter 2015 Financial Results Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Mr. Brian Paliotti. Thank you, sir. You may begin..

Thank you Adam. And thanks everyone for joining us this afternoon. With me today is Teddy Gottwald, our Chairman and CEO. 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 our SEC filings including our most recent Form 10-K. During this call, we may also discuss non-GAAP financial measures included in our earnings release.

The earnings release, which can be found on our website, includes a reconciliation of these non-GAAP financial measures to comparable GAAP financial measures. We plan to file our 10-Q later today and it contains significantly more details on the operations and the performance of the company. Please take time to review it.

Our comments today will be referring to the data that was included in last night’s press release. Net income was $59 million or $4.72 a share compared to net income of $67 million or $5.24 a share for the second quarter of last year. Earnings for both second quarter periods included the impact of valuing an interest swap at fair value.

Excluding net special item from both periods, earnings for this year's second quarter would have been $58 million or $4.65 a share compared to $68 million or $5.35 a share. Petroleum additives operating profit for the quarter was $94 million which is a $15 million or 13.8% lower than last year's record Q2 performance.

Total sales for the quarter decreased 9.6% to $561 million compared to sales for the same period last year of $620 million. The decrease in revenue in petroleum additives in the quarter comparison was mainly driven by foreign exchange and shipments. The foreign exchange impacts were mainly driven by the euro and yen rates versus the U.S.

dollar which accounted for $28 million of the revenue reduction. Our shipments for Q2 represented a 2.3% decrease versus a very strong Q2 of 2014. The shipments in lubricant additives declined primarily in the North America region however partially offset by an increase in fuel additives globally.

Shipments accounted for $20 million of the $59 million revenue reduction. Through the first six months of the year, our shipments are essentially unchanged versus 2014.

Lubricant additives volumes have been slower than expected but we believe the PA industry's long-term growth rate of 1% to 2% hasn’t changed and we don’t see any trend in the volume data year-to-date. In the second quarter, similar to Q1, we continue to see a benefit from lower raw materials offset by the foreign exchange impact I just described.

We continue to invest in R&A in Q2 in support of our customers and increased those investments by $5 million or 13% in the quarter and by $12 million or 18% through the first half. While in 2015 we experienced movement in crude oil and exchange rates, managing through such changes is a normal part of our business.

We expect our margins to be in the mid to upper teens over the longer term as there has been in recent years as the fundamentals of the industry have not changed.

For the four quarters ended in June our average PA or petroleum additives operating margin was 16.9% which is in line with our expectations of performance of our business over the long-term.

On the cash flow for the quarter, items and note include funding our normal dividend of $17 million and using more cash to fund the normal variations in working capital. We bought back 18,454 shares of our stock for $8 million in the quarter. We continue to operate with very low leverage with debt-to-EBITDA remaining below 1.

In Q2 we continue to execute on our capital investment and identified projects which equated to $29 million bringing the year-to-date spend to $50 million.

This is in line with our full year plan for capital expenditures in the $100 million to $140 million range which includes investing in our new manufacturing facility in Singapore as well as several important improvements to our manufacturing and R&D infrastructure around.

We still anticipate capital expenditures to remain in a higher than normal range for each of the next several years or in the $80 million to $120 million range in support of our global growth plans. This is no change from the position we discussed over the last few quarters.

In summary, our business continues to perform well compared to a record Q2 of 2014 and the business plan that marked by slower world economic growth and a strong U.S. dollar. We are investing heavily in R&D and additional capacity to support our customers worldwide and to meet our long-term goals.

We remain committed to our safety first culture to providing customer focused technology driven solution into a world class supply chain to meet our customers' growing needs. And this approach will continue to be beneficial for our stakeholders. Adam, that concludes our planned comments. We would like to open it up for questions..

Thank you. We will now be conducting question-and-answer session. [Operator Instructions]. Our first question comes from the line of Ivan Marcuse with KeyBanc Capital Markets. Please go ahead with your question..

Sorry, thanks for taking my questions, appreciate it. First question is, a lot of companies in the industrial materials chemical space is planning to reset North America as an area of strength relative to rest of the world whereas you guys saw some weakness.

Is there, with the miles driven sort of going in the correct trend and everything else, that trend seem to be more positive.

Why do you think your business was weak in North America, is this more of a timing issue or is there something else going on?.

Ivan, this is Teddy. We did see strengthening on the fields in North America and worldwide mainly because it's a miles driven impact you mentioned. The weakness on the lub side, we don’t read anything into it as we see it is more timing than anything else..

Okay.

And then there is also a chat around China being weaker and Asian just channel, have you seen any sort of anything that's changes I guess near term fundamentals in terms of production rates coming down on auto or seeing a slowdown in demand in any way that would influence you in one direction or another?.

Yes, the slowdown in auto production and sales in China is having some impact on our business but when you look at it in a context of the total picture it's a minimal near term impact. China is still growing albeit not as fast as we would all like it to but it still a growing market and the near term changes really are hard for us to measure..

Got you. And then if you look at, if it's time for a finance question, but if you look at your sales didn’t really change quarter-to-quarter, raw materials, oil and few other things seem to have been going sideways I guess from second, for the second quarter, the first quarter and your currencies are pretty the same second, first quarter.

Why would your gross margin compress, is there something else that was going on or something that would, that influenced that, that maybe I don’t think of?.

Ivan, this is Brian. I think what you are seeing is raw materials flattening or stabilizing through Q2 and the FX impact that we experienced in Q2 was marginally worse than it was in Q1..

Got you.

Is there anything compressing by its nature?.

No, sure..

No, anything fundamental changes, no..

Great. And then last question.

Your R&D and SG&A expenses look pretty much the same in the second half as they have been in the first half?.

Yes, we are going to continue to invest in R&D in support of the customers as we had in the first half, and [indiscernible] be any material changes..

Great.

So there wasn’t any sort of big project or anything like that in R&D that you had to spend in the first half that you've don’t in the second half?.

No..

Great. Thanks a lot for taking my questions. I appreciate..

Sure..

Thank you. Our next question comes from the line of Todd Vencil with Sterne Agee CRT. Please go ahead with your question..

Thanks. Hey Brian and Teddy..

How are you doing?.

Good, thanks. Brian following up on one of those last couple of answers there.

Did FX represent a headwind on margins or was it really just the top-line translation impact?.

Both..

Can you give us a sense of how much margin impact?.

I can't Todd, I don’t have that in front of me. But it was impact on both sides, both on revenue and margin..

Okay, alright. There was, you called and quantified certainly the production revenue from shipments and from currency, you didn’t really callout the pricing and obviously it was a small impact just looking at those numbers that you gave.

Are you seeing your product prices adjusting either automatically or in the competitive market in response to the reduction in raw material cost or is that not really happening?.

We've seen some of that guide in the -- throughout this year with raw materials dropping currently..

Teddy do you think you are getting some benefit where with the lower raws, it's a little bit margin accretive for you in a sustainable way?.

Well moving raw material costs in crude oil and foreign exchange always is a normal course of the business for us and we manage through. We have seen more dramatic movements in both here in this year. But we are managing room in a normal course of business and our guidance to you about our margins being in the mid to upper teens hasn’t changed..

Got it. That’s helpful. And it sound like I mean, can you, you are talking for a while about the higher level of CapEx over next several years.

Can you just remind us of given expanding on what you said before in terms of what sort of, what level of that CapEx is going through beyond the plans that we know you've been working on in Asia for a while?.

I can directionally tell you that a lot of the increase will be new capacity. It's substantial for us, it's not currently enough to move the industry supply demand picture. But we are looking at adding beyond the current Singapore construction. And probably next time we'll have a little bit more detail for you on that..

Got it. I look forward to that. And thanks a lot..

Thank you..

Thanks Todd..

Thank you. [Operator Instructions]. Our next question comes from the line of Dmitry Silversteyn with Longbow Research. Please go ahead with your question..

Good afternoon Teddy, Brian. Just wanted to follow up on a couple of items. First of all on volumes, you talked about 2.3% lower shipments year-over-year but you also I think earlier in the prepared or perhaps in an answer to the first question talked about a 20 million headwind to revenue from lower volumes which actually translate into 3.2% impact.

So am I missing something, are you talking about lub specifically as 20 million and there is a little bit of growth in fuels, is that why it's, there's a difference between 2.3 and 3.2?.

Yes..

Okay..

Yes, and also we are talking, you are talking dollars versus quantities..

Okay.

So how do I understand that Brian because that means that there is price put there as well?.

No, there is a mix of products that we sell, we sell a lot of products across our business..

And the mix was negative as well because you sold more fuels than lubs or just within lubs mix was negative?.

The mix in total was a little bit different than it was in the quarterly report that we're comparing to..

So if I look at the rest of the business and let's say if we use 2.3% as the volume decline, it comes out to be about 7.4% negative I guess for the rest of the businesses, 28 million in foreign exchange gets to about 4.5%.

So is the other 3% decline, was that price mix, was that [indiscernible] going to basically?.

That’s correct..

Okay. Very good. And then to follow up on a question about the sequential drop in margins, you talked about that being more a function of foreign exchange than anything else for the business and the pricing has been coming down throughout the year.

Can you talk about why declining, why foreign exchange did impact on margins, again sequentially there was not that big of a change, not as big as year-over-year on foreign exchange.

Are you sourcing and selling in different currencies, is that what's going on?.

Yes, I mean we have a mix from a product perspective and from a geographic mix perspective as we go quarter-to-quarter which drives that change?.

So that mean you are basically sourcing more in the U.S.

versus your revenue distribution, is that the way to think about that?.

Yes, that is the way to think about it..

Okay.

And then final question, just you talked about I don’t know of about M&A and sort of continuing to maintain a pretty healthy pipeline, any updates there as far as progress, whether you want to talk about sort of general market conditions or seller expectations or buyer expectation, and it just seems that there is a lot more activity recently globally in lub and fuel additives area.

Should we be expecting anything in the near future?.

We are continuing to look for opportunities. We have a strong desire for acquisitions in petroleum additives. So we don’t have anything negative report to you..

Okay.

And it is possible given the technologies that you posses in-house and the expertise and additive manufacturer that this could be applicable into markets and industries beyond lub additives?.

Well, certainly beyond the product lines in markets that we're in today and we're constantly looking at opportunities to expand into adjacent spaces. For most of them I would still call lubricant additives or fuel additives. There's some applications beyond that but most of our focus is on the markets we know, that are close by..

Got you Teddy.

And just to sort of clarify that point, this year environment versus last year environment, are things getting better, worse from multiple point of view, from sellers being ready to sell, anything going on that you could provide some color on?.

Well it's a small universe that we're in but I would expect it to be reflective of the rest of the M&A market. .

So just about between what buyers are willing to pay and what sellers seem the businesses are worth?.

So you could say that, yes..

Okay, thank you Eddy, Teddy sorry..

Good..

Thank you. Our next question is a follow up from the line of Ivan Marcuse with KeyBanc Capital Markets. Please go ahead with your follow up..

Great. A quick question on the gross margin.

So as you look forward and things sort of stays, if currency sort of stays where it is now, is there any sort of seasonal impact in the back half that would impact gross margin one way or the other similar to what we saw from first quarter, second quarter or so you sort of think gross margin back in its, sort of been slate to 30% range for the past several years, is that where your target for instance the 32 days following the first quarter?.

Yes, I think the long-term average what you stated is probably close to where we think it could be..

Great. Alright. Thanks a lot..

Yes..

Thank you. Ladies and gentlemen, there are no further questions at this time. I would now like to turn the floor back over to Brian Paliotti for closing remarks..

Thanks everyone for calling in. And we will talk to you next quarter..

Thank you. Ladies and gentlemen, this does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day..