Brian Paliotti - VP & CFO Teddy Gottwald - Chairman & CEO.

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

Greetings and welcome to the NewMarket Corporation First Quarter 2016 Financial Results Conference 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.

I would now like to turn the conference over to your host, Mr. Brian Paliotti, CFO for NewMarket Corporation. Thank you, Sir. You may begin..

Thank you, Michelle and thanks to 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 in 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 intend to file our 10-Q later today, 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 $62 million, or $5.22 a share, compared to the net income of $64 million, or $5.14 a share for the first quarter of last year. Earnings for both first quarter periods include the impact of valuing an interest rate swap at fair value.

Excluding that special item for both periods, earnings for this year’s first quarter would have been $64 million, or $5.42 a share. This is an earnings decrease of approximately 2% and earnings per share increase of 2% from last year's performance.

Petroleum additives operating profit for the quarter was $100 million, which is about $5 million or 4.4% lower than last year's decrease. Sales for the quarter decreased by 8.8% to $508 million compared to sales for the same period last year of $555 million.

The decrease in revenue in petroleum additives in the quarterly comparison was mainly driven by lower volumes and price/mix of products. Petroleum additive shipments for the first quarter of 2016 were down 3.4% from the same period last year.

Decreases in lubricant additive shipments in North America and Latin America were partially offset by increases in Asia Pacific and Europe. And fuel additive decreases in North America and Europe were partially offset by increases in Asia Pacific and Latin America.

Of the $49 million reduction in revenue, price and shipments accounted for the majority of the change. In the first quarter we continue to see the impact of destocking early in the period, similar to what we saw at the end of Q4.

The rapid decline in crude oil prices in the fourth quarter likely led to some customer destocking into anticipation of lower base oil prices. On the cash flow for the quarter, items of note including our funding of normal dividends of $90 million and using more cash to fund the normal variations in working capital.

We bought back approximately 98,900 shares of stock or $36 million back in the quarter. We continue to operate with very low leverage with debt to EBITDA remaining below 1.5x.

For 2016 we expect to see an increase in the level of our capital expenditures to a level higher than 2015 which includes the anticipated spending on our phase 2 Singapore investment, as well as a number of improvements to our manufacturing an R&D infrastructure around the globe. In Q1 we ramped up spending to $28 million.

This includes the ongoing spending of the completion of phase 1 of our manufacturing facility in Singapore and the continuation of the phase 2 investment at that site. Phase 1 will be operational soon and the phase 2 will be commercially ready in 2018.

We expect the capital expenditures to remain in the higher than normal range for each of the next several years in support of our growth plans. There is no change from the position that we discussed at the end of 2015. Over the past several years we made significant investments to expand our capabilities around the world.

The 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 grow shareholders value. Michelle, that concludes our planned comments.

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

Thank you. [Operator Instructions] Our first question comes from the line of Todd Vencil with Sterne Agee. Please proceed with your question..

Thanks. Good afternoon guys.

Brian, would you do me a favor of breaking down the $49 million change in petroleum additive sales year-over-year between shipments, price mix and FX please?.

Sure, shipments was $14.5 million, price was $27 million and foreign exchange was approximately $8 million..

Thank you for that. Now looking at the way we look at it which is obviously more simplistic than reality. But it looks like we stand a chance to have an FX at current levels be a tailwind for the rest of the year.

Does that kind of job with what you're thinking about or I'm just being overly simplistic?.

Certainly FX is a little bit better than a horrible first quarter compared to last year. So not knowing what FX is going to do for the balance of the year, the compare was a difficult -- difficult comparison really than last year..

If you look at where currency -- various currencies versus the dollar right now, does it stand to be a benefit this year based on which is where it is today without forecasts?.

Based on where it is today, if you take a look at where it was last year, it's better..

Okay. Good, thanks..

But Todd, to that point it's still down versus historical..

Okay, fair enough.

And then SG&A came in, it was basically, I guess little bit below 4Q and below where we were looking forward, it's a good level to think about our SG&A for this year?.

I would use where we were over the last few years which has been pretty, pretty consistent from an S&A perspective and then obviously the investment in R&D, we've continued to invest there a little bit. So I would use the last couple of years of growth rates as a pretty good parameter..

Kind of that low to mid 160's kind of range?.

I think that would be fair..

Okay. All right, Thanks a lot. Operator Our next question comes from the line of Ivan Marcuse with KeyBanc Capital Markets. Please proceed with your question..

Nice quarter. In you're -- you talked about a little bit of destocking in the fourth quarter and I guess in your prepared remarks you mentioned a little bit of destocking in the beginning of the quarter.

Did you start to see -- and have you seen a restack with oil? And I'm assuming people are going to assume based on everything else or next fall and rise.

So would you expect to see a little bit of a snap back in the second quarter or just start to see that in the first quarter?.

Ivan, this is Teddy. We did see considerably better shipments in March than we did in in the first part of the quarter and we're encouraged by that..

Got you. Okay. And then there are similar – fuel, and it is a little bit real-time type of deliveries.

Did you see some destocking there or is it all pretty much in the lubricants?.

The biggest impact is on the lub side. The supply line is lot shorter on the field side..

Okay. And then the one area where I've sort of surprised at the last couple of quarters, I would thought these -- you would have seen some nice growth trends. With low gas prices in my miles driven rising North America is in the fuel additives but that's been down.

Is there something going on there were maybe some share loss or were you -- how would you explain sort of the opposite direction of the trends or does that not make sense?.

I think the trends on fuel additives are good and I think they are tracking somewhat of an upward trend on mouse driven. I'm not sure what comparison you make and between quarters. But as I see --.

But year-over-year you are saying that they were down and so I was -- in miles driven has been ops because and people seem to be driving more.

So I'm just curious why that would be?.

I don't know but the miles driven have improved and a big improvement on a large swing in oil prices is plus or minus 5% in miles driven. So it's a positive impact when people drive more but it's not huge..

Okay, great.

And then the CapEx is set, still serving that $150 range for the next couple of years? $150 million?.

We expect that the capital will be hires of last year over the next couple years..

Okay.

Have you been saying $150 million, has that changed or no?.

No, I mean we did $126 million last year so we're going to have elevated CapEx over the next few years..

All right, thanks..

Our next question comes from the line of Dmitry Silversteyn with Longbow Research. Please proceed with your question..

Good afternoon and good start to the year. A couple of questions if I could, just a follow-up with the loop additives being sort of flattish to down, I think for four quarters in a row now and the last couple of quarters were a little bit more in terms of destocking. You mentioned that you saw lot of stronger March.

So as we look into the balance of the year and kind of looking at your order book and what your customers are doing, any reason to believe that the volumes aren't going to improve, particularly as we proceed through the year either because of restocking that may have gotten the second half or just because we're in a second quarter just because you've left whatever course you to have a volume decline over the previous four quarters?.

No Dmitry, fundamentally nothing has changed from our view in the market as far as the growth of the market and where we play in the market. So we expect the market to continue to grow to 1% to 2% rate and we expect that our volumes will be a little bit better than that over the longer term period. So nothing to read into last few quarters..

Thanks, Brian but I make sure we can start what last four quarters which arguably can be called a trend. So I'm just trying to understand this sort of -- even in this 1% to 2% market growth environment, you have not been keeping up with it.

So is it a question of Europe, geographic exposure or customer partnerships that you have, perhaps they are losing some share in the market or is it just a delayed reaction to the higher base or pricing.

I guess my second question is, base oil has been trying to move up, we've seen more and more consistent almost every week now there is a price increase announcement from somebody in base oil either for group one/two/three or all three.

What have you seen in your raw material purchase basket and do you expect base oil to sort of pick through the year in 2016 versus 2015? And if so, at what point are you going to be in a position to be needing to raise prices?.

Dmitry, we're seeing the same posted base oil prices that you see and so we have obviously seen as crude moved up from the lows in the fourth quarter to today, we've seen base oil tick up as well. So as far as that's concerned, we're seeing the same thing that you're articulating.

As far as for the balance of the year, I guess it's anybody's guess on what oil prices are going to do but at this point we don't see much of a change. We think we're going to be pretty much close to where it is right today..

Okay. So basically going forward as we look at sort of your margins and your revenue progression, it really will be driven more by volume and mix.

And then in that context hopefully, we'll see flattish to up margins for the balance of the year?.

I think that would be fair..

Okay, thank you Brian..

[Operator Instructions] Our next question is a follow-up question from Todd Vencil with Sterne Agee. Please proceed with your question..

Hi, just a quick follow-up. Interest expense came in I guess a little bit higher, a little over $4 million, you've been up for each quarter last year.

Brian, how are you thinking about that running through the rest of the year?.

Todd, I would think around the four would be sort of like the number that you would think about for the balance of the year..

Perfect. Okay, thank you..

And just Ivan following up on a question concerning the fuel shipments, inside of the fuel shipments, the mix as an impact from a year-to-year perspective. So that's one other thing to account for when you look at the regional distribution of the fuel shipments from a year-to-year your perspective as well..

Okay, Mr. Paliotti, there are no further questions at this time. I would like to turn the floor back over to you for any closing remarks..

All right, Michelle, thank you very much. And thank you everyone for calling in, we'll talk to you next quarter..

This concludes today's teleconference. Thank you for your participation and you may disconnect your lines of this time..