Brian Paliotti - Vice President and Chief Financial Officer.

Dmitry Silversteyn - Longbow Research.

Greetings and welcome to the NewMarket Corporation Third Quarter 2017 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.

It is now my pleasure to introduce your host, Brian Paliotti, Vice President and Chief Financial Officer. Thank you, sir. You may begin..

Thank you, Michelle, and thanks everyone for joining us this afternoon to discuss NewMarket's third quarter and year-to-date results. 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 measure included in the earnings release.

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

I will be referring to the data that was included in last night's release. Net income was $60 million or $5.04 a share, compared to a net income of $71 million or $6.03 a share for the third quarter of last year. This is both an earnings and EPS decrease of 16% from last year's performance.

Petroleum additives' operating profit for the quarter was $88 million, which is $18 million or 17% lower than last year's record high third quarter. Petroleum additives sales for the quarter increased 6.6% to $546 million, compared to sales for the same period last year of $512 million. The increase was mainly driven by higher volumes.

Petroleum additives shipments for the third quarter of 2017 were up 4.7% from the same period last year and 8.3% year to date, which is a record performance for both periods. We got increases in both the lubricant and fuel additives shipments.

Year to date, all regions contributed to the increase in lubricant additive shipments with the exception of North America. Our European region, which includes the Middle East, Africa and India, was the primary driver of the increase in fuel additives shipments.

A number of nonrecurring items occurred during the quarter, including the impacts we saw at our Houston and Port Arthur plants due to Hurricane Harvey. While this Category 4 hurricane unfortunately impacted a number of our teammates personally, our plans come through in very good shape.

The recovery of our facilities and the petrochemical industry in the Gulf Coast was very impressive, with most facilities restored back to normal operating conditions in short order. Also in the third quarter similar to the second quarter, we continue to see higher raw material costs.

We typically see margin compression for a period of two to four months during these cycles before we are able to fully adjust. It is unusual for us to see the margin compression for two quarters in a row as we have experienced in Q2 and Q3, as the pricing actions we have taken have not kept pace with the continuing raw material price increases.

We have taken additional action in response to these increases. We expect our margins to be in the mid- to upper-teens over the long-term, consistent with our recent history, as the fundamentals of our industry have not changed. The effective income tax rate for the third quarter was 22.4%, down from a rate of 27.3% in the same period last year.

The rates for the third quarter and the first nine months of 2017 were lower primarily due to increased earnings in foreign jurisdictions with lower tax rates.

On the cash flow for the quarter, items of note included the $184 million for the AMSA acquisition, funding our dividend of $21 million and using more cash to fund the normal variations in working capital. We continue to operate with very low leverage with net debt to EBITDA remaining below 1.3 times.

We're continuing to use our capital to achieve our long-term plans. Through nine months, our capital spending has reached a $121 million, and for the full year, we expect to exceed last year's $143 million.

These numbers include the spending on our phase two Singapore investment, as well as a number of investments and improvements to our manufacturing and - research and development infrastructure facilities around the world. We are wrapping up the mechanical completion of the Singapore phase two project.

And our team has done a fine job keeping this on schedule and on budget. We are beginning the commissioning of the new facilities and are on track for commercial production in the first quarter of 2018. Our petroleum additives business is performing consistent with our long-term expectations.

We continue to make decisions to promote long-term value to our shareholders and customers, and we remain focused on the long-term objectives. We believe the fundamentals of the industry as a whole remain unchanged, with the petroleum additives market growing at a rate of 1% to 2% annually for the foreseeable future.

We continue to believe that we will exceed that growth rate over the long-term. Michelle, that concludes our planned comments. We'd like to open up for - the lines for questions, please..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Dmitry Silversteyn with Longbow Research. Please proceed with your question..

Good afternoon. Thanks for taking my questions. First of all, let's start with the Harvey impact. You talked about Port Arthur plant coming through with relatively little impact. But in terms of cleanup costs, or logistics, or transportation costs that may have been incremental as a result of the hurricane.

What would you sort of ballpark the impact of Harvey to have been in the third quarter on your profitability and/or sales?.

Dmitry, the impact - we did see an impact due to the one-time Harvey implications on, not only our own plant, but logistics to your point and also to supply disruptions.

As far as the number, we're not going to discuss specific number, but there was an impact in the quarter that we saw, and that is the one-time nonrecurring items that we were discussing..

Okay.

In terms of the acquisition of AMSA, can you talk a little bit more about the business in terms of sort of what it brings to the company and - both in terms of technology and customer access and geographic access as well as in terms of revenue?.

Sure. The AMSA acquisition essentially brings directly in line with our strategy of more geographic expansions of having a supply point in Latin America for our customers. And also brings us some capability from a component perspective that we currently don't have.

And so those two aspects will not only help us from a long-term perspective in the region - Latin America region, but also help us globally. It will be a global supply point.

So think about product line extension, additional componentry and technology that we previously didn't have as well as a supply point for better access to our customers in that region..

Okay. So that's very impressive.

And what was the contribution of this business in the third quarter?.

Well, Dmitry, we just brought the business on in the first couple of months. So as far as what we're seeing - we're seeing positive results, though, it'd be small as we start the integration..

Okay. Then usually, when deals like that are done and you spend a couple of $100 million on them, there's a write-up, an inventory write-up and purchase accounting write-up and things like that.

Was that part of this quarter? And if it was - what was roughly the magnitude?.

The - we do have all of the financials in for the acquisition from purchase accounting and from a contribution perspective, but we're not going to break it apart. It's part of our complete network of the company, and it's not something that we're going to separate out, as now it's part of the fold..

Got you. Got you. Okay. And then my last question. I noticed that when the 10-Q came out that your pricing was still down or - for you in terms of impact on the revenue.

Is that just a tail end of the previous price declines? I mean, I would have thought that by now, you would have seen year-over-year price increases rather than kind of flattish to slightly down still?.

Yeah, absolutely, Dmitry. And kind of as I said in the comments, we haven't kept pace as we normally have as our performance has been over the raw material increases in the past, and we expect that to turn around..

Okay. So you talked in your prepared remarks about additional pricing actions.

So we shall see something better in the fourth quarter and then heading into 2018?.

That's our anticipation..

Okay. Thank you, Brian..

Thanks, Dmitry..

Thank you. [Operator Instructions] There are no further questions at this time. I'd like to turn the call back over to Mr. Paliotti, for closing remarks..

Thank you all for the interest in calling in, and we'll talk to you next quarter..

Thank you. This concludes today's teleconference. You may disconnect your line at this time. Thank you for your participation. And have a wonderful day..