NewMarket Corporation

NewMarket Corporation (NEU - Snapshot Report) , the specialty chemical additives manufacturer, saw a record first quarter as quickly declining raw material prices boosted operating profit. The company has surprised 2 out of the last 4 quarters by an average of 12.52%. NEU has a PEG ratio of just 0.80.

Company Description

NewMarket manufactures chemical additives for petroleum products through its subsidiaries Afton Chemical and Ethyl Corporation.

Afton Chemical manufactures custom-formulated chemical blends that helps fuels burn cleaner and engines last longer.

Ethyl Corporation produces diesel cetane improve and gasoline performance additives. It operates terminal storage and distribution services from facilities in Houston and Dordrecht, Holland.

NewMarket Crushed First-Quarter Estimates by 70.91%

On Apr 22, NewMarket reported record first-quarter results and easily beat Wall Street estimates by 78 cents per share. Net income rose 45% to $28.7 million, or $1.88 per share, from $19.8 million, or $1.27 per share. Analysts were expecting only $1.10.

The record quarter was the result of record petroleum additive operating profit which jumped 33% to $50.1 million from $37.7 million in the year ago period. The big gains were in fuel additive profits which were helped by rapidly declining raw material costs and stable market demand. Lubricant additive profits were flat compared to the prior year.

The global economic slowdown had an effect on first-quarter business, however, as petroleum additives sales fell 12% year over year to $334.8 million from $380.6 million. The first 2 months of the quarter were especially weak, with quantities shipped dropping 26% for the quarter.

Many of NewMarket's customers destocked during the quarter, especially in lubricants, but once that process is complete, shipping volumes are expected to increase as petroleum additives are nondiscretionary and vital to the operation of modern machinery.

Cash is Still King

NewMarket increased its cash position from December 2008 by $37.7 million to $59.5 million. During the quarter, the company also repaid $41.9 million on its revolving credit agreement leaving that facility with no draw debt outstanding at the end of the quarter.

Dividend Increased

On Apr 24, NewMarket announced that it was raising its quarterly dividend to 25 cents per share from 20 cents per share paid in the previous quarter. The dividend is payable on July 1 to all shareholders of record at the close of business on June 15.

The current dividend yield, with the higher distribution, is 1.80%.

Value Fundamentals

NewMarket is a Zacks #1 Rank (strong buy) stock. It has a forward P/E of 11.11. NEU's price-to-book is 2.69. The company also has an outstanding 5-year average return on equity (ROE) of 17.86%.