Lubrizol, Afton See Uptick in 4th Quarter


The latest round of earnings reports are beginning to march out, confirming what many already know: Lubricant additive demand continued strong, and so did prices, in the final quarter of 2004.

The Lubrizol Corp. said fourth quarter revenues for its Lubricant Additives segment reached $509.5 million, 13 percent higher than the fourth quarter of 2003. About half the gain was attributed to improvements in the combination of price and product mix, and the rest to high shipment volumes and favorable currency. Tempering these gains, the company said, was the fact that additive raw material costs increased 18 percent in the quarter over the prior year period. The Lubricant Additives segment did postoperating income of $41.8 million for the quarter, versus $39.2 million a year earlier. For all of 2004, Lubricant Additives generated revenues of $2.04 billion and operating income of $244.3 million, versus $1.8 billion in revenues and $201.5 million in operating income in 2003.

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For 2005 Lubrizol projects further revenue growth in Lubricant Additives, Senior Vice President and Chief Financial Officer Charlie Cooley told investors in a conference call Monday. We are assuming that the lubricant industry will return to normal demand, which is about 0 to 1 percent growth, following a cycle that included weak demand in 2003 and a rebound in 2004. We believe our 2005 lubricant additives shipment volumes will be up 1 percent from our second-half 2004 run rate. He explained that much of this years sales volume will be additives to meet the new GF-4 passenger car motor oil standard, a more concentrated, higher priced and more profitable offering.

Were also moving ahead with our plan to divest underperforming and nonstrategic businesses with total revenues of $300 million to $500 million, reported Chairman, Presidentand CEO James L. Hambrick. This is a high-priority activity for us, added Cooley, who went on to counter a marketplace rumor that Lubrizols coatings additives business is among those targeted for sale. That is not true, he said, although I am not at liberty at this time to say what is on the list.

Overall, the Wickliffe, Ohio, based chemical company saw 2004 full-year revenues grow to $3.16 billion – a 50 percent leap that reflects, of course, the acquisition last June of specialty chemical supplier Noveon International. Consolidated earnings reached $19.9 million in fourth-quarter 2004, and $93.5 million for the full year.

Richmond, Virginia-based NewMarket Corp., parent company of additive supplier Afton Chemical, also finished the year on strong sales. Sales of petroleum additives – which account for 99 percent of the companys revenues – increased by $27.0 million, or 13 percent, to reach $229.1 million in the fourth quarter, reported President and CEO Thomas E. Gottwald last week. For the full year, petroleum additive sales grew to $884.6 million, an 18 percent gain over 2003.

Despite these dollar gains, the segment saw operating profits compressed in both the quarter and year. Operating profit for the fourth quarter was $4.7 million, versus $9 million in fourth-quarter 2003. For the full year, segment profits topped out at $43.5 million, compared to $48.6 million in 2003.

High raw material cost reduced our margins, more than offsetting the benefit of price increases, Gottwald pointed out. Our research and development and testing costs were also higher for the fourth quarter and year 2004 compared to the same periods last year, as we have continued to invest to support our customers and improve our long-term market position.

The companys other operating segment, tetraethyl lead, continues to see significant swings in shipping volume and profits from quarter to quarter, but its contribution to operating profits actually improved for the year, to $24.5 million compared with $20.9 million in 2003.

Overall, NewMarket closed the year with a net income of $33.1 million after nonrecurring items, 11 percent under 2003’s close.

Challenges for 2005, Gottwald added, will include managing the high cost of raw materials, Aftons ability to recover those costs in the marketplace, and anticipated high R&D expenditures. We expect Petroleum Additives to have higher profits in 2005 than 2004, he stated.

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