Quarter Yields Disparate Returns


The first three months of 2006 yielded varying results for major players in the lubricant industry, according to financial reports released the past two weeks. Valvolines parent company blamed what it called the toughest motor oil market in more than a decade for an 88-percent dive in operating income. Afton Chemical Corp., on the other hand, came close to tripling its quarterly profit, allowing parent company NewMarket Corp. to pay a dividend for only the second time in five years.

Meanwhile, in the industrial lubricant segment, Quaker Chemical Corp. reported a 19-percent drop in quarterly earnings while Milacron Corp.s Industrial Fluids business logged a 36-percent gain in operating earnings.

Valvoline parent Ashland Inc. said April 26 the automotive consumer products marketer had operating income of $2 million from January through March – the second quarter of its fiscal year – compared to $17 million during the same period of 2005. Management attributed the slide to difficult market conditions, apparently alluding to the same factors it cited three months ago for a 93-percent drop in first-quarter performance: eroded margins and declining motor oil demand.

In its announcement of results for the period ended March 31, officials said Valvolines branded lubricants margins weredown 20 percent year-to-year because of its inability to pass on rapid increases in base oil costs.

Valvoline continues to experience a market environment more difficult than weve seen in over a decade, Ashland Chairman and Chief Executive Officer James J. OBrien said.

Sales and operating revenue rose 9 percent to $353 million, thanks to higher selling prices and increased sales volumes. Sales volumes of finished lubricants grew 5 percent to 44.2 million gallons.

Looking ahead, Covington, Kentucky-based Ashland said the motor oil environment will continue to be difficult but that it plans to aggressively defend Valvolines market position and focus on installer sales channels.

Afton turned an operating profit of $25.7 million, up from $9.1 million during the first quarter of 2005, according to an April 25 announcement by NewMarket. Management said the result reflected a general improvement across all major product lines.

While the key component in the profit improvement was volume, some progress was made to restore margins both by improved pricing and the introduction of more cost-effective products, NewMarket President and Chief Executive Officer Thomas E. Gottwald said.

Sales for the petroleum additives business grew 26 percent to $62.4 million, with volumes up by approximately 10 percent.

NewMarket, which is based in Richmond, Va., said Afton faces challenges from continued increases in base oil costs and from tight availability from some chemicals, but the company said it is striving to stay on top of the situation and to pass on costs.

Afton is mostly responsible for NewMarkets continued recovery after declining performance forced it to downsize in 2001. The petroleum additives segment now accounts for 95 percent of NewMarkets operating income, with the tetraethyl lead business netting just $200,000 during the first quarter. Management expects the tetraethyl lead business to continue shrinking.

Gottwald plugged the improved overall performance in noting that NewMarket paid a dividend of 12.5 cents per share April 3 – the first since 2001. Two days after his comments, the company declared another dividend of an equal amount, payable July 1. With its improved financial position, Gottwald noted that NewMarket believes it is well-positioned to purchase other businesses.

We remain active in our efforts to review acquisition opportunities, but will be patient in the ultimate outcome, he said.

Quaker Chemical said May 1 that it had net income of $2.5 million for the January-through-March period, compared to $3.1 million during the same span of 2005. Management contended, though, that core earnings improved, considering that results for the first quarter of 2005 were boosted by $4.2 million in revenue from a property sale.

The Conshohocken, Pa., company recorded sales revenue of $109.8 million for the first quarter of 2006, an increase of 5.4 percent. Officials attributed that growth to higher selling prices and a 6.6 percent increase in sales volumes. Chairman and Chief Executive Officer Ronald J. Naples predicted the latest surge in crude oil prices will continue driving up costs, but he added that the company is well-positioned to return to bigger profits if and when crude drops.

We are shooting for gross margin percentage recovery upon a sustained period of stable or, better yet, declining raw material costs, he said.

Milacron said May 1 that its Industrial Fluids segment had earnings of $1.9 million during the first quarter, up from $1.4 million during the same period of 2005. It added that the improvement was especially impressive in light of the fact that the year-ago period included nearly $1 million in one-time income from a litigation settlement.

The company, which is based in Cincinnati, attributed the gains to improved pricing in North America and Western Europe, which helped drive sales revenue up 11 percent to $30 million.

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