Profits Up at Afton, Lubrizol; Valvoline Sees Red


Lubricant additive companies seem to be faring better than lube blenders these days – judging, that is, by new financial reports from three of the industrys biggest players. Afton Chemical Corp. and Lubrizols Lubricant Additive segment last week reported gains of 65 percent and 8 percent, respectively, in operating income for the quarter ended June 30. Valvoline, on the other hand, posted a loss of $10 million.

Afton parent NewMarket Corp. said July 26 that its petroleum additive segment had an operating profit of $27.1 million for the three months ended June 30, compared to $16.4 million in the second quarter of 2005. Quarterly revenue was $325 million, an increase of 21 percent from the year-ago period. Management cited strong sales volumes, which are up 5 percent during the first half of the year.

All of our major product lines had improved profits in the first half of 2006, President and Chief Executive Officer Thomas E. Gottwald said. The growth in petroleum additives operating profit for the first half of 2006 includes the benefit of higher volumes shipped as well as a favorable sales mix of higher margin products. We also made progress on restoring margins by increasing prices and introducing more cost effective products.

Afton, which is based in Richmond, Va., is one of the worlds four major suppliers of lubricant additives.

The market leader, Lubrizols Lubricant Additive segment, had operating income of $89.8 million in the second quarter, up from $83.2 in the same period of the prior year. Revenues rose 12 percent to $678.4 million, primarily due to a 14 percent improvement in the combination of price and product mix and higher volumes. Volumes were up 4 percent compared to the first quarter of this year. These factors offset a 19-percent increase in the average cost of raw materials.

The Wickliffe, Ohio-based chemical supplier said it was generally pleased with results but that it continues working to restore profitability, which eroded in the face of raw material cost increases the past two years.

We have made good progress this year in beginning to restore engine additives profitability to levels prior to the significant raw material increases, but we are still not there yet, President, Chairman and Chief Executive Officer James L. Hambrick said in a Thursday statement. Achieving improved returns in the engine additives product line is necessary to sustain the technology and capital investment required to meet the global emission and fuel economy needs of the future.

While the additive companies talked of increasing profits, Valvolines bottom line was written in red ink for the first time in at least seven years. The automotive consumer products marketer, a division of Ashland Inc., had an operating loss of $10 million in the third quarter of its fiscal year, compared to a profit of $19 million in the same period of 2005.

Valvolines performance plummeted in recent quarters, and Ashland, which is based in Covington, Ky., blamed the decline on higher raw materials costs, weak demand and competitive pricing in the finished lubricant market. Management cited the same factors in Mondays announcement of third quarter results.

Valvolines performance primarily reflects lower margins, as ongoing rapid increases in lube stock costs have not been fully offset by price increases in the marketplace, Chairman and Chief Executive Officer James J. OBrien said. Total volume declined 6 percent, which we believe is consistent with the weak demand in its primary markets.

The divisions sales revenue rose 3 percent to $366 million. Management said they are re-evaluating Valvolines business model to try to counter market challenges, but warned it does not anticipate a quick rebound.

The results of these efforts are not likely to be seen for several months, OBrien said. In the meantime, Valvoline continues to pass through raw materials cost increases, although on a delayed basis. If raw materials cost increases subside, some improvement in margin should occur in the September 2006 quarter, but we would expect results to be below the September 2005 performance.

Related Topics

Market Topics