Officials called Lexington, Ky. based Valvolines performance disappointing and blamed it on a combination of eroding margins and declining motor oil demand in the United States. Valvoline President Samuel J. Mitchell said the companys margins were squeezed between rising costs and competitive pricing for motor oils.

Sharp increases in base oil and additive costs – along with energy and transportation expenses – have been well-documented, but some lubricant marketers have been slow to pass those increases on to customers. Mitchell added that the latter trend has continued in 2006.

During [Ashlands] first quarter, our competitors continue to aggressively price lubricant products, he said. We see price promotion continuing to play an important role in the do-it-yourself market over the next year.

Ashlands comments about declining motor oil demand are consistent with data from other sources. According to the National Petrochemical and Refiners Association, volume demand for June through September – the most recent period for which data are available – dipped 3.3 percent compared to the same quarter of 2004.

We believe higher energy prices combined with higher absolute product costs have had a dampening effect on consumer spending for automotive preventative maintenance, Mitchell explained. He added that industry sources indicate demand in the do-it-yourself market – consumers who change their own oil – dropped approximately 5 percent in the September-to-December quarter. Consumption through quick lubes, repair shops and car dealerships – referred to as the do-it-for-me segment – softened by a smaller amount, he said.

Valvolines total lubricant sales volumes for the first quarter were 38.5 million gallons, down 6.3 percent from the year-ago quarter. Operating revenues were essentially flat at $310 million, despite price increases for its finished products.

Officials said Valvoline, which is based in Lexington, Ky., is taking steps to hold its market share as the competition heats up.

We will aggressively defend our market position in the United States, which is by far our largest market, Mitchell said. Specifically he said the company has begun promotions with key retailers and is trying to boost sales through installers. It also is placing growing emphasis on markets in Eastern Europe, India and China and on sales of products other than lubricants.

Officials cautioned, however, that they do not expect these actions to yield better financial results until the second half of the current fiscal year.

Afton Chemicals parent company, NewMarket Corp., said yesterday that the Richmond, Va. based lubricant additive supplier finished 2005 with an operating profit of $62.6 million, up from $43.5 million for 2004. Sales revenues for the subsidiary rose 21 percent to $1.1 billion.

Management said a variety of Aftons businesses contributed to the improvement, which it generally credited to increased focus on unique technical and marketing solutions.

NewMarket, which was formerly named Ethyl Corp., has worked to regain its footing since it was forced to downsize a few years ago. The parent company said last years success enabled it to close 2005 with no drawn debt, an improved credit rating and in position to implement a stock buyback program. The company also said it will continue searching for potential acquisitions.

President and Chief Executive Officer Thomas E. Gottwald said the additive market is challenging now.

We enter 2006 with many challenges facing our business including the continuing, rising cost of raw materials in our [Afton] petroleum additivesoperations…, he said. Still, he predicted Aftons earnings will continue to rise this year.