Coping with rising raw material costs loomed large in second quarter performance for several companies in the lubricant industry. Lubrizols lube additives business posted a 17 percent gain in operating income, thanks in part to price hikes for its own products. Meanwhile, raw material costs were blamed for lower earnings at Afton Chemical, Quaker Chemical and Milacrons Industrial Fluids segment.
Lubrizols Lubricant Additives segment recorded operating income of $85.2 million for the three months ended June 30, up from $72.8 million for the same period of 2004. In a July 27 announcement, the Wickliffe, Ohio, chemical company attributed the improvement to a combination of several factors that more than offset continued increases in costs for petroleum-related inputs.
Management noted that the segment implemented its own price hikes during the second quarter and announced further increases scheduled to take effect in the third quarter. In addition, it shifted business toward higher margin products, benefited from more favorable currency translation and lowered expenses for selling, testing, administration and research.
Sales revenue for the lube additives segment jumped 19 percent to $619.9 million. The company estimated that revenue rose 3 percent because of customers building inventory to combat tight supply in the market and an additional 3 percent because of a supply disruption suffered by a competitor.
Demand was stronger than expected in Lubricant Additives, and our plants are running close to full capacity. Chairman, President and Chief Executive Officer James L. Hambrick said.
Overall, Lubrizols net income for the quarter swelled to $60.1 million, compared to $3.9 million in the year-ago period. Most of the gain stemmed from the acquisition of Noveon International in June 2004. Noveon was folded into Lubrizols Specialty Chemicals segment, which posted operating income of $51.4 million in this years second quarter, compared to $11.4 million in the same period of last year.
Lubrizol also benefited from a lower state tax rate and a reduction of one-time expenses. It had restructuring charges of $5.4 million in this years second quarter, down from $8 million. In addition, the second quarter of 2004 included a $35 million writeoff for research and development that was underway at Noveon at the time of the acquisition.
Afton Chemicals operating profit dipped 2 percent to $17 million, according to a Monday report by parent company NewMarket Corp. Sales revenues rose 23 percent to $269 million, partly due to increases in Aftons prices, but management said those increases have not kept pace with costs for inputs.
While we have made progress on improving our pricing, raw material costs have continued to compress margins, President and Chief Executive Officer Thomas E. Gottwald said. We are in the marketplace attempting to recover those costs through price increases for our products. We continue to believe that the progress we have made will result in petroleum additives operating profits for the second half and year 2005 exceeding the same periods last year.
Overall, Richmond, Virginia-based NewMarket recorded net income of $13.1 million, a 15 percent gain over the second quarter of 2004. That result included $2.5 million from an insurance settlement. Excluding that one-time income, profits from continuing operations fell 7 percent to $10.6 million. Operating profit from NewMarkets other segment, Ethyl Corp., slid 38 percent to $5.4 million on declining sales of tetraethyl lead.
Quaker Chemical said yesterday that its second quarter net income slid 36 percent to $1.8 million. The Conshohocken, Pa., specialty chemical supplier blamed the decline on higher product purchase costs and on higher costs for selling, general and administrative, which offset markups of its own products and favorable fluctuations in currency exchange rates. Sales revenues rose 8 percent to $107 million.
Chairman and Chief Executive Officer Ronald J. Naples took solace in the fact that gross margins improved from the first quarter of 2004. He added that the company continues to gain market share, which he said should bode well for the future. Nevertheless, management lowered its earnings estimates for the rest of the year based on weakness in its core customer market, the steel industry, and uncertainty about the future of prices for oil and related products.
We no longer anticipate that operating earnings for the year will improve over 2004, Naples said. This less optimistic view flows from the lack of market indications of an imminent pickup in the weak steel demand experienced in the first half of the year.
Milacrons Industrial Fluids segment recorded sales revenue of $28.1 million, up from $27.7 million in the second quarter of 2004. Earnings fell from $3.4 million to $1.9 million – a slide that management blamed on higher-than-projected material costs and increased insurance costs for product liability. Milacron is based in Cincinnati.