NEWMARKET CORP 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) discusses NewMarket's results of operations, general financial condition, and liquidity. The MD&A should be read in conjunction with Item 1, "Business" of our 2025 Annual Report and the Consolidated Financial Statements in Item 1, "Financial Statements" of this Form 10-Q. Specific Note references within this Item are to the Notes to the Condensed Consolidated Financial Statements included in Item 1, "Financial Statements" of this Form 10-Q. Forward-Looking Statements This report contains forward-looking statements about future events and expectations within the meaning of the Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations and projections about future results. When we use words in this document such as “anticipates,” “intends,” “plans,” “believes,” “estimates,” “projects,” “expects,” “should,” “could,” “may,” “will,” and similar expressions, we do so to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make regarding future prospects of growth in the petroleum additives or specialty materials markets, other trends in these markets, our ability to maintain or increase our market share, our future capital expenditure levels, and our future financial results. We believe our forward-looking statements are based on reasonable expectations and assumptions, within the bounds of what we know about our business and operations. However, we offer no assurance that actual results will not differ materially from our expectations due to uncertainties and factors that are difficult to predict and beyond our control. Factors that could cause actual results to differ materially from expectations include, but are not limited to, the availability of raw materials and distribution systems; disruptions at production facilities, including single-sourced facilities; hazards common to chemical businesses; the ability to respond effectively to technological changes in our industries; failure to protect our intellectual property rights; sudden, sharp, or prolonged raw material price increases; competition from other manufacturers; current and future governmental regulations; the loss of significant customers; termination or changes to contracts with contractors and subcontractors of the U.S. government or directly with the U.S. government; failure to attract and retain a highly-qualified workforce; an information technology system failure or security breach; the occurrence or threat of extraordinary events, including natural disasters, terrorist attacks, wars or other conflicts, and health-related epidemics; risks related to operating outside of the United States, including tariffs and trade policy; political, economic, and regulatory factors concerning our products; the impact of substantial indebtedness on our operational and financial flexibility; the impact of fluctuations in foreign exchange rates; resolution of environmental liabilities or legal proceedings; limitation of our insurance coverage; our inability to realize expected benefits from investment in our infrastructure or from acquisitions, or our inability to successfully integrate acquisitions into our business; the underperformance of our pension assets resulting in additional cash contributions to our pension plans; and other factors detailed from time to time in the reports that NewMarket files with the SEC, including the risk factors in Part I, Item 1A. “Risk Factors” of our 2025 Annual Report, which is available to shareholders at www.newmarket.com. You should keep in mind that any forward-looking statement made by us in this report or elsewhere speaks only as of the date on which we make it. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this discussion after the date hereof, except as may be required by law. In light of these risks and uncertainties, any forward-looking statement made in this report or elsewhere might not occur. Overview When comparing the results of the petroleum additives segment for the first six months of 2026 with the first six months of 2025, net sales decreased 1.1%, resulting primarily from lower product shipments partially offset by higher selling prices. Operating profit increased 0.9% over the same comparative periods. For the six months comparison periods of 2026 and 2025, the specialty materials segment reported higher net sales, as well as slightly higher operating profit. Specialty materials net sales and operating profit for the first six months of 2025 do not reflect financial results of Calca since the acquisition of Calca occurred on October 1, 2025. We continue to expect to experience substantial variation in quarterly results for the specialty materials segment due to the nature of its business. We continue to monitor the uncertain macroeconomic environment in which we operate, particularly the changes in international trade relations and tariffs, as well as the impact of the conflict in the Middle East, and assess the potential impacts to our operations. These impacts could include supply chain disruptions, customer demand fluctuations, and higher costs. Investing in technology to meet customer needs, enhancing our operational efficiency, and improving our portfolio profitability will remain priorities. 19 Table of Contents Despite the challenging global environment, our financial position remains strong. We have sufficient access to capital, if needed, and do not anticipate any issues with meeting the covenants for all our debt agreements for the foreseeable future. Our business typically generates significant amounts of cash beyond its operational needs. We continue to invest in and manage our business for the long-term with the goal of helping our customers succeed in their marketplaces. Our investments continue to be in organizational talent, technology development and processes, and global infrastructure. Results of Operations Net Sales Consolidated net sales for the second quarter of 2026 totaled $747.1 million, representing an increase of $48.6 million, or 7.0%, from the second quarter of 2025. Consolidated net sales for the first six months of 2026 totaled $1.4 billion, representing an increase of $17.4 million, or 1.2%, from the first six months of 2025. The following table shows net sales by segment and product line. The net sales in the table below for the specialty materials segment do not include sales from Calca for the 2025 periods as the acquisition occurred on October 1, 2025. Second Quarter Ended June 30, Six Months Ended June 30, (in millions) 2026 2025 2026 2025 Petroleum additives Lubricant additives $ 584.0 $ 556.5 $ 1,105.2 $ 1,115.6 Fuel additives 91.6 97.4 180.2 183.8 Total 675.6 653.9 1,285.4 1,299.4 Specialty materials 67.2 42.0 125.3 95.8 All other 4.3 2.6 6.1 4.3 Net sales $ 747.1 $ 698.5 $ 1,416.8 $ 1,399.5 Petroleum Additives Segment Petroleum additives net sales for the second quarter of 2026 were $675.6 million compared to $653.9 million for the second quarter of 2025, an increase of 3.3%. Net sales increased across all regions with growth of 2.8% in North America, 3.2% in Asia Pacific, 2.6% in EMEAI, and 7.7% in Latin America. Petroleum additives net sales for the first six months of 2026 were $1.3 billion, a decrease of $14 million, or 1.1%, compared to the first six months of 2025. Decreases in North America of 3.9% and Asia Pacific of 3.4% were partially offset by increases in EMEAI of 2.2% and Latin America of 4.3%. While regional sales fluctuate period to period, the percentage of net sales generated by region remained fairly consistent during the second quarter and first six months of 2026 compared with the same periods in 2025. The following table details the approximate components of the changes in petroleum additives net sales between the second quarter and first six months of 2026 and 2025. (in millions) Second Quarter Six Months Period ended June 30, 2025 $ 653.9 $ 1,299.4 Lubricant additives shipments (3.0) (41.9) Fuel additives shipments (7.1) (4.2) Selling prices, including product mix 29.6 19.9 Foreign currency impact, net 2.2 12.2 Period ended June 30, 2026 $ 675.6 $ 1,285.4 When comparing the second quarter periods of 2026 and 2025, higher selling prices drove the increase in net sales, which was partially offset by lower product shipments. For the first six month comparison between 2026 and 2025, lower product shipments, partially offset by higher selling prices and a favorable foreign currency impact, resulted in the decrease in petroleum additives net sales. The higher selling prices for both the second quarter and first six months of 2026 included surcharges implemented in response to higher costs from the supply chain disruptions in the Middle East. The decrease in shipments was substantially due to our strategic decision to examine and reduce low-margin business. 20 Table of Contents On a worldwide basis, the volume of product shipments for petroleum additives decreased 3.8% in the second quarter of 2026 and 5.3% in the first six months of 2026 compared with the same periods in 2025. The decline reflected lower shipments across both the lubricant additives and fuel additives product lines, with lubricant additives accounting for the majority of the decrease, particularly for the six months period. For the second quarter comparison, lubricant additives product shipments were lower in EMEAI and Asia Pacific, partially offset by growth in Latin America, while North America remained substantially unchanged. Fuel additives shipments for the second quarter comparison were lower across all regions except Asia Pacific. For the first six months comparison, lubricant additives product shipments declined across all regions except for Latin America, which experienced modest growth. Fuel additives shipments for the first six months comparison decreased across all regions except for EMEAI, which remained substantially unchanged. The primary foreign currencies in which we transact include the Euro, Pound Sterling, Japanese Yen, Chinese Renminbi, and Indian Rupee. Comparing both the second quarters and first six months periods of 2026 and 2025, the United States Dollar strengthened against the Rupee and Yen and weakened against the Euro, Renminbi, and Pound Sterling, resulting in the favorable impacts to net sales in the table above. Specialty Materials Segment Total net sales for the specialty materials segment were $67.2 million for the second quarter of 2026, compared to $42.0 million for the second quarter of 2025. For the six months comparison, net sales were $125.3 million for 2026 and $95.8 million for 2025. The increase in net sales for both comparison periods was the result of higher selling prices from favorable product mix, as well as the inclusion of Calca's net sales following its acquisition on October 1, 2025. All Other “All other” includes the operations of the antiknock compounds business, as well as certain contracted manufacturing and related services associated with Ethyl. Segment Operating Profit NewMarket evaluates the performance of the petroleum additives and specialty materials businesses based on segment operating profit. NewMarket Services Corporation expenses are charged to NewMarket and each subsidiary pursuant to services agreements between the companies. Depreciation of segment property, plant, and equipment, as well as amortization of segment intangible assets and lease right-of-use assets, is included in segment operating profit. The following table presents reporting segment operating profit for the second quarter and six months ended June 30, 2026 and June 30, 2025 for the petroleum additives and specialty materials segments, as well as the operating loss for the "All other" businesses. A reconciliation of segment operating profit to income before income tax expense is included in Note 4. Second Quarter Ended June 30, Six Months Ended June 30, (in millions) 2026 2025 2026 2025 Petroleum additives $ 149.4 $ 139.8 $ 284.4 $ 281.9 Specialty materials $ 22.3 $ 10.5 $ 34.8 $ 33.7 All other $ (0.2) $ (1.2) $ (1.3) $ (1.7) Petroleum Additives Segment Petroleum additives segment gross profit increased $7.0 million and operating profit increased $9.5 million when comparing the second quarter of 2026 to the second quarter of 2025. Gross profit decreased $0.4 million and operating profit increased $2.4 million when comparing the first six months of 2026 to the first six months of 2025. Gross profit and operating profit for the second quarter comparison increased primarily due to the net impact of surcharges implemented in response to higher raw material and operating costs we have incurred from the supply chain disruptions in the Middle East. For the first six months comparison, the drivers for the slight decrease in gross profit were consistent with those affecting the second quarter comparison discussed above, offset by a 5.3% decline in shipments. The increase in operating profit for the first six months comparison was further impacted by lower costs for research, development, and testing. 21 Table of Contents The following table presents petroleum additives cost of goods sold as a percentage of net sales and the operating profit margin. Second Quarter Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Cost of goods sold as a percentage of net sales 68.6 % 68.6 % 67.9 % 68.2 % Operating profit margin 22.1 % 21.4 % 22.1 % 21.7 % For the rolling four quarters ended June 30, 2026, the operating profit margin for petroleum additives was 20.7%, which is within our historical range of operating profit margin. While operating margins will fluctuate from quarter to quarter due to multiple factors, we believe the fundamentals of our business and industry as a whole are unchanged. Petroleum additives selling, general, and administrative (SG&A) expenses decreased $0.5 million in the second quarter of 2026 compared with the second quarter of 2025 and increased $0.6 million in the first six months of 2026 compared with the first six months of 2025. SG&A expenses as a percentage of net sales were 4.8% for the second quarter of 2026, 5.1% for the second quarter of 2025, 5.2% for the first six months of 2026, and 5.1% for the first six months of 2025. Our SG&A costs are primarily personnel-related and include salaries, benefits, and other costs associated with our workforce, including travel-related expenses. While personnel-related costs fluctuate from period to period, there were no significant changes in the drivers of these costs when comparing the periods. Investments in petroleum additives research, development, and testing (R&D) decreased $2.0 million when comparing the second quarters of 2026 and 2025 and decreased $3.5 million when comparing the first six months of 2026 and 2025. As a percentage of net sales, R&D investment was 4.5% for the second quarter of 2026, 5.0% for the second quarter of 2025, 4.8% for the first six months of 2026, and 5.0% for the first six months of 2025. R&D investments reflect our efforts to support the development of solutions that meet our customers' needs, meet new and evolving standards, and support our expansion into new product areas. Our approach to R&D investments, as it is with SG&A costs, is one of purposeful spending on programs to support our current product base and to ensure that we develop products to support our customers' programs in the future. R&D investments include personnel-related costs, as well as costs for internal and external testing of our products. Specialty Materials Segment The specialty materials segment reported operating profit of $22.3 million for the second quarter of 2026 as compared to $10.5 million for the second quarter of 2025. Operating profit of $34.8 million for the first six months of 2026 remained fairly flat as compared to operating profit of $33.7 million for the first six months of 2025. The increase in specialty materials operating profit for the second quarter comparison was driven by factors consistent with those impacting specialty materials net sales as discussed above, partially offset by higher operating costs. We expect to experience substantial variation in quarterly results for the specialty materials segment due to the nature of its business. The following discussion references certain captions on the Consolidated Statements of Income. Interest and Financing Expenses, Net Interest and financing expenses were $8.8 million for the second quarter of 2026, $10.7 million for the second quarter of 2025, $17.6 million for the first six months of 2026, and $21.4 million for the first six months of 2025. The decrease for both the second quarter and six months comparisons resulted primarily from both lower average debt outstanding and a lower average interest rate. Other Income (Expense), Net Other income (expense), net was income of $15.5 million for the second quarter of 2026, $15.3 million for the second quarter of 2025, $32.7 million for the first six months of 2026, and $30.2 million for the first six months of 2025. The amounts for both the 2026 and 2025 second quarter and six months periods primarily reflect the non-service cost components of net periodic benefit cost (income) from defined benefit pension and postretirement plans. See Note 5 for further information on total periodic benefit cost (income). Income Tax Expense Income tax expense was $36.6 million for the second quarter of 2026 and $36.4 million for the second quarter of 2025. The effective tax rate was 21.5% for the second quarter of 2026 and 24.7% for the second quarter of 2025. Income tax expense increased $5.6 million due to higher income but was mostly offset by a $5.5 million decrease resulting from the lower effective tax rate. 22 Table of Contents Income tax expense was $70.2 million for the first six months of 2026 and $74.6 million for the first six months of 2025. The effective tax rate was 21.8% for the first six months of 2026 and 23.9% for the first six months of 2025. Income tax expense decreased $6.9 million due to the lower effective tax rate and was slightly offset by a $2.5 million increase due to higher income. The decrease in the effective tax rate for both periods was primarily driven by lower taxes on foreign earnings. The One Big Beautiful Bill Act (OBBBA) was enacted in the United States on July 4, 2025. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework, and the restoration of favorable tax treatment for certain business provisions, including permanently restoring 100% bonus depreciation for qualifying property and reinstating the ability for entities to immediately expense domestic research and development expenditures. The OBBBA has multiple effective dates, with certain provisions which were effective in 2025 and others implemented through 2027. The 2026 impacts of the OBBBA have been reflected in the income tax provision for the second quarter and six months ended June 30, 2026. These impacts were not material to our consolidated financial statements. We are continuing to assess the impact of the provisions of the OBBBA that are effective in the future. Cash Flows, Financial Condition, and Liquidity Cash and cash equivalents at June 30, 2026 were $93.6 million, an increase of $16.0 million since December 31, 2025. Cash and cash equivalents held by our foreign subsidiaries amounted to $78.2 million at June 30, 2026 and $68.3 million at December 31, 2025. Periodically, we repatriate cash from our foreign subsidiaries to the United States through intercompany dividends and loans. We do not anticipate significant tax consequences from future distributions of foreign earnings. A portion of our foreign cash balances is associated with earnings that we have asserted are indefinitely reinvested. We plan to use these indefinitely reinvested earnings to support growth outside of the United States through funding of operating expenses, R&D expenses, capital expenditures, and other cash needs of our foreign subsidiaries. We expect that cash from operations, together with borrowing available under our revolving credit facility, will continue to be sufficient to cover our operating needs including planned short-term and long-term capital expenditures. Cash Flows – Operating Activities Cash provided from operating activities for the first six months of 2026 was $286.2 million, including $3.6 million of higher working capital requirements. The $3.6 million excluded a favorable foreign currency impact to the components of working capital on the balance sheet. When comparing the June 30, 2026 balances with those at December 31, 2025, the most significant changes in working capital included increases in trade and other accounts receivable, inventories, and accounts payable, along with a decrease in accrued expenses. The increase in trade and other accounts receivable primarily reflects higher sales during the second quarter of 2026 compared to the fourth quarter of 2025, partially offset by a reduction in a short-term income tax receivable. The increase in inventories is due mainly to increased sales volume and higher raw material prices resulting from the conflict in the Middle East. The increase in accounts payable is primarily the result of increased purchasing along with higher raw material costs during the first six months of 2026 and normal invoice payment timing. The decrease in accrued expenses is primarily the result of normal payments related to customer rebates and personnel-related payments. Including cash and cash equivalents, as well as the impact of changes in foreign currency exchange rates on the balance sheet, we had total working capital of $639.6 million at June 30, 2026 and $640.4 million at December 31, 2025. The current ratio was 2.25 at June 30, 2026 and 2.53 at December 31, 2025. Cash Flows – Investing Activities Cash used in investing activities totaled $50.6 million during the first six months of 2026, comprised primarily of capital expenditures. We expect that our total capital spending during 2026 will be in the $100 million to $130 million range and will include improvements to our manufacturing and R&D infrastructure around the world. Included in the expected capital expenditures for 2026 is a capital investment to expand AMPAC's ammonium perchlorate production capabilities in support of growing solid rocket motor demand. The project of up to $100 million, which began in 2025 and is currently expected to come online towards the end of 2026, includes the construction of an additional production line, increasing capacity by more than 50%. The increased capacity will allow AMPAC to meet the anticipated future demand of U.S. military and space launch programs, while also addressing the needs of U.S. allies in these critical areas. We expect to continue to finance capital spending through cash on hand and cash provided from operations, together with borrowing available under our revolving credit facility. 23 Table of Contents Cash Flows – Financing Activities Cash used in financing activities during the first six months of 2026 amounted to $215.1 million. These cash flows included repurchases of our common stock of $126.4 million, cash dividends of $55.6 million, and principal payments of $50.0 million on the 3.78% senior notes, which were partially offset by net borrowings of $21.0 million on the revolving credit facility. Debt Our long-term debt was $854.8 million at June 30, 2026 compared to $883.4 million at December 31, 2025. See Note 9 for additional information on the 2.70% senior notes, 3.78% senior notes, and revolving credit facility, including the unused portion of our revolving credit facility. Our senior notes and the revolving credit facility contain covenants, representations, and events of default that management considers typical of credit arrangements of this nature. The covenants under the 3.78% senior notes include negative covenants, certain financial covenants, and events of default which are substantially similar to the covenants and events of default in our revolving credit facility. The revolving credit facility contains financial covenants that require NewMarket to maintain a consolidated Leverage Ratio (as defined in the agreement) of no more than 3.75 to 1.00, except during an Increased Leverage Period (as defined in the agreement) at the end of each quarter. At June 30, 2026, the Leverage Ratio was 1.20 under the revolving credit facility. At June 30, 2026, we were in compliance with all covenants under the 3.78% senior notes, 2.70% senior notes, and revolving credit facility. As a percentage of total capitalization (total long-term debt and shareholders’ equity), our total long-term debt percentage decreased from 33.2% at December 31, 2025 to 31.7% at June 30, 2026. The change resulted from a net decrease in outstanding long-term debt along with an increase in shareholders' equity. The increase in shareholders’ equity primarily reflects our earnings partially offset by repurchases of shares of our common stock, dividend payments, and an unfavorable impact from foreign currency translation adjustments. Generally, we repay any outstanding long-term debt with cash from operations or refinancing activities. Critical Accounting Policies and Estimates This Form 10-Q and our 2025 Annual Report include discussions of our accounting policies, as well as methods and estimates used in the preparation of our financial statements. We also provided a discussion of Critical Accounting Policies and Estimates in our 2025 Annual Report. There have been no significant changes in our critical accounting policies and estimates from those reported in our 2025 Annual Report. Recent Accounting Pronouncements For a full discussion of the more significant recently issued accounting standards, see Note 13. Outlook Our goal is to provide a 10% compounded return per year for our shareholders over any ten-year period (defined as earnings per share growth plus dividend yield), although we may not necessarily achieve a 10% return each year. We continue to have confidence in our customer-focused strategy and approach to the market. We believe the fundamentals of how we run our business - a long-term view, safety-first culture, customer-focused solutions, technology-driven product offerings, and world-class supply chain capability - will continue to be beneficial for all of our stakeholders over the long term. We expect our petroleum additives segment will continue to experience impacts to its operating performance during 2026 due to market softness and the uncertain macroeconomic environment in which we operate. Nonetheless, we anticipate solid results from this segment in 2026. We will continue to invest in technology to serve our customers, focus on cost control and margin management, and advance our initiatives to build a global manufacturing network that will enable more efficient product delivery to our customers in the years ahead. Over the past several years we have made significant investments in our petroleum additives business as the industry fundamentals remain positive. These investments have been, and will continue to be, focused on operational efficiencies, organizational talent, and technology development and processes, as well as global infrastructure, including technical centers, production capabilities and geographic expansion. We intend to utilize these investments to improve our ability to deliver the 24 Table of Contents solutions that our customers value, expand our global reach, and enhance our operating results. We will continue to invest in our capabilities to provide even better value, service, technology, and customer solutions. In addition to the ongoing investments we make in our petroleum additives business, we have committed approximately $1 billion to our specialty materials business since 2024, including the acquisitions of AMPAC and Calca, as well as investments expanding capacity at both operations. We continue to focus on the integration of these companies into our business, and we anticipate solid results from both companies. We may experience substantial variation in quarterly results for this resilient, high-technology specialty materials segment due to the nature of the business, including any impact from shutdowns of the U.S. government. Our business typically generates significant amounts of cash beyond its operational needs. We regularly review our many internal opportunities to utilize excess cash from technological, geographic, production capability, and product line perspectives. We believe our capital spending is creating the capability we need to grow and support our customers worldwide, and our research and development investments are positioning us well to provide added value to our customers. While our most recent acquisitions of AMPAC and Calca were outside of our core petroleum additives business, we believe both presented an excellent opportunity to provide long-term value for our shareholders. Nonetheless, our primary focus in the acquisition area remains on the petroleum additives industry. It is our view that the petroleum additives industry will provide the greatest opportunity for solid returns on our investments while minimizing risk. We remain focused on this strategy and will evaluate any future opportunities. We will continue to evaluate all alternative uses of cash to enhance shareholder value, including stock repurchases and dividends. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk At June 30, 2026, there were no material changes in our market risk from the information provided in the 2025 Annual Report.