Executive Summary / Key Takeaways

• NewMarket Corporation, a long-standing player in petroleum additives, is strategically expanding into mission-critical specialty materials through its 2024 acquisition of AMPAC, diversifying its revenue streams and enhancing resilience.
• The company's core petroleum additives business, while facing recent volume softness due to macroeconomic uncertainty, maintains strong operating profit margins (22.0% in Q1 2025) driven by operational efficiency, favorable product mix, and technology investments aimed at exceeding market growth.
• The Specialty Materials segment (AMPAC) demonstrated significant growth in Q1 2025, reporting $53.7 million in sales and $23.2 million in operating profit, and is poised for substantial future expansion with a planned $100 million investment to increase ammonium perchlorate capacity by over 50% by 2026.
• NewMarket maintains a strong financial position with robust cash flow generation ($120.3 million from operations in Q1 2025), a healthy balance sheet (net debt to EBITDA of 1.31 at March 31, 2025), supporting ongoing investments, debt management, and shareholder returns (dividends and share repurchases).
• Key factors for investors to monitor include the successful integration and capacity expansion of AMPAC, the impact of the macroeconomic environment on petroleum additive volumes, and the company's ability to leverage its technology and efficiency focus to drive margin performance and exceed market growth in its core segment.

Setting the Stage: A Specialty Chemicals Leader's Dual Engine Strategy

NewMarket Corporation, founded in 1887, has built a enduring legacy primarily as a global leader in the petroleum additives market. Operating through its Afton Chemical subsidiary, the company develops and manufactures lubricant and fuel additives essential for enhancing the performance, efficiency, and reliability of vehicles and industrial machinery worldwide. This core business serves a diverse customer base of global and national oil companies across North America, Latin America, Asia Pacific, and EMEAI regions. The petroleum additives market, while mature, is characterized by ongoing demand driven by evolving performance standards, environmental regulations, and the need for efficiency improvements in combustion engines and industrial equipment. Management anticipates this market growing annually up to 2% over the long term.

NewMarket's strategic approach in this segment centers on a long-term view, a safety-first culture, customer-focused solutions, and a world-class supply chain. Crucially, the company emphasizes technology-driven product offerings, underpinned by consistent investment in research, development, and testing (R&D). This R&D focus is foundational to its competitive positioning, enabling the development of differentiated additive formulations that meet stringent customer needs and regulatory requirements.

Recognizing the need to expand into resilient, mission-critical sectors, NewMarket executed a significant strategic move on January 16, 2024, with the acquisition of American Pacific Corporation (AMPAC). This acquisition introduced a second core business, Specialty Materials, focused on critical materials for solid rocket motors used in space launch and military defense applications. This diversification leverages AMPAC's established position as a key supplier to the U.S. government and its contractors, adding a new dimension to NewMarket's growth profile.

The Technological Edge: Performance Through Innovation

NewMarket's competitive strength, particularly in its core petroleum additives business, is significantly derived from its proprietary technology and sustained investment in R&D. While specific quantifiable performance metrics for all technologies are not detailed, the company's R&D efforts are explicitly aimed at developing solutions that meet customer needs, comply with new and evolving standards, and support expansion into new product areas. This suggests a focus on additives that improve performance characteristics such as engine efficiency, wear reduction, emissions control, and fuel economy, which are critical value propositions for customers in the lubricant and fuel markets.

The company's investment in petroleum additives R&D increased by $2.0 million in the first three months of 2025 compared to the same period in 2024, representing 5.1% of net sales in the recent quarter. This purposeful spending underscores the commitment to maintaining a technological lead. In a competitive landscape featuring large, diversified chemical companies like BASF SE (BASF) and integrated energy giants like ExxonMobil (XOM) and Chevron (CVX), as well as more focused specialty chemical players like Innospec Inc. (IOSP), NewMarket's R&D intensity and specialized focus allow it to carve out a niche based on performance and customized solutions. While larger competitors may benefit from scale and integration, potentially leading to lower production costs, NewMarket's technological differentiation aims to command pricing power and secure market share through superior product performance.

The Specialty Materials segment, acquired through AMPAC, also brings specialized technology in critical materials manufacturing. The planned $100 million investment to expand ammonium perchlorate production capacity by over 50% is a direct response to growing demand in the solid rocket motor market. This expansion, projected for completion in 2026, is not just about scale; it's about enhancing redundancy and security of supply, which are critical differentiators in serving demanding government and defense customers. This investment in specialized production technology reinforces AMPAC's position as a strategic national asset and is expected to be a key driver of future growth and profitability in this segment.

Competitive Dynamics: Niche Leadership Versus Scale

NewMarket operates within a competitive environment characterized by a mix of large, diversified players and more focused specialty chemical companies. In the petroleum additives market, rivals like BASF, ExxonMobil, Chevron, and Innospec Inc. offer overlapping product lines. While precise market share figures for all niche competitors are not publicly detailed, NewMarket holds a significant position, estimated to be in the 5-10% aggregate market share range for petroleum additives.

NewMarket's competitive strengths lie in its deep R&D capabilities, customer-focused approach, and ability to develop high-performance, differentiated additive packages. This allows the company to compete effectively on value rather than solely on price, particularly in segments requiring specialized formulations for demanding applications. The company's operating profit margin in petroleum additives, consistently in the low-to-mid 20s (22.0% in Q1 2025 and 22.4% for the rolling four quarters ended March 31, 2025), reflects this ability to capture value.

However, NewMarket faces inherent challenges related to scale compared to integrated giants like ExxonMobil and Chevron, which can leverage their vast refining and distribution networks. These larger players may have cost advantages in certain areas. NewMarket's strategy to counter this involves focusing on operational efficiency and optimizing its portfolio profitability, alongside its technology investments. The company's goal to exceed the expected 2% annual market growth in petroleum additives indicates a belief that its strategic focus on technology and customer solutions can drive market share gains despite competitive pressures.

The entry into the Specialty Materials segment through the AMPAC acquisition introduces competition within the defense and aerospace supply chain. While specific competitors in this niche are not detailed, AMPAC's qualification on NASA and Department of Defense programs and its long history serving these sectors suggest a strong, established position. The planned capacity expansion is a strategic move to solidify this position and meet increasing demand, reinforcing a competitive moat built on specialized capabilities and trusted relationships within a high-barrier-to-entry market.

Recent Performance and Financial Strength

NewMarket's consolidated net sales for the first three months of 2025 were $700.9 million, a slight increase of 0.6% from $696.7 million in the same period of 2024. This modest overall growth masks divergent trends within the segments.

The Petroleum Additives segment saw net sales decline by 4.7% to $645.5 million in Q1 2025, primarily driven by a 7.2% decrease in worldwide product shipments. Lower shipments in North America and Asia Pacific lubricant additives, and decreases in fuel additives across most regions, contributed to this volume softness. Despite lower shipments and higher operating costs, petroleum additives operating profit decreased by a more modest 5.8% to $142.1 million, partially offset by lower raw material costs and favorable product mix. The segment maintained a strong operating profit margin of 22.0% in Q1 2025, only slightly down from 22.3% in Q1 2024, demonstrating the effectiveness of the company's focus on operational efficiency and margin management.

The Specialty Materials segment, reflecting a full quarter of AMPAC results in 2025 versus a partial quarter in 2024 (acquired Jan 16, 2024), reported significant growth. Net sales were $53.7 million in Q1 2025 compared to $17.0 million in the partial Q1 2024 period. Operating profit swung from a $5.0 million loss in the partial Q1 2024 period to a $23.2 million profit in Q1 2025. This increase was driven by significantly higher product volume and favorable product mix, highlighting the immediate positive impact of the AMPAC acquisition on profitability once the initial acquired inventory (sold at no margin in 2024) was processed.

Financially, NewMarket demonstrates robust health and liquidity. Cash and cash equivalents increased by $40.8 million in Q1 2025 to $118.3 million.

Cash provided from operating activities was strong at $120.3 million for the quarter, despite higher working capital requirements primarily driven by increases in receivables and accounts payable.

The company's long-term debt stood at $990.6 million at March 31, 2025. Management has actively managed debt, making a $50.0 million principal payment on senior notes in Q1 2025 and utilizing net borrowings of $69.0 million on the revolving credit facility.

The company's net debt to EBITDA ratio improved significantly to 1.31 at March 31, 2025, well within its target operating range and covenant requirements, indicating a strong capacity to service debt and fund future initiatives. Shareholder returns remain a priority, with $57.1 million used for share repurchases and $26.1 million paid in dividends during Q1 2025.

Outlook and Risks

NewMarket's outlook is anchored by its long-term goal of providing a 10% compounded return per year for shareholders (EPS growth plus dividend yield). Management anticipates continued strength in both segments.

For Petroleum Additives, the company expects to exceed the long-term market growth rate of up to 2% annually, leveraging its investments in technology, infrastructure, and operational efficiency. However, the segment remains exposed to the uncertain global economic environment, including potential impacts from international trade relations, tariffs, and inflation, which could affect product shipments and operating costs.

The Specialty Materials segment is expected to deliver full-year results consistent with pre-acquisition expectations, despite anticipated substantial variation in quarterly performance due to the nature of its business. The major catalyst for this segment is the planned $100 million capacity expansion at AMPAC, aimed at meeting growing demand from the U.S. military and space programs. This investment, projected for completion in 2026, signals confidence in the long-term growth trajectory of this market and AMPAC's position within it.

Key risks include the potential for prolonged macroeconomic weakness impacting petroleum additive demand, volatility in raw material costs, fluctuations in foreign exchange rates (which had a small unfavorable impact in Q1 2025), and the inherent variability in the specialty materials business results. Environmental liabilities, though currently accrued for, represent a potential future cost risk. The successful integration and execution of the AMPAC capacity expansion project are also critical to realizing the full strategic value of the acquisition.

Conclusion

NewMarket Corporation presents a compelling investment narrative built on a foundation of a resilient core business and a strategic expansion into a high-growth, mission-critical sector. The company's long history in petroleum additives, supported by consistent technology investment and a focus on operational efficiency, provides a stable base with attractive margins, even amidst recent volume challenges. The acquisition of AMPAC introduces a powerful second engine for growth, capitalizing on increasing demand in aerospace and defense and backed by significant planned capital investment.

NewMarket's strong financial health, characterized by robust cash flow and a conservative leverage profile, provides the flexibility to fund these growth initiatives, manage debt obligations, and return capital to shareholders. While macroeconomic headwinds and inherent business variability present risks, the company's strategic focus on differentiated technology, operational excellence, and expansion into resilient markets positions it favorably for long-term value creation. The successful execution of the AMPAC capacity expansion and the ability to navigate the uncertain global economic landscape will be key determinants of NewMarket's performance in the coming years.