Specialty chemicals firm NewMarket (NYSE:NEU) reported another solid quarter of sales growth late in April 2012. Profit growth was above 30%, in line with the company's trends over the past half-decade. These growth levels aren't likely sustainable, but there is still appeal to considering investing in the stock.
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First Quarter Recap
Total sales rose 10.7% to $562.7 million. Petroleum additive sales accounted for the vast majority of the top line at 99.1% and advanced to a healthy 10.9%. Real estate and other activities make up a tiny proportion of the rest of sales and fell slightly. Management cited strong trends in most product categories and the product regions where it operates. It also detailed a strong pickup in volumes from fourth quarter levels.

Raw material costs came down during the quarter and helped contribute to a 32.6% jump in operating profits to $109.5 million. The operating profit margin of close to 20% also indicated that NewMarket's business model is highly lucrative. Moderate income tax expense growth helped push net income up 34.1% to $66.5 million, or $4.96 per diluted share. The company did not provide a cash flow statement in its earnings press release.

SEE: A Look At Corporate Profit Margins

Outlook and Valuation
Analysts currently expect full year sales growth of nearly 9%, total sales north of $2.3 billion and project earnings of $16.67 per share. The current share price stands at $223.3 and represents a forward P/E of 12.08. For 2013, growth expectation is more modest at 4.5%.

The Bottom Line
NewMarket officially qualifies as a specialty chemicals firm and competes along with larger rivals such as Dow Chemical (NYSE:DOW) and even DuPont (NYSE:DD). Rivals include Innospec (Nasdaq:IOSP), as well as Berkshire Hathaway's (NYSE:BRK.B) Lubrizol, which it acquired in 2011. Buffett's interest in the industry's solid growth and profit dynamics are key reasons for why investors might want to also consider NewMarket.

SEE: Analyzing An Acquisition Announcement

NewMarket's earnings multiple is quite reasonable considering that it has grown sales and profits over the past five years. Bottom-line growth won't likely come close to this historical level, but the low double digits annually going forward certainly also looks reasonable.

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.



Tickers in this Article: NEU, DOW, DD, IOSP

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