NewMarket Corporation
Q3 2008 Earnings Call Transcript

Published: 31 Oct 2008

[Operator:]

Greetings, ladies and gentlemen and welcome to the New Market Corporation Third quarter 2008 financial results conference call. (Operator Instructions) As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Fiorenza, Vice President, Treasurer and Principal Financial Officer for New Market Corporation. Thank you, Mr. Fiorenza, you may begin.

[David A. Fiorenza:]

Thank you for joining us to discuss our third quarter performance. With me is Teddy Gottwald, our CEO. I have a few planned comments, after which we'll open the lines for any questions. As a reminder, some of the comments we will make today are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We believe we based our statements 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. A full discussion of these factors can be found in our 2007 10K. We have released earnings last night as you saw and we also published our 10Q last night. I encourage you to read the 10Q for more details. Income from continuing operations was $16 million or $1.07 a share for the third quarter, compared to $20 million or $1.19 a share from last year's third quarter. Income from continuing operations was $54 million or $3.48 a share for nine months, while income from continuing operations for nine months last year was $52 million or $2.99 per share. Earnings-per-share from continuing operations in the third quarter and nine months include the benefit of share repurchases made both in 2008 and 2007. (Inaudible 00

[Operator:]

Thank you ladies and gentlemen. At this time, we will be conducting a question-and-answer session. (Operator instructions) Our first question today comes from the line of Ivan Marcus with Keybanc Capital Markets. Please proceed with your question.

[Ivan Marcus:]

Hi, thanks for taking my call. Real quick, I think I missed it. Volume was up 6%, what was FX and price in the additives business?

[David A. Fiorenza:]

For the quarter?

[Ivan Marcus:]

Yes, for the quarter.

[David A. Fiorenza:]

12% was shipment, 3% was FX, 9% was pricing.

[Ivan Marcus:]

Got you, thank you. And then so you said that you’re seeing volume fall off in the fourth quarter. Are you seeing it more in your international business, or in North America, or is it pretty equal? Can you give a little bit more color on where you’re seeing that volume come up?

[Thomas E. Gottwald:]

Yes, this is Teddy. It’s not isolated to any one place. We’re seeing it in North America, we’re seeing it in Asia. Those two markets probably more than other places. We expect this quarter to be lighter on volume, as David mentioned. We think that this will be a near-term kind of phenomenon and we don’t expect any longer term issue on volume. I will also say that there’s a silver lining in the light of volume for us because our plants have been running flat out, and we have some maintenance and expansion tie-in’s coming in a couple of our plants in the fourth quarter and early in the first quarter of next year. So a little relief on the volume side is not a bad thing for us.

[Ivan Marcus:]

Great. Teddy, you’ve been in the business for awhile. How has your business lube additives happen simply perform in a recession, the past recessions, and how has, if we are in a recession now, how is now different than in the past couple that we’ve gone through for Afton?

[Thomas E. Gottwald:]

Those are really good questions. Historically, the additive business has been less dependent on the economy than most other industries. I think that’s still true today. There’s pushes and pulls on both sides of that equation. Currently, in a slow-down, people don’t buy new cars as much and the new car factory fill market is important to us, but it’s a small portion of our total and we’re seeing some weakness there throughout this year. So that’s a negative. And people will delay changing their oil a bit, stretch it out some, but after awhile you can’t delay changing your oil. Gas prices being high has impacted demand somewhat, but as you know, gasoline prices are coming back down and I suspect that people will return to their normal driving habits. So there’s pushes and pulls, but all things considered, I think our industry is less dependent than most on economic conditions. And, at this point, I don’t really expect the current situation that we’re in to be any different from gasoline from a demand standpoint.

[Ivan Marcus:]

Got you. And you said driving was down, so the margins were down a bit this quarter. Was there maybe a different product mix than you’ve seen in the last few quarters, maybe Pace Oil, which is, I believe, is a little bit lower margin versus maybe Drive Line additives? I mean, was there a different product mix than usual, or is it just the fact, or more a matter of just higher raw materials?

[Thomas E. Gottwald:]

Any product mixed difference is dramatically overshadowed by the increase in raw material.

[Ivan Marcus:]

Okay. And then one last question. Pace Oil, I know it dropped a little bit, I don’t know 5% to 10% depending on which one, this past week. How long will that take before you see the benefit from that decrease and will there be any pressure on your pricing if prices continue to fall? For base oil.

[Thomas E. Gottwald:]

Right. Base oil is about 20% of our raw material purchases. You mentioned a 5% to 10% drop in base oil and we’ve seen a number of announcements in the marketplace that support that, but we’re not seeing it as a company. The changes we’ve seen so far is considerably less than that. Crude’s dropped a lot and while there have been some base oil announced reductions, we’ve seen tightness in certain base oils that we need. The disruptions in the Gulf Coast to the base oil market in the third quarter from the hurricanes impacted our costs quite a bit and our whole supply system.

[Ivan Marcus:]

Knowing what you know now in that and seeing that volume is quiet for the industry and are probably going to be off a little bit. Would you expect Day Fill to still stay at these historically high levels in this quarter, or would you, with crude plummeting, there’s got to be some downward pressure on baseball pricing, right, or do you expect probably we won’t see it until maybe the first quarter of ’09, if anything. What’s your costs on that?

[Thomas E. Gottwald:]

No, we do expect base oil to drop. We expect some more dropping in the fourth quarter and in the first half of next year also because of overall supply and demand in the base oil market, both from a weakening of demand and increase in supply. So we do expect to see some drop. You know, crude is down quite a bit, too, but on a number of our petro chemicals, it is still tight and we’re not seeing any impact, any substantial impact, on the other 80% of our purchases yet. Ultimately, though, with economic conditions being what they are and with crude dropping, we do expect relief on the broader raw materials front. We’re just not there yet.

[Ivan Marcus:]

All right. And then this will be truly my last question, I said a few questions ago. But what’s your sense of customer’s inventory? Do you see them, are they high, or do you think they’re keeping their inventories pretty lean right now? We’re still seeing pat auto bills being down and just going maybe into people driving less, or do you think that their inventories are high? I mean, what’s your sense?

[Thomas E. Gottwald:]

My sense is purely anecdotal, but I think that we’re seeing customers reducing inventory, I think for a number of reasons. The uncertainty in the economic conditions for one, and the fact that we’re through the hurricane season, there would typically be some destocking going on from that anyway.

[Ivan Marcus:]

All right, I appreciate you taking my question, thank you very much.

[Thomas E. Gottwald:]

Sure.

[Operator:]

Thank you. Our next question comes from the line of Robert Felice with Gabelli & Company. Please proceed with your question.

[Robert Felice:]

Hey guys, a couple of quick questions. I guess first when historically we’d expect to see 4Q get a bit weaker on the volume side, just giving some of the seasonality, but over the last two or three years we’ve seen a dynamic change a bit around the hurricanes with build in 2Q and a draw-down in third quarter, and they’re rebuilding the fourth quarter. Are we seeing reversion back to what we would normally expect historically, or I’m just curious to get a sense as to what happened around the hurricanes from a volume perspective?

[Thomas E. Gottwald:]

Well, we’ve spent a fair amount of time internally discussing that issue and the first half of this year didn’t meet the typical pattern. The first quarter was a lot higher than it normally is, and the third quarter was weaker than it usually is. We’re not really sure if the typical pattern has changed for the future or this is more short term. We just don’t know at this point.

[Robert Felice:]

Now in terms of the volume pattern you’ve seen so far in the fourth quarter, has it been consistently weak, or has it been lumpy? I know we’re only a couple of weeks in, but any clarity?

[David A. Fiorenza:]

No, I don’t, I mean the 5% to 10% was based on what we’ve seen. It was just kind of general.

[Robert Felice:]

Okay. And then in terms of your price/cost GAAP, where did that stand during the quarter and on a year-to-date basis?

[Thomas E. Gottwald:]

We basically have been playing catch-up for eight months out of the nine in 2008, and in September we finally caught up.

[Robert Felice:]

And on a year-to-date basis, what’s the GAAP? Just trying to get a sense for that, seeing what the headwind was this year and potentially what the tailwind might be next year?

[David A. Fiorenza:]

I don’t quite know how to answer that, but we still believe that 10% operating profit is representative of this business, so whatever data you’re looking at, our year-to-date numbers will be south of that for sure.

[Robert Felice:]

Would you expect the fact that that 10% level in 2009?

[David A. Fiorenza:]

Yes.

[Robert Felice:]

Okay. And I know you said that your operating income should be at least as great as last year’s level, and that would imply a sequential improvement. What kind of magnitude are you looking at?

[David A. Fiorenza:]

Well, that’s why we said at least as. It’s going to be a sequential improvement.

[Robert Felice:]

Okay, and I heard you in the first quarter, you had a one-time legal gain. Excluding that number, would you say you’d still be as gray as last year?

[Thomas E. Gottwald:]

I don’t know. I don’t know, Robert. I haven’t looked at it that closely. But I was including the $3 million we made when we made the statement.

[Robert Felice:]

Okay. And then in terms of Foundry Park, how are things progressing there? And maybe you can give us an update on the financing situation.

[Thomas E. Gottwald:]

Sure, the project’s going along fine. We are on schedule and little better than budget, or below budget. And the building is now out of the ground, the structure is up, and the skin is going on so that whatever uncertainties there are with constructing are becoming smaller as we go forward, so we expect to finish in that position. The short term financing is in place, as you know. We have three banks that are providing the construction loan. The longer term financing does have a question around what it might look like because the loan that we were anticipating was in a market that’s not functioning right now. So we are talking to the group that we have a loan application with. And we’re also talking to other folks about what alternatives if they are. The good news here is that we don’t need this financing for another 15 months. As a matter of fact the construction loan is not due until August of 2010. So you can even look at that as kind of needed for two years. So, we’re working on that and that’s the situation right now.

[Robert Felice:]

Okay, great. Thanks for taking my questions.

[Operator:]

Thank you ladies and gentlemen, our next question comes from the line of Rich Book with First Investors. Please proceed with your question.

[[Rich Book]:]

Hi there. I have a question on your volume gains year-to-date and also on the quarter. What do you attribute those two? Is it market share gains? Is it new products or how would you look at that?

[Thomas E. Gottwald:]

It’s a combination of those. Its market share gains and new products, but I would say that certainly in the first half for this year, industry wide demand was a lot higher than historical patterns.

[[Rich Book]:]

Okay. Would you attribute it to it? Did you buy the share by not raising prices as quick as your competitors or how do you feel your pricing actions have been versus your competitors?

[Thomas E. Gottwald:]

We don’t discuss our pricing strategy. I will say though that we did not have an aggressive market share growth strategy.

[[Rich Book]:]

Okay. Back to Foundry Park for a minute, is there—we’ve seen companies back out of, you know, new headquarters and things like that recently in the market, is there a way, a way for MeadWestvaco to get out of this contract or yes, what’s your thoughts there?

[Thomas E. Gottwald:]

That is a solid contract with a very reputable large corporation.

[[Rich Book]:]

Where are their current headquarters, or is it a consolidation headquarters or what’s their strategy in moving to this location?

[Thomas E. Gottwald:]

They’re in short terms space here in the area.

[[Rich Book]:]

Okay. And kind like overall picture, what’s the strategic rationale of, you know, real estate development on a company that’s mainly a petroleum additives business. How does these two businesses tie together?

[Thomas E. Gottwald:]

We’ve got some very choice real estate here contiguous with our headquarters. We’ve literally built the real estate position here over a hundred year period. This is not a new leg in our business. It’s not something we intend to grow in. This is a way for us to maximize the value of the property that we have right here.

[[Rich Book]:]

Also, given—you know, what your stand in real estate financing market, your stock re-purchase agreements, you know, now’s probably the time when people are looking to sell businesses, do you feel any of your actions recently, that have kind of limited your financial flexibility, going forward, look at acquisitions or you know be interest in your thoughts there?

[Thomas E. Gottwald:]

We’re still adductive as we’ve been on the acquisition analysis and pursuit side. Any decision we made on repurchase of stock or capital spending, takes into account the availability of acquisitions that fit our strategy, really, if the market today, not our financial capability that limits our acquisition. There’s money to be had for acquisitions out there is very expensive. So we’re just as active as we’ve been.

[[Rich Book]:]

Okay. And could give a little more color on the recent GE acquisition, you know, sort of pump primers and how much revenue you see it adding and things along those lines?

[Thomas E. Gottwald:]

It’s a very small business in the scheme of things and relative to the eyes. It’s a nice business and that it extends our presence in the --- we finished fill additive area, the downstream portion of the fill additive market beyond the refinery gate. That gives us broader distribution in the U.S. for these products and it’s a market that we think fits very nicely with our technology and we plan to continue to grow in this area.

[[Rich Book]:]

Do these facilities come along with this acquisition or is the business just give you integrate into your market’s existing facilities?

[Thomas E. Gottwald:]

No manufacturing facilities came as part of the deal

[[Rich Book]:]

Okay, thank you very much for your time.

[Operator:]

Thank you, our next question comes from the line of Ian Zaffino with Oppenheimer. Please proceed with your question.

[Ian Zaffino:]

Great, thank you. Just a question here for David, the prices says 4% volume and you mentioned 6% in the call. Which is the right number?

[David A. Fiorenza:]

The one requirement we have is to report how much tons moved, that’s 4%. Then the other requirement is when we break it down, is you try to figure out how much each ton was worth that’s the 6%. So I apologize for the two numbers and pop a line and I can show you more detail, but every ton is that of the same value from the 4% and the 6% one.

[Ian Zaffino:]

So you mean 6 is 2% of mix.

[David A. Fiorenza:]

Yes, you can look at it that way.

[Ian Zaffino:]

The other question would be when you talk about disruptions in base oil, is that included in that $400 million estimate of what the hurricanes cost you?

[David A. Fiorenza:]

Yes, but not much of it in that that disruption would have continued some into the fourth quarter. But the answer is yes. Some of it is in the 400 million?

[Ian Zaffino:]

Okay how is these disruptions manifest itself? Is it in surprising prices?

[David A. Fiorenza:]

Its in the supply and the disruption of the transportation network also. I’ll give you simple example. When we might have taken product by a barge, we might now have to be tracking products, which has higher transportation cost. And then in fact, we might be even limited on how much that supplier can give us that we have to go and get some supply at a spot price that are higher price to keep our customers home. That’s the kinds of ways that manifest itself.

[Ian Zaffino:]

Okay, and then on the pricing increase side, I have two questions here that I’ll throw out is

[Thomas E. Gottwald:]

Yes. First of, they denied…I’m in no way to comment on our competition. We’re very pleased with the pricing actions we take and we have recovered the raw materials. The problem here in, if you look at the quarters worth of data and we never, I hope we never said we would be as fully recovered for the whole third quarter. When you see the data that we see, which is more of a monthly data, we see that we are recovering the margins towards the end of September moving in to October.

[Ian Zaffino:]

Okay.

[Thomas E. Gottwald:]

So that’s the difference from what you said and where we set.

[Ian Zaffino:]

Okay. Thank you very much.

[Thomas E. Gottwald:]

You’re welcome.

[Operator:]

Thank you, our next question comes from the line of Mike Judd with Greenwich Consultants. Please proceed with your question.

[Mike Judd:]

Hi. Thanks for taking my question. Your foreign exchange on a year-over-year basis has been averaging about 3% of the last three quarters or so. What are your assumptions for the December quarter let’s say just took the exchange rates where there are today. Would it result to the negative number on a year-over-year basis? I would imagine it would, right?

[David A. Fiorenza:]

While year-over-year for the fourth quarter I got to say I don’t have fourth quarter ’07 exchange rate in front of me. There might be a push with the last year’s fourth quarter I supposed to be a negative, if that was your question.

[Mike Judd:]

A push, meaning that it’s actually a positive number versus a –

[David A. Fiorenza:]

No, meaning, zero.

[Mike Judd:]

Zero, okay, all right. So I just kind of want to go back to the last question also. I’m a little bit confused because, you know, we’re going to have volumes down, foreign exchange probably flat, and maybe this could help me out here, is that, you had a 15% year-over-year increase in pricing for petroleum additives. Shall we be expecting a larger number than that or a lesser number than that than the December quarter?

[Thomas E. Gottwald:]

I don’t really know how to compare the two, but I will say that the price increase instead, we implement it to make up for the cost increases that we think did not come in on at the very beginning in the third quarter. They rolled in through the quarter. You did not see the full impact of price increases in the third quarter numbers.

[Mike Judd:]

Okay, I understand that you guys provide numbers for us each quarter and we have those numbers on our models, I think what we want to try to do is have some consistency in our earnings model, so I find to ask you to think about it from the perspective of the information that you give it from a quarterly basis, but also the type of way that we would like at it in our earning’s model. So, let me just go back and ask the question again, but you said, you know, you had a 3% year-over-year improvement in pricing the first quarter, I’m not sure I got the right number the second quarter, but might be 6.3% in the June quarter, it was around 15% in September quarter. What do you expect that number could look like potentially and realize it’s early in the quarter.

[David A. Fiorenza:]

I’m actually not prepared to give you a decent answer Mike, why won’t you call me and we’ll talk about the line.

[Mike Judd:]

Okay, and then, you know, lastly as I look at the margin numbers, in order to flat year-over-year, maybe we should just make sure that we’re all in the same bases here. The EBIT number that you’re talking about for last year, can you just give us that number, so that we can make sure that maybe they were some percentage and changes and you know, due to acquisitions. When you say that you expect the four year earnings to be at least is it seemed a level of better than last year, what is that base number in terms of EBIT?

[Thomas E. Gottwald:]

Trying to look at that—I would be frank that petroleum additives –

[Mike Judd:]

Right. That’s what I’m talking about, sir yes.

[David A. Fiorenza:]

Operating profit.

[Mike Judd:]

Sure, no problem. I’m talking about the same thing.

[David A. Fiorenza:]

Right, I’ll find it, just a second.

[Thomas E. Gottwald:]

Now, for the whole year of last year.

[David A. Fiorenza:]

129.

[Mike Judd:]

Okay, great. So, this is just the last piece of this question, which is that, you know, conceptually, I’m having a difficult time understanding how volumes can basically, essentially decline here, but margins could increase. I mean, it seems to me that what’s going on and I covered 46 chemical companies as the broad based weakness in terms of demand. I would imagine that if you attempt to push to through higher prices in this type of environment that your volumes could actually be significantly even weaker than the range that you’ve driven us.

[David A. Fiorenza:]

Mike, sorry for we hadn’t been clear. All the pricing discussions have happened past attempt in what you’re basically going to see is the follow-through in the fourth quarter.

[Mike Judd:]

Okay, but I believe, the customers, are they committed? Do they have to contractually agree to purchase the volumes or not?

[Thomas E. Gottwald:]

I guess, no customer has to purchase the volume, but these are large standing customers and we expect that they will.

[Mike Judd:]

Okay. I think someone else asked a question about your customers’ inventories, you know what level of visibility do you have into those inventory levels?

[David A. Fiorenza:]

Not at a lot, I believe that’s why Teddy described it as anecdotal.

[Mike Judd:]

Okay. So, thanks for the help.

[David A. Fiorenza:]

Okay.

[Operator:]

Thank you ladies and gentlemen. Our next question comes from the line of Amy Levine with Shenkman Capital. Please proceed with your question.

[Amy Levine:]

Hi, can you just talk about your stock product program? Do you plan on continuing that until ’09 or do you think it’s more prudent to maybe save the cash for any potential other uses?

[David A. Fiorenza:]

We have $80 million left on our authorization and the only guidance I can give you is that that will be reviewed in light of the other things that are going on in our company. And it’s got another 18 months or two years on that authorization so—

[Amy Levine:]

Can I have your view given that change on the capital market? Do you think that view has changed?

[David A. Fiorenza:]

No, I don’t believe so, I mean it’s still something that we will conserve.

[Amy Levine:]

Okay, thank you.

[Operator:]

Thank you ladies and gentlemen. (Operator instructions). Our next question comes from the line of Bob Robotti with Robotti & Company. Please proceed with your question.

[Bob Robotti:]

Hi, everybody. Hey, a lot more people in the call than it used to be two or three years ago.

[David A. Fiorenza:]

That’s for sure.

[Bob Robotti:]

So, you know, kind of going fourth quarter or first quarter next year, the movements are they–is this what you’ve said, I want to make sure, foreign currency that, you know , probably moving somewhat directionally cause it’s going to positive and what you said is that it would be probably neutral in the fourth quarter, as your best guess and of course, we only took one-third of the way through. So who the heck knows and currencies have been valuable. And then on the volume side, of course, you said volumes, you know definite can be down some raw materials and margins could be improved cause you put through the price increases and raw materials probably can’t look just to heading positively not negatively. Capacity utilization, you’re going to be slightly rough, but you also said the capacity utilization was relatively high so that you probably don’t lose too much in terms of somewhat lower capacity utilization and of course the next, which the trends has been, you know over the less number of years, continuous to be a positive trend. So those kind of all the forces in the short term that kind of you know, we look out the next couple of quarters are affecting or anything?

[Thomas E. Gottwald:]

An inevitable of that would seem to me to be equally positive.

[David A. Fiorenza:]

I agree, and I think you summarized our views accurately.

[Bob Robotti:]

Okay. On the buy-back, of course you just said that, you know outside external market really hasn’t—you don’t see it having too much of an impact. That would seem to be since January price was at 54 and then August was 64, conversely, you know given current market its probably looks pretty attractive as when you go to the relative alternative that you’re looking at, could be one of your alternatives if the buy back is actually looks more attractive today than when you’ve done it in the past and you know, all of the things being equal, I just, necessarily any deal start to come true, so you know, the framework I guess in which you’re going to look at, what do you want to do in the buy back or not?

[David A. Fiorenza:]

Okay, that’s the framework that we will be looking at though. I mean, do you understand, Bob?

[Bob Robotti:]

No, no that one. And then, a really small item, the financing—the construction loan on the Foundry Park, of course the loan itself is really awful as live work, which of course has been all over the place. But you stand a spark on that, is that right?

[David A. Fiorenza:]

Right.

[Bob Robotti:]

And so does that mean you know the crazy movements in live war are really being absorbed through the swappy you’ve done so, you know fixed rate, how it going to affect on us really or you’re paring them?

[David A. Fiorenza:]

That’s correct

[Bob Robotti:]

And who’s at swack with, or should we be concern, you know, everybody is concern about, even people of slops have done smart things but then they created a financial risk of one shortened to a credit risk.. When you get on with it, kind of a party is on the slap?

[David A. Fiorenza:]

But the counter party and the three guys are doing with the money.

[Bob Robotti:]

The SunTrust PNC and Bank of America. So we don’t have any concerns.

[Bob Robotti:]

And then again, on Foundry Park, how many acres were associated with the project of ground land.

[David A. Fiorenza:]

Three and a half or something.

[Bob Robotti:]

Three and a half. And what incremental ground land do you own that isn’t part of the Foundry Park and isn’t part of proper offices?

[David A. Fiorenza:]

Hold on, but that the better answer is there’s probably another three or four acres that’s of the same quality.

[Thomas E. Gottwald:]

And obviously, though we don’t tapped in there the short term, given, kind of current external event.

[Bob Robotti:]

That’s fair. Kind of this is the last random item that you probably, you’d like to know the attitude will give – you know there was that talk six to seven, eight months ago, whatever it was that (inaudible) you know was being evaluated by Shell and Exxon, or I guess, was it mainly Shell who was doing the evaluation. Is there any scuttlebutt or anything by matter, anything happened?

[David A. Fiorenza:]

You probably have just as much as we know. The only thing to say about that one.

[Bob Robotti:]

Well, I got that I know as much as you do, it’s all speculations, so–.

[David A. Fiorenza:]

That’s true.

[Bob Robotti:]

Thanks a lot. I appreciate it. And again by the way, this question position the company great the last couple of years, you know, things have been unfolding and seems to me is you’re well-positioned at. Right at whatever noise is going on here in the short term.

[David A. Fiorenza:]

Thank you.

[Bob Robotti:]

Great. Bye-bye.

[Operator:]

Thank you ladies and gentlemen, our next question comes from the line of Robert Felice with Gabelli & Company. Please proceed with your question.

[Robert Felice:]

Hi, just a quick follow up. I wanted to get some greater clarity around FX, you know its been a nice tail-end for awhile as you said it will be being neutral in the fourth. If the dollar stay where it is right now, what kind of head-winds are you looking at in ’09 on the bottom-line?

[David A. Fiorenza:]

Average in nine months to Euro was 1.53, okay? And the average nine months Euro from the previous year was 1.35 or 1.33, let’s make it simple. So that $0.20 up was the predominant reason we think we had about a 9 million gain. So, if the $0.20 goes away it’ll be 9, 10, 11 negative in ’09.

[Robert Felice:]

Okay. And yet the same token, you said that you still expect to achieve the 10% operating income margin.

[David A. Fiorenza:]

That’s correct.

[Robert Felice:]

If I look at your trailing 12-month revenue here, to take that 10% operating income that’s you know, $160 million roughly.

[Thomas E. Gottwald:]

That’s the number, yes.

[Robert Felice:]

Is this the—you know, I know you don’t give guidance, but just, you know qualitative color around that number. Is that a kind of magnitude, you know we’re looking at for next year?

[Thomas E. Gottwald:]

Your comment about not getting guidance is the right one Robert.

[Robert Felice:]

I’m prying here for whatever kind of cloudy as you get.

[David A. Fiorenza:]

Yes, I hear you.

[Robert Felice:]

Alright, well I appreciate you taking the questions, alright.

[Operator:]

Thank you ladies and gentlemen. Our next question comes from the line of Michael Szafranski with Onyx Capital Management. Please proceed with your question.

[Michael Szafranski:]

Good morning. Just a quick question about your buy back. Do you anticipate getting much more aggressive over here?

[Thomas E. Gottwald:]

You know, just don’t comment on what our future plans are. Now I’m telling you is we have $80 million authorization, it’s good for another 18, 20 months and we look at every quarter.

[Michael Szafranski:]

All right. Just another question, with 80 million left, would it be your best interest to buy back your bonds at around 75 instead of buying back your stock?

[Thomas E. Gottwald:]

We look at that arithmetic too, but seven and a eighth money is pretty good money right now from around seven.

[Michael Szafranski:]

Absolutely, but your—

[Thomas E. Gottwald:]

Yes, we’re not really likely to be doing that.

[Michael Szafranski:]

All right and did you say you saw margins expanding slightly during the fourth quarter or you didn’t really give any color on that.

[David A. Fiorenza:]

No, we said we expect margins to expand in the fourth quarter over the third quarter.

[Michael Szafranski:]

The margins to expand, the volumes to be down.

[David A. Fiorenza:]

Right.

[Michael Szafranski:]

Thank you very much.

[David A. Fiorenza:]

You’re welcome.

[Operator:]

Thank you. Next question comes from the line of Ian Zaffino with Oppenheimer. Please proceed with the question.

[Ian Zaffino:]

Okay. David, you said a 129 million of operating profit you did on normalize basis in ’07?

[David A. Fiorenza:]

For petroleum additive.

[Ian Zaffino:]

Okay and you’re saying that ’08 is going to at least—

[David A. Fiorenza:]

It’s going to at least $329 million.

[Ian Zaffino:]

And that includes the hurricane, including everything?

[David A. Fiorenza:]

That is correct.

[Ian Zaffino:]

So, like the GAAP number that you print—

[David A. Fiorenza:]

That is correct.

[Ian Zaffino:]

Okay. All right. Thank you very much.

[Operator:]

Thank you ladies and gentlemen we have no further questions at this time. I’d like to turn the call back to management.

[David A. Fiorenza:]

Thank you for joining us and talk to you later. Bye-bye.

[Operator:]

Ladies and gentlemen this now conclude today this teleconference and you may disconnect your lines at this time. Thank you for your participation.