Valvoline Inc. (NYSE: VVV), a leading supplier of premium branded
lubricants and automotive services, today reported financial results for
its third fiscal quarter ended June 30, 2018.
Reported third-quarter 2018 net income and EPS were $64 million and
$0.33, respectively. These results included after-tax income of $7
million ($0.04 per diluted share) related to non-service pension and
other post-employment benefit (OPEB) income and after-tax expenses of $2
million ($0.01 per diluted share) related to a foreign currency
adjustment in connection with the Great Canadian Oil Change acquisition
and $3 million ($0.02 per diluted share) primarily related to Kentucky
state tax reform.
Reported third-quarter 2017 net income and EPS were $56 million and
$0.27 respectively, which included after-tax income of $10 million
($0.05 per diluted share) related to non-service pension and OPEB income
and after-tax expenses of $13 million ($0.07 per diluted share) for
legacy and other separation-related costs.
Adjusted third-quarter 2018 net income and adjusted EPS were $62 million
and $0.32, respectively, compared to adjusted net income of $59 million
and adjusted EPS of $0.29 in the prior year period. (See Table 7 for
reconciliation of adjusted net income and adjusted EPS.)
Third-quarter results were driven by the ongoing strength of SSS in VIOC
and strong joint venture performance and favorable foreign exchange in
International, which were partially offset by lower Core North America
margins due to weaker Do-It-For-Me (DIFM) installer volumes and negative
price-cost lag. These factors led to adjusted EBITDA of $115 million, a
3 percent increase compared to the prior year period.
“In the quarter we experienced weaker-than-expected volume and
short-term margin pressure driven by raw material cost inflation. As a
result, our third quarter results came in below our expectations,” said
Chief Executive Officer Sam Mitchell. “Despite these headwinds, our team
continued to deliver against some of our key performance indicators.
VIOC same-store sales growth was 7.9 percent. Premium mix continues to
be strong and we are pleased with the volume gains in both China and
India.”
Operating Segment Results for the Third Quarter
Core North America
Core North America’s total lubricant volume declined 1 percent in the
quarter. Branded volume declined modestly versus prior year while
non-branded volume declined 2 percent. Volume sold through the
Do-It-Yourself (DIY) channel grew 2 percent. This was offset by soft
performance in DIFM installer channels.
Branded premium mix continued to improve, reflecting the ongoing shift
to synthetic products. The benefit of this enhanced product mix,
however, was offset by lower conventional and non-branded volumes as
well as lower volume within DIFM installer channels. Margin was
negatively affected by higher year-over-year base oil costs.
Valvoline expects improved margins in the fourth quarter, driven by
pricing actions and favorable mix, leading to year-over-year EBITDA
growth in Core North America.
Quick Lubes
The Quick Lubes operating segment had another very strong quarter and
continues to be a key growth driver for the company. The increase in SSS
was the result of both increased transactions and average ticket. The
continued success of investments made in customer acquisition and
retention programs drove higher transactions. Previously implemented
pricing actions and premium mix led to higher average ticket.
Sales and segment EBITDA growth were driven by increased SSS and the
addition of 41 net new stores as compared to the prior year.
On July 13, 2018, the company completed its acquisition of Great
Canadian Oil Change, Valvoline’s first international quick-lube
acquisition. With 73 franchised locations, Great Canadian Oil Change is
the third-largest quick-lube chain in Canada. Its established brand and
loyal customer base provides the company with an excellent foundation to
expand its quick-lube footprint outside the U.S.
International
The International segment continued to drive volume gains in the
fast-growing markets of China and India where total volume, including
unconsolidated joint ventures, grew 9 percent. These volume gains were
offset by soft volumes in other regions.
International segment EBITDA grew 10 percent to $22 million in the
quarter. Pricing actions taken in previous periods combined with strong
performances from unconsolidated joint ventures offset cost increases
and contributed $1 million to EBITDA improvement. Foreign exchange also
had a favorable $1 million impact on EBITDA compared to the prior year
period.
Balance Sheet and Cash Flow
Total and net debt increased moderately from the previous quarter. The
company added $73 million of cash flow from operations in the period.
The company repurchased $98 million of stock in the quarter, continuing
to deliver against its stated objective of returning cash to
shareholders through dividends and share repurchases. Fiscal year to
date, the company has repurchased $224 million of Valvoline stock and
paid $45 million in dividends.
Fiscal 2018 Outlook
”For the fiscal fourth quarter, we anticipate continued strong
same-store sales growth from VIOC. We’re also excited to bring the Great
Canadian Oil Change stores into our system and at the same time expect
to add nearly 30 new stores across the VIOC network. We expect a solid
quarter in International and modest improvement in Core North America,”
Mitchell said. “Driven primarily by reduced volume expectations, we are
lowering our fiscal 2018 adjusted EBITDA guidance to $465 to $470
million.
“Despite a challenging third quarter, our teams continue to make
progress laying a solid foundation for the future.”
Fiscal 2018 updated full-year expectations:
UpdatedOutlook
PriorOutlook
$245-$255 million
$260-$280 million
Valvoline’s outlook for adjusted EBITDA, diluted adjusted EPS and the
adjusted effective tax rate are non-GAAP financial measures that exclude
or will otherwise be adjusted for items impacting comparability.
Valvoline is unable to reconcile these forward-looking non-GAAP
financial measures to GAAP net income and diluted EPS without
unreasonable efforts, as the company is currently unable to predict with
a reasonable degree of certainty the type and extent of certain items
that would be expected to impact GAAP net income and diluted EPS in 2018
but would not impact non-GAAP adjusted results.
Conference Call Webcast
Valvoline will host a live audio webcast of its third-quarter fiscal
2018 conference call at 9 a.m. ET on Thursday, Aug. 2, 2018. The webcast
and supporting materials will be accessible through Valvoline’s website
at http://investors.valvoline.com.
Following the live event, an archived version of the webcast and
supporting materials will be available for 12 months.
Basis of Presentation
For periods following Valvoline’s initial public offering in September
2016, various assets and liabilities were transferred to Valvoline from
its former parent company, Ashland Global Holdings Inc. (“Ashland”), and
Valvoline operated as a stand-alone business with arms-length transition
service agreements with Ashland. On May 12, 2017, Ashland distributed
its remaining interest in Valvoline to Ashland shareholders, completing
Valvoline’s separation from Ashland (the “Separation”).
Valvoline’s consolidated and segment results for periods prior to the
Separation are not necessarily indicative of the company’s future
performance and do not reflect what the company’s financial performance
would have been had it been an independent public company during the
period presented.
Additionally, certain prior-year amounts have been reclassified to
conform to current-year presentation. Valvoline early adopted new
accounting guidance, effective for fiscal 2018, which reclassifies
non-service pension and OPEB income as non-operating income.
Use of Non-GAAP Measures
To aid in the understanding of Valvoline’s ongoing business performance,
certain items within this news release are presented on an adjusted
basis. These non-GAAP measures, presented on both a consolidated and
operating segment basis, which are not defined within U.S. GAAP and do
not purport to be alternatives to net income/loss, earnings/loss per
share or cash flows from operating activities as a measure of operating
performance or cash flows. For a reconciliation of non-GAAP measures,
refer to Tables 4, 7, 8 and 9 of this news release.
The following are the non-GAAP measures management has included and how
management defines them:
These measures are not prepared in accordance with U.S. GAAP, and
contain management’s best estimates of cost allocations and shared
resource costs. Management believes the use of non-GAAP measures on a
consolidated and operating segment basis assists investors in
understanding the ongoing operating performance of Valvoline’s business
by presenting comparable financial results between periods. The non-GAAP
information provided is used by Valvoline’s management and may not be
comparable to similar measures disclosed by other companies, because of
differing methods used by other companies in calculating EBITDA,
Adjusted EBITDA, free cash flow, Adjusted net income, and Adjusted EPS.
These non-GAAP measures provide a supplemental presentation of
Valvoline’s operating performance.
Adjusted EBITDA, Adjusted net income, and Adjusted EPS generally include
adjustments for unusual, non-operational or restructuring-related
activities, which impact the comparability of results between periods.
Management believes these non-GAAP measures provide investors with a
meaningful supplemental presentation of Valvoline’s operating
performance. These measures include adjustments for net pension and
other postretirement plan non-service income and remeasurement
adjustments, which includes several elements impacted by changes in plan
assets and obligations that are primarily driven by changes in the debt
and equity markets, as well as those that are predominantly legacy in
nature and related to prior service to the Company from employees (e.g.,
retirees, former employees, current employees with frozen benefits).
These elements include (i) interest cost, (ii) expected return on plan
assets, (iii) actuarial gains/losses, and (iv) amortization of prior
service cost. Significant factors that can contribute to changes in
these elements include changes in discount rates used to remeasure
pension and other postretirement obligations on an annual basis or upon
a qualifying remeasurement, differences between actual and expected
returns on plan assets, and other changes in actuarial assumptions, such
as the life expectancy of plan participants. Accordingly, management
considers that these elements are more reflective of changes in current
conditions in global financial markets (in particular, interest rates)
and are outside the operational performance of the business and are also
primarily legacy amounts that are not directly related to the underlying
business and do not have an immediate, corresponding impact on the
compensation and benefits provided to eligible employees for current
service. These measures will continue to include pension and other
postretirement service costs related to current employee service as well
as the costs of other benefits provided to employees for current service.
Management uses free cash flow as an additional non-GAAP metric of cash
flow generation. By deducting capital expenditures and certain other
adjustments, as applicable, management is able to provide a better
indication of the ongoing cash being generated that is ultimately
available for both debt and equity holders as well as other investment
opportunities. Unlike cash flow from operating activities, free cash
flow includes the impact of capital expenditures, providing a more
complete picture of cash generation. Free cash flow has certain
limitations, including that it does not reflect adjustments for certain
non-discretionary cash flows, such as mandatory debt repayments. The
amount of mandatory versus discretionary expenditures can vary
significantly between periods.
Valvoline’s results of operations are presented based on Valvoline’s
management structure and internal accounting practices. The structure
and practices are specific to Valvoline; therefore, Valvoline’s
financial results, EBITDA, Adjusted EBITDA, free cash flow, Adjusted net
income and Adjusted EPS are not necessarily comparable with similar
information for other comparable companies. EBITDA, Adjusted EBITDA,
free cash flow, Adjusted net income and Adjusted EPS each have
limitations as analytical tools and should not be considered in
isolation from, or as an alternative to, or more meaningful than, net
income and cash flows from operating activities as determined in
accordance with U.S. GAAP. Because of these limitations, you should rely
primarily on net income and cash flows provided from operating
activities as determined in accordance with U.S. GAAP and use EBITDA,
Adjusted EBITDA, free cash flow, Adjusted net income and Adjusted EPS
only as supplements. In evaluating EBITDA, Adjusted EBITDA, free cash
flow, Adjusted net income and Adjusted EPS, you should be aware that in
the future Valvoline may incur expenses/income similar to those for
which adjustments are made in calculating EBITDA, Adjusted EBITDA, free
cash flow, Adjusted net income and Adjusted EPS. Valvoline’s
presentation of EBITDA, Adjusted EBITDA, free cash flow, Adjusted net
income and Adjusted EPS should not be construed as a basis to infer that
Valvoline’s future results will be unaffected by unusual or nonrecurring
items.
About ValvolineTM
Valvoline Inc. (NYSE: VVV) is a leading worldwide marketer and supplier
of premium branded lubricants and automotive services, with sales in
more than 140 countries. Established in 1866, the company’s heritage
spans over 150 years, during which it has developed powerful brand
recognition across multiple product and service channels. Valvoline
ranks as the No. 3 passenger car motor oil brand in the DIY market by
volume. It also operates and franchises the No. 2 quick-lube chain by
number of stores in the United States with more than 1,150 Valvoline
Instant Oil ChangeSM centers and the No. 3 quick-lube chain
by number of stores in Canada with more than 70 Great Canadian Oil
Change locations. It also markets Valvoline lubricants and automotive
chemicals, including the new Valvoline™ Modern Engine Full Synthetic
Motor Oil, which is specifically engineered to protect against carbon
build-up in Gasoline Direct Injection (GDI), turbo and other engines
manufactured since 2012; Valvoline High Mileage with MaxLife technology
motor oil for engines over 75,000 miles; Valvoline Synthetic motor oil;
and Zerex™ antifreeze. To learn more, visit www.valvoline.com.
Forward-Looking Statements
Certain statements in this news release, other than statements of
historical fact, including estimates, projections, statements related to
Valvoline’s business plans and operating results are forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Valvoline has identified some of these
forward-looking statements with words such as “anticipates,” “believes,”
“expects,” “estimates,” “is likely,” “predicts,” “projects,”
“forecasts,” “may,” “will,” “should” and “intends” and the negative of
these words or other comparable terminology. These forward-looking
statements are based on Valvoline’s current expectations, estimates,
projections and assumptions as of the date such statements are made, and
are subject to risks and uncertainties that may cause results to differ
materially from those expressed or implied in the forward-looking
statements. Additional information regarding these risks and
uncertainties are described in the Company’s filings with the Securities
and Exchange Commission (the “SEC”), including in the “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations” sections of Valvoline’s most recently filed periodic
reports on Forms 10-K and Forms 10-Q, which are available on Valvoline’s
website at http://investors.valvoline.com/sec-filings
or on the SEC’s website at http://sec.gov.
Valvoline assumes no obligation to update or revise these
forward-looking statements for any reason, even if new information
becomes available in the future.
TM Trademark, Valvoline or its subsidiaries, registered in
various countriesSM Service mark, Valvoline or its
subsidiaries, registered in various countries
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June 30
2018
2017
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2017
Net pension and other postretirement plan non-service income and
remeasurement adjustments
June 30
September 30
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Total liabilities and stockholders’ deficit
2018
2017
Excludes changes resulting from operations acquired or sold.
(a)
Unallocated and other includes pension and other postretirement
plan non-service income and remeasurement adjustments, separation
costs and certain other corporate and non-operational costs.
(b)
Key item included within operating income for the Quick Lubes
operating segment.
2018
2017
2018
2017
Lubricant sales (gallons), including unconsolidated joint
ventures
Quarter
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Quarter
Quarter
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