Valvoline reports strong Quick-Lube performance

by | Feb 7, 2019 | 0 comments

Valvoline Inc., supplier of premium branded lubricants and automotive services, reported financial results for its first fiscal quarter ended Dec. 31, 2018.

“We were pleased with the continued strong performance in Quick Lubes; however, overall results were below our expectations driven by weak performance in the Core North America retail channel,” said Chief Executive Officer Sam Mitchell. “We are moving decisively to address the continuing challenges in Core North America through aggressive trade promotion and pricing optimization, and we are confident that we will see improving performance in the business throughout the balance of the year. In response to industry headwinds and evolving customer trends, we are implementing a broad-based restructuring program to create a more agile organization with an improved competitive cost profile.

“We remain committed to driving long-term value to shareholders by maintaining a balanced capital allocation program and have increased our quarterly dividend by 42 percent to 10.6 cents per share.”

Valvoline logo

All figures in USD.

First-Quarter Results

Reported first-quarter 2019 net income and EPS were $53 million and $0.28, respectively. These results included after-tax income of $2 million ($0.01 per diluted share), primarily related to pension and other post-employment benefit (OPEB) impacts. Reported first-quarter 2018 net loss and diluted loss per share were $10 million and $0.05, respectively. These results included a charge of $75 million ($0.37 per diluted share) related to U.S. tax reform, after-tax income of $7 million ($0.03 per diluted share) related to pension and OPEB impacts and an after-tax charge of $1 million (negligible EPS impact) of separation-related expenses.

First-quarter 2019 adjusted net income and adjusted EPS were $51 million and $0.27, 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.) First-quarter results were driven by the ongoing strength of SSS and store additions in Quick Lubes, which were more than offset by weak volume in Core North America’s retail channel. These factors led to adjusted EBITDA of $101 million, a 6 percent decline compared to the prior year period.

Effective Oct. 1, 2018, the company adopted the new revenue recognition accounting standard. The adoption resulted in a reclassification of certain items within the company’s income statement and had a slightly favorable impact on first-quarter net earnings and no impact on cash flows. First-quarter 2019 results compared to the prior-year period include an approximate increase of $15 million to sales and cost of goods sold, as well as a decrease in SG&A of $2 million. Excluding these impacts, sales would have declined 1 percent, cost of goods sold would have increased 3 percent and SG&A would have been flat.

Operating Segment Results

Quick Lubes

  • SSS grew 9.8% overall, 9.9% for company-owned stores and 9.8% for franchised stores
  • Operating income grew 9% to $38 million; EBITDA grew 12% to $46 million
  • Quick Lubes ended the quarter with 1,301 total company-owned and franchised stores, a net increase of 59 during the period and 162 versus the prior year

The Quick Lubes operating segment had an exceptional start to the fiscal year and the company expects it will continue to be a key growth engine and focus of investment. The growth in SSS was the result of a balanced contribution from an increase in both transactions and average ticket. Marketing investments made in customer acquisition and retention programs continued to drive higher transactions. Pricing actions and premium mix led to higher average ticket.

Sales and segment EBITDA growth were driven by increased SSS and the addition of 162 net new stores, as compared to the prior year.

On Oct. 31, 2018, the company completed its acquisition of Oil Changers, Valvoline’s second quick-lube acquisition in Canada. On Dec. 5, 2018, one of Valvoline’s largest franchisees acquired a quick-lube system in southern California, continuing its expansion on the West Coast.

Core North America

  • Lubricant volume declined 9% to 21.7 million gallons
  • Branded premium mix increased 200 basis points to 49.8%
  • Operating income and EBITDA each declined $12 million to $31 million and $35 million, respectively

The declines in lubricant volume and segment profitability were primarily due to lower DIY branded volume in the retail channel. Ongoing weakness in the broader retail automotive lubricant market compounded the impact of continuing competitive challenges, including increased competitive promotional activity and changes in retailer promotional and merchandising tactics. In the installer channel, volume was in line with the prior year, excluding the transfer of Great Canadian Oil Change product sales to the Quick Lube segment.

In response to the current dynamics in DIY, the company is taking actions which it expects to stabilize the retail business in Core North America. In addition to a stronger consumer communications plan, the company is implementing a more aggressive trade promotion plan, which includes optimizing promoted price points at key retailers.


  • Lubricant volume declined 3% to 13.8 million gallons; excluding the impact of a business model change in Brazil, lubricant volume would have increased 1%
  • Lubricant volume from unconsolidated joint ventures declined 4% to 10.4 million gallons
  • Operating income declined 5% to $18 million; EBITDA was flat at $20 million

During the quarter volumes were soft in most regions, especially in emerging markets. Year-over-year volume in Latin America declined due to the previously-discussed business model change in Brazil, which began in the prior-year period. Without this impact, volume in the International segment would have increased 1 percent, excluding unconsolidated joint ventures.

International segment EBITDA was flat in the quarter, despite lower volume and an unfavorable net foreign exchange impact of $2 million, due primarily to lower operating expenses.

Balance Sheet and Cash Flow

  • Total debt of approximately $1.3 billion and net debt of approximately $1.2 billion
  • Cash flow from operations for the quarter of $85 million; free cash flow of $58 million

The year-over-year increase in cash flow from operations of $65 million was primarily due to favorable changes in working capital.

Restructuring Program

The company announced a broad-based restructuring program to better meet the needs of an evolving market. The program is expected to reduce costs, simplify processes and ensure that the organization’s structure and resource allocation are focused on key growth initiatives.

The program is projected to generate annualized pre-tax savings of approximately $40 – $50 million with modest benefits expected this year. The majority of the savings will begin in fiscal 2020 with the full run-rate savings expected to be achieved by the end of that year. The company will record a pre-tax charge of approximately $12 – $17 millionassociated with this program.

Fiscal 2019 Outlook

“We continue to recognize the importance of Core North America’s cash generation to fund our growth objectives,” Mitchell said. “The restructuring program announced today, in addition to the other actions we are implementing, are expected to drive more stable results in Core North America.

“We anticipate Quick Lubes will continue its high level of performance, and we believe the decisive actions we’re taking in Core North America will improve results throughout the year. In addition, we are taking actions to broadly improve cost efficiency and expect to benefit from a more favorable raw material cost environment. Based on the slow start to the year, we are lowering our EBITDA and EPS guidance.”

Information regarding the company’s outlook for fiscal 2019 is provided in the table below: 

Updated Outlook2019 Outlook
Operating Segments
Lubricant gallons1-2%2.5-3.5%
New Quick Lube stores (excludes Valvoline 
acquired stores and franchise conversions)
Company-ownedNo change27-32
VIOC same-store sales7-8%6-7%
Adjusted EBITDA$470-$485 million$480-$495 million
Corporate Items
Adjusted effective tax rateNo change25-26%
Diluted adjusted EPS$1.31-$1.39$1.35-$1.43
Capital expendituresNo change$115-$120 million
Free cash flowNo change$190-$210 million

The fiscal 2019 outlook, provided in the table above, includes the impact of the company’s adoption of new revenue recognition accounting guidance, effective as of Oct. 1, 2018.

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 for 2019 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 2019 but would not impact non-GAAP adjusted results.r

An archived version of the February 7, 2019 webcast and supporting materials will be available for 12 months. Access it HERE.


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