Valvoline Reports Second-Quarter Results, Raises Fiscal 2021 Guidance

Rhea-AI Summary

Valvoline reported strong Q2 2021 results, with net income reaching $68 million and EPS at $0.37, a year-over-year increase. Adjusted EBITDA rose 13% to $152 million, driven by Quick Lubes' record 20% same-store sales growth and a 34% increase in total sales to $285 million. The company raised its fiscal 2021 adjusted EBITDA guidance to $590-$610 million, indicating optimism in its service-driven transformation.

Despite a decline in operating income for Core North America, overall performance remains robust, attributed to improved margins and strategic growth initiatives.

Positive

• Record 20.2% same-store sales growth in Quick Lubes.
• Total sales in Quick Lubes increased 34% to $285 million.
• Adjusted EBITDA rose 13% to $152 million year-over-year.
• Raised fiscal 2021 adjusted EBITDA guidance from $560-$580 million to $590-$610 million.
• Strong cash flow with year-to-date cash flow from operations of $190 million.

Negative

• Operating income for Core North America decreased 19% to $38 million.
• Adjusted EBITDA for Core North America declined 18% to $42 million.
• Price-cost lag due to rising raw material costs impacting profitability.

LEXINGTON, Ky., April 28, 2021 /PRNewswire/ -- Valvoline Inc. (NYSE: VVV), a leading supplier of premium branded lubricants and automotive services, today reported financial results for its second fiscal quarter ended March 31, 2021. All comparisons in this press release are made to the same prior-year period unless otherwise noted. 

"We continue to see healthy demand and loyalty to our brand from consumers and customers," said Sam Mitchell, CEO of Valvoline. "Quick Lubes had record 20% system-wide same-store sales growth and improved margins for the quarter, and International saw robust volume, top-line and earnings growth. Core North America generated top-line growth and continued to provide significant operating cash flow. This strong cash generation is a key component of our strategic transformation to a more service-driven company by funding our growth initiatives in Quick Lubes and International."

"Based on our strong results and confidence in the business, we are increasing our outlook for the year to $590 million to $610 million in adjusted EBITDA."

Second-Quarter Results

Reported second-quarter 2021 net income and EPS were $68 million and $0.37, respectively. These results included $15 million ($0.09 per diluted share) of after-tax expense primarily related to debt extinguishment costs of $27 million and were partially offset by pension and other post-employment benefit (OPEB) income of $10 million as well as a business interruption insurance recovery of $2 million. Reported second-quarter 2020 net income and EPS were $63 million and $0.33, respectively. These results included after-tax expense of $11 million ($0.06 per diluted share) primarily related to debt redemption costs of $14 million and pension and OPEB income of $7 million as well as other expenses totaling $4 million.

Second-quarter 2021 adjusted net income and adjusted EPS were $83 million and $0.46, respectively, compared to adjusted net income of $74 million and adjusted EPS of $0.39 in the prior-year period. Adjusted EBITDA in the quarter was $152 million, a 13% increase compared to the prior-year period. (See Tables 7 and 8 for reconciliations of adjusted earnings.)

The prior-year period included a reduction to variable compensation expense due to lower earnings expectations at the onset of the COVID-19 pandemic, resulting in a $21 million unfavorable impact year-over-year. Current-period earnings also included a last-in-first-out (LIFO) inventory accounting charge of $5 million versus a LIFO credit of $4 million in the prior-year period. Excluding these unfavorable impacts, adjusted EBITDA in the quarter increased 38%.

Operating Segment Results

Quick Lubes

• Total sales growth of 34% to $285 million; SSS grew 20.2% system-wide, 19.8% for company-operated stores and 20.4% for franchised stores
• Operating income increased $23 million or 58% to $63 million; adjusted EBITDA increased $29 million or 58% to $79 million
• Quick Lubes ended the quarter with 1,548 total company-operated and franchised stores, a net increase of 129 new stores or 9% versus the prior year

The Quick Lubes segment continued its momentum with strong top- and bottom-line growth. For the quarter, sales grew 34% and adjusted EBITDA was up 58%. System-wide SSS grew 20.2% versus the prior-year period with strong contribution from franchised and company-operated stores and a balance between transaction and average ticket increases. This led to normalized SSS growth of more than 10% (based on average two-year growth).

Year-over-year growth in profitability in the quarter was driven by record SSS performance, the addition of 129 net new stores, a unit increase of 9%, and improved margins in line with the Company's long-term growth strategy. Gross margin expansion of 320 basis points was due primarily to improved premium mix and customer traffic versus the prior-year period.

Core North America

• Sales increased 2% to $242 million
• Operating income decreased $9 million or 19% to $38 million; adjusted EBITDA decreased $9 million or 18% to $42 million
• Excluding a $7 million unfavorable, non-cash year-over-year LIFO inventory impact, adjusted EBITDA declined 4%

Volume growth of 7% was balanced across both the retail and installer channels, with the retail channel continuing to benefit from solid promotional performance and effective marketing. Demand in the installer channel continues to recover from the impacts of COVID-19.

The decline in segment profitability was primarily attributable to short-term price-cost lag due to rising raw material cost impacts – including an unfavorable, non-cash, year-over-year LIFO accounting impact of $7 million. As it has done historically, the Company is executing pricing increases which are expected to offset rising raw material costs.

International

• Sales increased 36% to $174 million; lubricant volume increased 28% to 17.6 million gallons
• Lubricant volume from unconsolidated joint ventures increased 53% to 13.2 million gallons
• Operating income increased $10 million or 56% to $28 million; adjusted EBITDA increased $12 million or 63% to $31 million

The International segment had another exceptional quarter with robust sales and profitability growth, including all regions contributing double-digit volume growth. The strong performance was led by the Asia-Pacific region, particularly China, which had a larger COVID-19 impact in the prior-year period compared to other markets.

Top-line growth and favorable foreign exchange impacts as well as an increased contribution from unconsolidated joint ventures contributed to the significant growth in profitability.

Balance Sheet and Cash Flow

• Total debt of approximately $1.7 billion and net debt of approximately $1.5 billion
• Year-to-date cash flow from operations of $190 million; discretionary cash flow (cash flow from operations less maintenance capital) of $175 million; free cash flow of $116 million
• Repurchased $42 million or 1.7 million shares of common stock, leaving 181 million shares outstanding as of March 31, 2021

Outlook

The guidance provided in this press release is based on current expectations, including those surrounding the ongoing COVID-19 pandemic.

"Our performance in the first half of the year has been outstanding," Mitchell said. "We are seeing continued strong momentum as we have remained focused on executing our superior in-store experience and staying connected to our customers. With Quick Lubes already representing half of our adjusted EBITDA this quarter, we are accelerating our shift to a more service-centric business." 

Mitchell continued, "I have never been more optimistic about our future than I am today. We remain focused on our strategy, driving faster growth, higher margins and stronger returns as our retail services business continues to perform at a high level.

Based on our strong performance throughout the first half of the year, we are raising our fiscal 2021 guidance for adjusted EBITDA, along with our outlook for overall sales growth, same-store sales growth, adjusted EPS and free cash flow. We expect Quick Lubes to generate more than half of our adjusted EBITDA for the balance of the year and expect that this strong performance will offset any near-term margin pressure from rising raw material costs further highlighting the benefits of our multiple routes to market."

Information regarding the Company's outlook for fiscal 2021 is provided in the table below:

	Updated Outlook	Prior Outlook
Operating Segments
Sales growth	23 - 25%	14 - 16%
New Quick Lube store additions (includes company-operated, franchise and acquisitions)	no change	140 - 160
Quick Lubes system-wide same-store sales growth	18 - 20%	12 - 14%
Normalized1 same-store sales growth	9 - 11%	6 - 8%
Adjusted EBITDA	$590 - $610 million	$560 - $580 million
Corporate Items
Adjusted effective tax rate	no change	25 - 26%
Adjusted EPS	$1.72 - $1.82	$1.57 - $1.67
Capital expenditures	no change	$160 - $170 million
Free cash flow	$250 - $270 million	$200 - $220 million
1 Same-store sales growth excluding estimated COVID-19 impacts in March - May 2020 period; based on average two-year same-store sales growth between fiscal 2020 and 2021 outlook.

Valvoline's outlook for adjusted EBITDA, 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 EPS for fiscal 2021 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 EPS in fiscal 2021 but would not impact non-GAAP adjusted results.

Conference Call Webcast

Valvoline will host a live audio webcast of its fiscal second quarter 2021 conference call at 9 a.m. ET on Thursday, April 29, 2021. 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.

Basis of Presentation

Certain prior year amounts have been reclassified to conform to current year presentation. In addition, the Company adopted the current expected credit losses accounting standard, effective at the beginning of fiscal 2021 using the required modified retrospective approach. Under this approach, financial information related to periods prior to adoption were not adjusted and are presented as originally reported under the previous accounting guidance. The effects of adopting the new current expected credit losses standard were recognized as an adjustment that increased opening retained deficit by approximately $2 million. The Company expects the ongoing impacts will not be material to the consolidated financial statements.

Key Business Measures

Valvoline tracks its operating performance and manages its business using certain key measures, including system-wide, company-operated and franchised store counts and same-store sales; Express Care store counts; lubricant volumes sold by unconsolidated joint ventures and total lubricant volumes sold; and percentage of premium lubricants sold. Management believes these measures are useful to evaluating and understanding Valvoline's operating performance and should be considered as supplements to, not substitutes for, Valvoline's sales and operating income, as determined in accordance with U.S. GAAP.

Sales in the Quick Lubes reportable segment are influenced by the number of service center stores and the business performance of those stores. Stores are considered open upon acquisition or opening for business. Temporary store closings remain in the respective store counts with only permanent store closures reflected in the activity and end of period store counts. SSS is defined as sales by U.S. Quick Lubes service center stores (company-operated, franchised and the combination of these for system-wide SSS), with new stores, including franchised conversions, excluded from the metric until the completion of their first full fiscal year in operation as this period is generally required for new store sales levels to begin to normalize. Quick Lubes sales are limited to sales at company-operated stores, sales of lubricants and other products to independent franchisees and Express Care operators and royalties and other fees from franchised stores. Although Valvoline does not recognize store-level sales from franchised or Express Care stores as sales in its Statements of Consolidated Income, management believes system-wide and franchised SSS comparisons and store counts, in addition to Express Care store counts, are useful to assess the operating performance of the Quick Lubes reportable segment and the operating performance of an average Quick Lubes store.

Lubricant volumes sold by unconsolidated joint ventures are used to measure the operating performance of the International operating segment. Valvoline does not record lubricant sales from unconsolidated joint ventures as International reportable segment revenue. International sales are limited to sales by Valvoline's consolidated affiliates. Although Valvoline does not record sales by unconsolidated joint ventures as sales in its Statements of Consolidated Income, management believes lubricant volumes including and sold by unconsolidated joint ventures is useful to assess the operating performance of its investments in joint ventures.

Management also evaluates lubricant volumes sold in gallons for each of its reportable segments and premium lubricant percentage, defined as premium lubricant gallons sold as a percentage of U.S. branded segment lubricant volumes for the Quick Lubes and Core North America segments and as a percentage of total segment lubricant volume for the International segment. Premium lubricant products generally provide a higher contribution to segment profitability and the percentage of premium volumes is useful to evaluating and understanding Valvoline's operating performance.

Use of Non-GAAP Measures

To aid in the understanding of Valvoline's ongoing business performance, certain items within this press release are presented on an adjusted basis. These non-GAAP measures, presented on both a consolidated and operating segment basis, are not defined within U.S. GAAP and do not purport to be alternatives to net or operating 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 press release.

The following are the non-GAAP measures management has included and how management defines them:

• EBITDA, which management defines as net income/loss, plus income tax expense/benefit, net interest and other financing expenses, and depreciation and amortization;
• Adjusted EBITDA, which management defines as EBITDA adjusted for certain non-operational items, including net pension and other postretirement plan expense/income; impairment of equity investment; and other items (which can include activity related to the separation from Ashland, impact of significant acquisitions or divestitures, restructuring costs, or other non-operational income/costs not directly attributable to the underlying business);
• Adjusted operating income, which management defines as operating income adjusted for certain key items impacting comparability as noted in the definition of Adjusted EBITDA above;
• Free cash flow, which management defines as operating cash flows less capital expenditures and certain other adjustments, as applicable;
• Adjusted net income, which management defines as net income/loss adjusted for certain key items impacting comparability as noted in the definition of Adjusted EBITDA above, as well as the estimated net impact of the enactment of tax reform legislation and debt extinguishment and modification costs that are not reflective of the Company's ongoing operational performance or liquidity; and
• Adjusted EPS, which management defines as earnings per diluted share calculated using adjusted net income.

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 and operating income, and Adjusted EPS. These non-GAAP measures provide a supplemental presentation of Valvoline's operating performance.

Due to depreciable assets associated with the nature of the Company's operations and interest costs related to Valvoline's capital structure, management believes EBITDA is an important supplemental measure to evaluate the Company's operating results between periods on a comparable basis.

Adjusted EBITDA, Adjusted net and operating 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 expense/income, 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/credit. 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 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 including capital expenditures and certain other adjustments, as applicable, management is able to provide an 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 supplemental view 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 and operating income and Adjusted EPS are not necessarily comparable with similar information for other comparable companies. EBITDA, Adjusted EBITDA, free cash flow, Adjusted net and operating 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 and operating income and cash flows from operating activities as determined in accordance with U.S. GAAP. Because of these limitations, one should rely primarily on net and operating 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 and operating income and Adjusted EPS only as supplements. In evaluating EBITDA, Adjusted EBITDA, free cash flow, Adjusted net and operating income and Adjusted EPS, one 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 and operating income and Adjusted EPS. Valvoline's presentation of EBITDA, Adjusted EBITDA, free cash flow, Adjusted net and operating 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 Valvoline™

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 more than 150 years, during which time 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 operates and franchises more than 1,500 quick-lube locations, and it is the No. 2 chain by number of stores in the United States under the Valvoline Instant Oil Change^SM brand and the No. 3 chain by number of stores in Canada under the Valvoline Great Canadian Oil Change brand. It also markets Valvoline lubricants and automotive chemicals, including Valvoline EV Performance Fluids; Valvoline Hybrid Vehicle Full Synthetic motor oil; Valvoline High Mileage with MaxLife technology motor oil for engines over 75,000 miles; Valvoline Advanced Full Synthetic motor oil; Valvoline Premium Blue™ heavy-duty motor oil; Valvoline Multi-Vehicle Automatic Transmission Fluid; and Zerex™ antifreeze. To learn more, visit www.valvoline.com.

Forward-Looking Statements

Certain statements in this press release, other than statements of historical fact, including estimates, projections and 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," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures about Market Risk" sections of Valvoline's most recently filed periodic report on Form 10-K, which is 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, unless required by law.

™ Trademark, Valvoline or its subsidiaries, registered in various countries

^SM Service mark, Valvoline or its subsidiaries, registered in various countries

FOR FURTHER INFORMATION
Sean T. Cornett
Sr. Director, Investor Relations
+1 (859) 357-2798
scornett@valvoline.com  

Michele Gaither Sparks
Sr. Director, Corporate Communications
+1 (859) 230-8079
michele.sparks@valvoline.com 

Valvoline Inc. and Consolidated Subsidiaries														Table 1
STATEMENTS OF CONSOLIDATED INCOME
(In millions, except per share amounts - preliminary and unaudited)
		Three months ended								Six months ended
		March 31								March 31
		2021				2020				2021				2020
Sales		$	701			$	578			$	1,354			$	1,185
Cost of sales		454				371				879				767
GROSS PROFIT		247				207				475				418
Selling, general and administrative expenses		129				96				246				213
Net legacy and separation-related expenses (income)		—				—				1				(1)
Equity and other income, net		(13)				(6)				(27)				(15)
OPERATING INCOME		131				117				255				221
Net pension and other postretirement plan income		(14)				(9)				(27)				(18)
Net interest and other financing expenses		55				38				75				54
INCOME BEFORE INCOME TAXES		90				88				207				185
Income tax expense		22				25				52				49
NET INCOME		$	68			$	63			$	155			$	136
NET EARNINGS PER SHARE
BASIC		$	0.37			$	0.33			$	0.84			$	0.72
DILUTED		$	0.37			$	0.33			$	0.84			$	0.72
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC		182				188				184				188
DILUTED		183				188				184				189

 

Valvoline Inc. and Consolidated Subsidiaries								Table 2
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions - preliminary and unaudited)
				March 31				September 30
				2021				2020
ASSETS
	Current assets
		Cash and cash equivalents		$	247			$	760
		Receivables, net		448				433
		Inventories, net		218				199
		Prepaid expenses and other current assets		55				46
	Total current assets			968				1,438
	Noncurrent assets
		Property, plant and equipment, net		741				613
		Operating lease assets		299				261
		Goodwill and intangibles, net		732				529
		Equity method investments		45				44
		Deferred income taxes		19				34
		Other noncurrent assets		117				132
	Total noncurrent assets			1,953				1,613
	Total assets			$	2,921			$	3,051
LIABILITIES AND STOCKHOLDERS' DEFICIT
	Current liabilities
		Current portion of long-term debt		$	1			$	—
		Trade and other payables		180				189
		Accrued expenses and other liabilities		267				255
	Total current liabilities			448				444
	Noncurrent liabilities
		Long-term debt		1,719				1,962
		Employee benefit obligations		286				317
		Operating lease liabilities		265				231
		Other noncurrent liabilities		259				173
	Total noncurrent liabilities			2,529				2,683
	Stockholders' deficit			(56)				(76)
	Total liabilities and stockholders' deficit			$	2,921			$	3,051

 

Valvoline Inc. and Consolidated Subsidiaries							Table 3
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions - preliminary and unaudited)
			Six months ended
			March 31
			2021				2020
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income		$	155			$	136
	Adjustments to reconcile net income to cash flows from operating activities
		Loss on extinguishment of debt	36				19
		Depreciation and amortization	44				31
		Pension contributions	(4)				(5)
		Stock-based compensation expense	6				3
		Other, net	2				2
	Change in operating assets and liabilities		(49)				(32)
Total cash provided by operating activities			190				154
CASH FLOWS FROM INVESTING ACTIVITIES
	Additions to property, plant and equipment		(74)				(57)
	Repayments on notes receivable		12				—
	Acquisitions of businesses, net of cash acquired		(223)				(11)
	Other investing activities, net		9				(3)
Total cash used in investing activities			(276)				(71)
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from borrowings, net of issuance costs		546				1,132
	Repayments on borrowings		(800)				(475)
	Premium paid to extinguish debt		(26)				(15)
	Repurchases of common stock		(100)				(60)
	Cash dividends paid		(46)				(42)
	Other financing activities		(5)				(3)
Total cash (used in) provided by financing activities			(431)				537
	Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash		4				(4)
(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH			(513)				616
Cash, cash equivalents, and restricted cash - beginning of period			761				159
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH - END OF PERIOD			$	248			$	775

 

Valvoline Inc. and Consolidated Subsidiaries																													Table 4
FINANCIAL INFORMATION BY OPERATING SEGMENT
(In millions - preliminary and unaudited)
	Three months ended March 31
	2021																2020
	Sales				Operating income				Depreciation and amortization				EBITDA				Sales				Operating income				Depreciation and amortization				EBITDA
Quick Lubes	$	285			$	63			$	16			$	79			$	212			$	40			$	10			$	50
Core North America	242				38				4				42				238				47				4				51
International	174				28				3				31				128				18				1				19
Total operating segments	701				129				23				152				578				105				15				120
Unallocated and other (a)					2								16								12								21
Total results	701				131				23				168				578				117				15				141
Key items:
Net pension and other postretirement plan income					—								(14)								—								(9)
Business interruption recovery					(2)								(2)								—								—
Acquisition and divestiture-related costs					—								—								2								2
Adjusted results	$	701			$	129			$	23			$	152			$	578			$	119			$	15			$	134

(a) Unallocated and other includes pension and other postretirement plan non-service income and remeasurement adjustments, net legacy and separation-related activity and certain other corporate matters not allocated to the operating segments.

 

																									Table 4 (continued)
	Six month ended March 31
	2021																2020
	Sales				Operating income				Depreciation and amortization				EBITDA				Sales				Operating income				Depreciation and amortization				EBITDA
Quick Lubes	$	539			$	106			$	31			$	137			$	430			$	78			$	20			$	98
Core North America	477				85				8				93				486				93				8				101
International	338				62				5				67				269				38				3				41
Total operating segments	1,354				253				44				297				1,185				209				31				240
Unallocated and other (a)					2								29								12								30
Total results	1,354				255				44				326				1,185				221				31				270
Key items:
Net pension and other postretirement plan income					—								(27)								—								(18)
Net legacy and separation-related expenses (income)					1								1								(1)								(1)
Business interruption recovery					(3)								(3)								—								—
Acquisition and divestiture-related costs					—								—								2								2
Restructuring and related expenses					—								—								1								1
Adjusted results	$	1,354			$	253			$	44			$	297			$	1,185			$	223			$	31			$	254

(a) Unallocated and other includes pension and other postretirement plan non-service income and remeasurement adjustments, net legacy and separation-related activity and certain other corporate matters not allocated to the operating segments.

 

Valvoline Inc. and Consolidated Subsidiaries											Table 5
INFORMATION BY OPERATING SEGMENT
(In millions - preliminary and unaudited)
		Three months ended						Six months ended
		March 31						March 31
		2021			2020			2021			2020
QUICK LUBES
	Lubricant sales (gallons)	8.1			7.1			15.8			14.4
	Premium lubricants (percent of U.S. branded volumes)	70.6	%		67.5	%		70.0	%		67.0	%
	Gross profit as a percent of sales (a)	39.8	%		36.6	%		37.6	%		37.0	%
	Same-store sales growth - Company-operated (b)	19.8	%		0.3	%		12.8	%		3.3	%
	Same-store sales growth - Franchised (b) (c)	20.4	%		0.9	%		13.1	%		5.3	%
	Same-store sales growth - Combined (b) (c)	20.2	%		0.6	%		13.0	%		4.5	%
CORE NORTH AMERICA
	Lubricant sales (gallons)	22.3			20.9			43.5			42.3
	Premium lubricants (percent of U.S. branded volumes)	60.9	%		57.7	%		60.3	%		56.8	%
	Gross profit as a percent of sales (a)	34.1	%		37.2	%		35.8	%		36.7	%
INTERNATIONAL
	Lubricant sales (gallons) (d)	17.6			13.7			34.4			28.4
	Lubricant sales (gallons), including unconsolidated joint ventures (e)	30.8			22.3			61.1			47.8
	Premium lubricants (percent of lubricant volumes)	26.5	%		27.7	%		26.8	%		26.7	%
	Gross profit as a percent of sales (a)	29.8	%		30.2	%		30.3	%		29.4	%

(a)	Gross profit as a percent of sales is defined as sales, less cost of sales, divided by sales.
(b)	Beginning in fiscal 2021, Valvoline determines same-store sales (SSS) growth as sales by U.S. Quick Lubes service center stores, with new stores, including franchised conversions, excluded from the metric until the completion of their first full fiscal year in operation. Previously, SSS growth was determined as sales by U.S. Quick Lubes service center stores, with stores new to the U.S. Quick Lubes system excluded from the metric until completion of their first full year in operation. Prior period measures have been revised to conform to the current basis of presentation.
(c)	Valvoline franchisees are distinct legal entities and Valvoline does not consolidate the results of operations of its franchisees.
(d)	Excludes volumes sold by unconsolidated joint ventures.
(e)	Valvoline unconsolidated joint ventures are distinct legal entities and Valvoline does not consolidate the results of operations of its unconsolidated joint ventures.

 

Valvoline Inc. and Consolidated Subsidiaries																Table 6
QUICK LUBES STORE INFORMATION
(Preliminary and unaudited)
				Company-operated
				Second Quarter 2021			First Quarter 2021			Fourth Quarter 2020			Third Quarter 2020			Second Quarter 2020
	Beginning of period			663			584			548			536			524
		Opened		6			10			22			5			7
		Acquired		3			42			2			2			1
		Net conversions between company-operated and franchised		1			27			12			5			4
	End of period			673			663			584			548			536
				Franchised
				Second Quarter 2021			First Quarter 2021			Fourth Quarter 2020			Third Quarter 2020			Second Quarter 2020
	Beginning of period			870			878			884			883			883
		Opened		7			8			7			8			8
		Acquired		—			12			—			—			—
		Net conversions between company-operated and franchised		(1)			(27)			(12)			(5)			(4)
		Closed		(1)			(1)			(1)			(2)			(4)
	End of period (a)			875			870			878			884			883
	Total stores			1,548			1,533			1,462			1,432			1,419
				Express Care
				Second Quarter 2021			First Quarter 2021			Fourth Quarter 2020			Third Quarter 2020			Second Quarter 2020
	Number of locations at end of period (a)			290			295			296			304			301

(a) Included in the store counts at the end of the second, third and fourth quarters of fiscal 2020 were certain service center stores temporarily closed at the discretion of the respective independent operators due to the impacts of COVID-19. No service center stores were temporarily closed as of March 31, 2021 and December 31, 2020. As of September 30, 2020, 1 franchised service center store was temporarily closed, 5 franchised service center stores were temporarily closed as of June 30, 2020, and 26 franchised and 12 Express Care service center stores were temporarily closed as of March 31, 2020.

 

Valvoline Inc. and Consolidated Subsidiaries														Table 7
RECONCILIATION OF NON-GAAP DATA - NET INCOME AND DILUTED EARNINGS PER SHARE
(In millions, except per share amounts - preliminary and unaudited)
		Three months ended								Six months ended
		March 31								March 31
		2021				2020				2021				2020
Reported net income		$	68			$	63			$	155			$	136
Adjustments:
	Net pension and other postretirement plan income	(14)				(9)				(27)				(18)
	Net legacy and separation-related expenses (income)	—				—				1				(1)
	Debt extinguishment and modification costs	36				19				36				19
	Business interruption recovery	(2)				—				(3)				—
	Acquisition and divestiture-related costs	—				2				—				2
	Restructuring and related expenses	—				—				—				1
	Total adjustments, pre-tax	20				12				7				3
	Income tax expense of adjustments	(5)				(3)				(2)				(1)
	Income tax adjustments (a)	—				2				—				2
	Total adjustments, after tax	15				11				5				4
Adjusted net income		$	83			$	74			$	160			$	140
Reported diluted earnings per share		$	0.37			$	0.33			$	0.84			$	0.72
Adjusted diluted earnings per share		$	0.46			$	0.39			$	0.87			$	0.74
Weighted average diluted common shares outstanding		183				188				184				189

(a)	Income tax adjustments relate to the discrete impacts associated with tax legislation changes in India.

 

Valvoline Inc. and Consolidated Subsidiaries														Table 8
RECONCILIATION OF NON-GAAP DATA - ADJUSTED EBITDA
(In millions - preliminary and unaudited)
		Three months ended								Six months ended
		March 31								March 31
		2021				2020				2021				2020
Adjusted EBITDA - Valvoline
Net income		$	68			$	63			$	155			$	136
Add:
Income tax expense		22				25				52				49
Net interest and other financing expenses		55				38				75				54
Depreciation and amortization		23				15				44				31
EBITDA		168				141				326				270
Key items: (a)
Net pension and other postretirement plan income		(14)				(9)				(27)				(18)
Net legacy and separation-related expenses (income)		—				—				1				(1)
Business interruption recovery		(2)				—				(3)				—
Acquisition and divestiture-related costs		—				2				—				2
Restructuring and related expenses		—				—				—				1
Adjusted EBITDA		$	152			$	134			$	297			$	254
Adjusted EBITDA - Quick Lubes
Operating income		$	63			$	40			$	106			$	78
Key items: (a)
N/A		—				—				—				—
Adjusted operating income		63				40				106				78
Add:
Depreciation and amortization		16				10				31				20
Adjusted EBITDA		$	79			$	50			$	137			$	98
Adjusted EBITDA - Core North America
Operating income		$	38			$	47			$	85			$	93
Key items: (a)
N/A		—				—				—				—
Adjusted operating income		38				47				85				93
Add:
Depreciation and amortization		4				4				8				8
Adjusted EBITDA		$	42			$	51			$	93			$	101

 

										Table 8 (continued)
		Three months ended								Six months ended
		March 31								March 31
		2021				2020				2021				2020
Adjusted EBITDA - International
Operating income		$	28			$	18			$	62			$	38
Key items: (a)
N/A		—				—				—				—
Adjusted operating income		28				18				62				38
Add:
Depreciation and amortization		3				1				5				3
Adjusted EBITDA		$	31			$	19			$	67			$	41
Adjusted EBITDA - Unallocated and other
Operating income		$	2			$	12			$	2			$	12
Add:
Depreciation and amortization		—				—				—				—
Net pension and other postretirement plan income		14				9				27				18
EBITDA		16				21				29				30
Key items: (a)
Net pension and other postretirement plan income		(14)				(9)				(27)				(18)
Net legacy and separation-related expenses (income)		—				—				1				(1)
Business interruption recovery		(2)				—				(3)				—
Acquisition and divestiture-related costs		—				2				—				2
Restructuring and related expenses		—				—				—				1
Adjusted EBITDA		$	—			$	14			$	—			$	14

(a) Key items were recorded in Unallocated and other and none were recognized in the operating segment results. The table above reconciles Unallocated and other operating income and relevant other items reported below operating income to EBITDA and Adjusted EBITDA.

 

Valvoline Inc. and Consolidated Subsidiaries							Table 9
RECONCILIATION OF NON-GAAP DATA - FREE CASH FLOWS
(In millions - preliminary and unaudited)
			Six months ended
			March 31
Free cash flow (a)			2021				2020
Total cash flows provided by operating activities			$	190			$	154
Adjustments:
	Additions to property, plant and equipment		(74)				(57)
Free cash flow			$	116			$	97
							Six months ended March 31
Discretionary free cash flow (b)							2021
Total cash flows provided by operating activities							$	190
Adjustments:
	Maintenance additions to property, plant and equipment						(15)
Discretionary free cash flow							$	175
							Fiscal year
Free cash flow (a)							2021 Outlook
Total cash flows provided by operating activities							$420 - $430
Adjustments:
	Additions to property, plant and equipment						(160 - 170)
Free cash flow							$250 - $270

(a)	Free cash flow is defined as cash flows from operating activities less capital expenditures and certain other adjustments as applicable.
(b)	Discretionary free cash flow is defined as cash flows from operating activities less maintenance capital expenditures. Maintenance capital expenditures are routine uses of cash that are necessary to maintain the Company's operations. Management believes discretionary free cash flow is a useful measure of the Company's operational business performance and should be used as a supplement, rather than an alternative to, the GAAP measure of cash flows from operating activities.

 

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SOURCE Valvoline Inc.

FAQ

What were Valvoline's Q2 2021 earnings results for VVV?

Valvoline reported Q2 2021 net income of $68 million and EPS of $0.37, with adjusted net income of $83 million and adjusted EPS of $0.46.

What is Valvoline's updated fiscal 2021 guidance for VVV?

Valvoline raised its adjusted EBITDA guidance for fiscal 2021 to $590-$610 million from previous estimates of $560-$580 million.

How did Valvoline's Quick Lubes segment perform in Q2 2021?

The Quick Lubes segment experienced record 20.2% same-store sales growth and total sales increased by 34% to $285 million.

What challenges did Valvoline face in Q2 2021 regarding costs?

Valvoline faced a price-cost lag due to rising raw material costs, which negatively impacted profitability in the Core North America segment.