Valvoline Inc. has reported financial results for its first fiscal quarter ended Dec. 31, 2017.
Reported first-quarter 2018 net loss and diluted loss per share of $10 million and 5 cents, respectively. These results include a provisional charge of $75 million (37 cents per diluted share) related to recently enacted U.S. tax reform, after-tax income of $7 million (3 cents per diluted share) related to non-service pension and other post-employment benefit (OPEB) income that is now classified as non-operating under early adopted new accounting guidance, and an after-tax charge of $1 million (negligible EPS impact) of separation-related expenses.
Reported net income and diluted earnings per share for first quarter 2017 of $72 million and 35 cents, respectively, which includes after-tax income of $16 million (8 cents per diluted share) related to non-operating pension and OPEB non-service income and remeasurement adjustments and an after-tax charge of $4 million (2 cents per diluted share) of separation-related expenses.
Adjusted first-quarter net income, excluding the impact of tax reform, pension income and separation costs, was $59 million, compared to $60 million of adjusted net income in the prior year.
The company said first-quarter results were driven by strong same store sales in Valvoline Instant Oil Change (VIOC), growth in premium product mix across all segments and continued volume gains in international markets. Adjusted EBITDA of $108 million declined modestly compared to the prior year with overall favorable volume and mix, offset primarily by planned investments in SG&A.
“First-quarter results were consistent with our expectations, despite modestly higher-than-anticipated costs from hurricane impacts and our new packaging launch,” said CEO Sam Mitchell. “Premium mix improved across all segments, international volume growth continued and same-store sales were strong, even compared to the outstanding quarter VIOC had last year – all demonstrating the health of the business and that we are on track to meet our goals for the year.
“In addition, we continue to demonstrate our commitment to return capital to shareholders. We raised our dividend by more than 50 percent, repurchased shares and, just last week, the board authorized an additional $300 million of share repurchases.”
As a result of the enactment of U.S. tax reform, Valvoline recognized a total charge of $75 million in the quarter, which included $67 million from the estimated impact of the remeasurement of deferred tax assets and $4 million due to the deemed repatriation of foreign earnings. In addition, tax reform had an impact on the Tax Matters Agreement with Ashland, Valvoline’s former parent company, generating an estimated $7 million of additional pre-tax expense and a $3 million tax benefit. The estimated net impact of tax reform may be refined in future periods as regulations and additional guidance become available.
For fiscal 2018, due to the enactment date of tax reform, Valvoline expects to be subject to a federal tax rate of 24.5 percent, which is blended proportionally based on the number of days of the fiscal year at the former federal rate and the number of days at the new rate. This is expected to result in a full-year consolidated adjusted effective tax rate of 27 to 28 percent, which includes the effects of international, state and local tax rates. The lower tax rate had a favorable impact on adjusted EPS by approximately $0.02 during the quarter.
Beginning in fiscal 2019, the company estimates an ongoing adjusted effective tax rate of 25 to 26 percent.
Valvoline’s board of directors has authorized the company to repurchase up to $300 million of its common stock. This amount is in addition to the previously announced $150 million share repurchase authorization, of which $118 million in shares have been repurchased as of Feb. 6, 2018. The timing and amount of any purchases of shares of common stock will be based on the level of Valvoline’s liquidity, general business and market conditions and other factors, including alternative investment opportunities.
The term of the new share repurchase authorization extends through Sept. 30, 2020. This authorization is part of a broader capital allocation framework to deliver value to shareholders by first driving growth in the business, organically and through acquisitions, and then returning excess cash to shareholders through share repurchases and dividends.
Fiscal 2018 Outlook
“As we said last quarter, we are focused on accelerating our growth,” said Mitchell. “We are on track to deliver full-year adjusted EBITDA of $480 to $500 million and expect to see top- and bottom-line growth in each of our operating segments. Our shareholders will continue to benefit from our capital allocation framework to drive growth in the business and return cash to shareholders. Valvoline is also a significant beneficiary of tax reform, as reflected in our updated adjusted EPS guidance.”