Valvoline Inc. has 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,” Mitchell added.
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%.
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.
