Valvoline Inc. has reported financial results for the third fiscal quarter ended June 30, 2017. The third quarter was highlighted by the final separation from Ashland on May 12, 2017, when Ashland distributed all of its 170 million shares of ownership in Valvoline to its shareholders.
Valvoline delivered EBITDA from operating segments of $112 million, higher than the company’s guidance for the quarter. The company said these better than expected results were driven by strong same store sales in Valvoline Instant Oil Change (VIOC) locations, growth in premium product mix and continued volume gains in international markets.
Rising base oil costs were a headwind during the quarter; however, pricing and other actions have been implemented to offset these increases. The company expects to see unit margin improvement in the fourth quarter with the full benefit of these actions realized by the start of the new fiscal year. EBITDA from operating segments declined $8 million as compared to the prior year period, with benefits from volume and mix offset by increased raw material costs and increased SG&A, partially due to stand-alone public company costs.
Adjusted third-quarter earnings excluded $13 million of after-tax separation costs. Prior-year results had no adjusting items. Diluted earnings per share (EPS) were 27 cents and adjusted EPS for the quarter was 34 cents. The weighted average diluted shares outstanding of 204 million reflect both the repurchase of shares during the quarter and Valvoline stock-based compensation awards that previously were to be settled in Ashland shares.
“The quarter reflected solid execution against a number of our core priorities, namely strong same-store sales growth for VIOC, solid volume gains in International, and continued premium penetration and DIY market share growth in core North America. In addition, we demonstrated our commitment to disciplined capital management by returning excess capital to shareholders through the repurchase of Valvoline shares,” said CEO Sam Mitchell.
“I continue to be confident in our ability to protect unit margins and fully expect to see progress in the fourth quarter, positioning us well across our operating segments as we enter the new fiscal year.”
Fiscal 2017 Outlook
The company has narrowed or revised a few of its key guidance metrics for fiscal year 2017. Valvoline now anticipates diluted adjusted EPS of $1.37 to $1.40, which includes one penny due to additional interest expense attributable to the planned debt issuance to fund the pension contribution. The free cash flow guidance increases to $160 million to $180 million, including the cash tax benefit of the pension funding. Full-year EBITDA from operating segments is now expected to be $444 million to $450 million.
“As we finish up fiscal 2017, I am pleased with the performance of the business,” said Mitchell. “We’ve faced significant raw material cost increases since the beginning of the calendar year, but our teams have delivered against our earnings expectations and we plan to end the fourth quarter in line with our full-year earnings guidance.”
