Valvoline Inc. has reported financial results for its third fiscal quarter ended June 30, 2019.

“We are pleased with the 10 percent growth in adjusted EBITDA in the third quarter,” CEO Sam Mitchell said. “Quick Lubes had another strong quarter, with ongoing unit additions and system-wide same-store sales growth of nearly 10 percent, while Core North America saw improved third-quarter performance, despite market dynamics that remain challenging, and International had improved profitability.

“At our recent investor day, we presented our long-term strategy to aggressively grow Quick Lubes, maintain Core North America and develop International. As our results in the third quarter show, Quick Lubes continues to grow, while we take actions designed to stabilize Core North America and build our market share in International.”

Third-Quarter Results

Reported third-quarter 2019 net income and EPS were $65 million and 34 cents, respectively, compared to reported third-quarter 2018 net income and EPS of $64 million and 33 cents, respectively. Third-quarter 2019 adjusted net income and adjusted EPS were $70 million and 37 cents, respectively, compared to adjusted net income of $62 million and adjusted EPS of 32 cents in the prior-year period. 

Third-quarter 2019 adjusted results exclude $4 million (2 cents per diluted share) of restructuring and related expenses recorded in selling, general and administrative (SG&A) expenses and $5 million (2 cents per diluted share) of business interruption expenses recorded in cost of sales related to the recent temporary shutdown of Valvoline’s Deer Park, Texas, blending facility due to a fire and resulting chemical releases at a nearby third-party petrochemical terminal, as previously announced. (For a full reconciliation of adjusted results, see table 7.) Third-quarter adjusted EBITDA of $126 million increased 10 percent versus the prior-year period.

Effective Oct. 1, 2018, the company adopted the new revenue recognition accounting standard. The adoption primarily resulted in a reclassification of certain items within the company’s income statement and for the third quarter had a $1 million unfavorable impact on net earnings, negatively affecting Core North America’s volume and profitability, and had no impact on cash flow from operations. Third-quarter 2019 results compared to the prior-year period included increases of approximately $10 million in sales and $14 million in cost of sales, as well as decreases of $3 million in SG&A expenses and $1 million in equity and other income. Excluding these impacts, sales would have increased 5 percent, cost of sales would have increased 4 percent, and SG&A, excluding restructuring and related expenses, would have increased 5 percent.

Outlook

“Our performance in the third quarter gives us confidence in meeting our full-year outlook,” Mitchell said. “We are narrowing our adjusted EBITDA guidance to the high end of the previous range at $465 million to $470 million and raising our same-store sales guidance to 9 percent to 10 percent.

“With the ongoing strong performance of the Quick Lubes segment, it now represents 45 percent of total Valvoline adjusted EBITDA for both the third quarter and year to date. We fully expect this momentum in our best-in-class quick lubes model to continue as we move into the next fiscal year, positioning the segment to be on track to meet the low-double digit to mid-teens EBITDA growth targets that we announced at our recent investor day. 

“We also continue to execute against the broad-based restructuring and cost-savings program announced previously, and we expect to generate annualized operating expense savings of $40 million to $50 million by the end of the next fiscal year. This program gives us more flexibility to address the ongoing market dynamics in Core North America and to invest in growth opportunities.”

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