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Valvoline Reports Q4, Fiscal Year 2021 Results

Company reiterates plan to pursue separation; provides fiscal 2022 outlook.

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Valvoline Inc. has reported financial results for its fourth quarter and fiscal year ended Sept. 30, 2021. 

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Summary of Results

  • Reported net income of $420 million grew 32% and earnings per diluted share (EPS) of $2.29 increased 36%
  • Adjusted EPS of $1.95 increased 37% and adjusted EBITDA of $634 million improved 28%
  • Sales grew 27% to $3 billion; Retail Services sales increased 38% and Global Products sales increased 20%
  • Retail Services system-wide same-store sales (SSS) increased 21.2%, net system-wide unit additions of 9%, operating income growth of 54%; adjusted EBITDA margin was 31.3%
  • Global Products delivered volume growth of 16%, operating income growth of 5%; adjusted EBITDA margin was 18.6% 
  • Retail Services represented 41% of total sales and 54% of total segment adjusted EBITDA
  • Company recently announced plan to accelerate its continued transformation by pursuing separation of its two business segments, Retail Services and Global Products

Fourth-quarter summary

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  • Reported net income of $168 million grew 38% and EPS of $0.92 increased 39%
  • Adjusted EPS of $0.50 improved 11% and adjusted EBITDA of $155 million increased 5%
  • Sales grew 28% to $835 million; Retail Services sales increased 39% and Global Products sales increased 21%
  • Retail Services system-wide SSS increased 20.1%

Commentary

“Our Q4 results represent another strong quarter of performance, with operating income growing 26% and adjusted EBITDA increasing 20% versus our pre-pandemic performance in Q4 of 2019,” said Sam Mitchell, CEO. “We continue to see robust global demand for our products and services, benefiting from ongoing improvements in miles driven and increasing number and age of vehicles in operation.

“The quarter marked the end of an exceptional fiscal year, with both segments generating strong results. In fiscal 2021, Retail Services system-wide same store sales increased for the 15th consecutive year and were up 21% compared to last year and up nearly 22% versus fiscal 2019, highlighting the superior stay-in-your-car consumer experience delivered by our store teams. This same store sales performance combined with unit growth of 9% year-over-year drove tremendous profitability improvement, cash generation and topline growth — with system-wide store sales of nearly $2 billion. Our Retail Services business is clearly a standout in the auto aftermarket services space.”

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Mitchell continued, “For the fiscal year, our Global Products segment delivered volume growth of 16% compared to fiscal 2020 and 7% versus fiscal 2019 as we continued to gain share in key international markets and expanded distribution in North America, leveraging the strength of our brand and technology. As expected, rising raw material costs did pressure margins in the fourth quarter. Sales growth again exceeded volume growth, demonstrating progress in passing through these cost increases and positioning us for cost recovery during fiscal 2022. The segment generated $213 million in discretionary free cash flow in fiscal 2021, highlighting the steady cash-generating nature of the business.

“The performance of both segments over the past few years demonstrates the solid foundation we have built across our businesses. Our transformation to a more service-driven business model has led to Retail Services contributing 54% of our total segment adjusted EBITDA this fiscal year. As we recently announced, we believe that now is the time for both segments to develop unique capital structures, capital allocation policies and operating strategies to best position themselves for an evolving global car parc. Our confidence in separating these two strong businesses reflects the tremendous progress we have made in our strategic transformation.”

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Recent Developments

On Oct. 12, 2021, the company announced that it is pursuing a separation of its two business segments, Retail Services and Global Products. No timetable has been established for the completion of the separation, and Valvoline does not intend to disclose further developments with respect to this process, unless and until its Board approves a specific transaction or action. The separation will allow Retail Services to continue its growth and focus on leveraging its world class service model and Global Products to continue to grow its market leading, high-cash generating business.

Balance Sheet and Cash Flow

  • Total debt of approximately $1.7 billion and net debt of approximately $1.5 billion
  • Full-year cash flow from operations of $404 million, discretionary free cash flow of $368 million, and free cash flow of $260 million
  • Invested $144 million in capital expenditures and $282 million in acquisitions
  • Returned $218 million of cash to shareholders via dividends and share repurchases, including $27 million of share repurchases in the fourth quarter

Outlook

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“The strength of our team, brand and preventive maintenance business model drove excellent performance in fiscal 2021,” added Mitchell. “Our strong cash generation allowed us to make significant growth investments while returning cash to shareholders.

“Both segments are well-positioned going into fiscal 2022. In Global Products, we expect robust topline growth and steady discretionary free cash flow, though we also anticipate that supply chain impacts will pressure margins in the first half of the year. We expect our momentum in Retail Services to continue with strong same-store sales growth and unit additions driving meaningful top- and bottom-line increases.”  

Information regarding the Company’s outlook for fiscal 2022 is provided in the table below:

Outlook
Operating Items
Sales growth1921%
Retail Services system-wide store additions110130
Retail Services system-wide SSS growth912%
Adjusted EBITDA$675$700 million
Corporate Items
Adjusted effective tax rate2526%
Adjusted EPS$2.06$2.18
Capital expenditures$180$200 million
Free cash flow$260$300 million

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