Valvoline Inc. has reported financial results for its third fiscal quarter ended June 30, 2020.
“We continue to closely monitor the latest developments surrounding COVID-19 and remain focused on the health and safety of all of our stakeholders,” said Sam Mitchell, CEO. “The durable, non-cyclical nature of our business was clearly on display this quarter. Lockdowns in response to COVID-19 caused meaningful impacts on our results in April and May. As the restrictions eased and miles driven trends improved, we finished the quarter with June overall sales growing by 10% year-over-year. Quick Lubes and Core North America sales were each up 16% in June. International saw significant sequential improvement in June while still below prior year. Margin improvement in Core North America was particularly strong in the quarter due in part to reduced raw material costs, which we expect to moderate as we began to pass through these lower costs to our customers in the latter part of Q3, impacting Q4 margins.
“Our results this quarter demonstrate the resiliency of our business model and show that we have taken the steps necessary to effectively manage our operational response and maintain financial flexibility during the crisis.”
Third-Quarter Results
Reported third-quarter 2020 net income and EPS were $59 million and $0.32, respectively. These results included pension and other post-employment benefit (OPEB) after-tax income of $7 million ($0.04 per diluted share) and an after-tax charge of $1 million (negligible EPS impact) of legacy and separation-related expenses. Reported third-quarter 2019 net income and EPS were $65 million and $0.34, respectively. These results included after-tax pension and OPEB income of $2 million ($0.01 per diluted share) and after-tax expense of $3 million ($0.02 per diluted share) of restructuring and related expenses and $4 million ($0.02 per diluted share) of business interruption expenses related to the temporary shutdown of one of Valvoline’s plants due to a fire at a nearby third-party facility.
Third-quarter 2020 adjusted net income and adjusted EPS were $53 million and $0.28, respectively, compared to adjusted net income of $70 million and adjusted EPS of $0.37 in the prior-year period. Adjusted EBITDA in the quarter was $106 million, a 16% decrease compared to the prior-year period, and included an increase in variable compensation expense of $10 million recorded in Unallocated and Other due to improving earnings expectations.
Outlook
“The resiliency of our business model drove a strong recovery across our segments during Q3, as miles driven trends improved from the unprecedented declines caused by early-stage COVID-19 restrictions,” said Mitchell. “Looking forward to Q4, the quarter is off to a good start based on our early view of July results, including same-store sales growth that is expected to come in ahead of June levels. Barring any unexpected impacts from COVID-19, for Q4 we anticipate same-stores sales growth to be in the high-single digits, leading to our 14th straight year of growth. While uncertainty related to COVID-19 remains, given current trends we expect our FY20 adjusted EBITDA to be in the range of $475 million to $485 million, in line with last year. Reaching these expectations would be an impressive achievement given the significant negative impact that COVID-19 has had on our results this year.”
Mitchell continued, “The stability of our preventative-maintenance business model, the strength of our balance sheet and the endurance and talent of our people reassures me that we will not only weather the remainder of the COVID-19 crisis, but come out stronger. We are better positioned than ever to execute our long-term strategy of becoming a more service-centric company by growing in Quick Lubes, developing opportunities in International and funding these initiatives by maintaining strong cash generation in Core North America.”
