Valvoline Inc. · NYSE:VVV
Valvoline — Q2 2020 Earnings Presentation
32 slides from Valvoline's earnings presentation, May 7, 2020
Slide 1: Second-Quarter Fiscal 2020 Earnings
Second-Quarter Fiscal 2020 Earnings May 7, 2020 Sam Mitchell, CEO Mary Meixelsperger, CFO Sean Cornett, Investor Relations 1
Slide 2: Safe Harbor
Safe Harbor Forward-Looking Statements Certain statements in this news release, other than statements of historical fact, including estimates, projections and statements related to Valvoline’s business plans and operating results, are forward-looking statements within the meaning of the Private Secu
Slide 3: Second-Quarter Reported Results
Second-Quarter Reported Results (in millions, except per-share data) Q2 Key items1 Operating income $117 • Debt redemption and issuance impact: $14 million after-tax expense Net income $63 - Related to Feb. 25 issuance of 4.250% Senior Notes due 2030 and redemption of 5.500% Senior Notes due 2024 Re
Slide 4: Second-Quarter Adjusted Results Overview
Second-Quarter Adjusted1 Results Overview • Strong start to Q2 - Jan. – Feb.: total Company YoY sales up 2%, Quick Lubes system- wide SSS up 11.6% (in millions, except per-share data) Q2 - Repurchased ~$60 million of common stock Adjusted1 operating income $119 Adjusted1 EBITDA $134 • COVID-19 impac
Slide 5: Navigating the COVID-19 Crisis
Navigating the COVID-19 Crisis Entering the Crisis Weathering the Storm Road to Recovery • Entered crisis from position of strength • Auto services deemed essential; • Well-positioned for recovery with continuing operations of Quick Lubes increased driving • Focused on health & safety of our and cus
Slide 6: Our Values-driven Response to COVID-19
Our Values-driven Response to COVID-19 Employees Customers & Business Partners Communities • Implemented workplace health and safety • Franchisees Support • Seeded and supported Bluegrass protocols Coronavirus Response Fund - Created a short-term loan program - Work-from-home practices for office-ba
Slide 7: Resilient Business Model
Resilient Business Model • Preventive maintenance primarily non-discretionary Market drivers • Demand for transportation lubes correlated to miles driven Performance • Mid-single digit volume decline in FY09, concentrated in H1 across cycles: ‘08-’09 recession • Positive SSS comps in Quick Lubes in
Slide 8: Quick Lubes
Quick Lubes Same Store Sales Growth For Week Ended1 20% • Keeping stores open with positive 10% economics 0% • SSS trends improved in April -10% - 1st half SSS down ~39% -20% - 2nd half SSS down ~16% - Continuing to see improvement -30% -40% • Winning new customers -50% System Company Franchise 1. P
Slide 9: Quick Lubes – Stay-in-your-car Service Experience
Quick Lubes – Stay-in-your-car Service Experience Health & safety focused enhancements to drive-through service model VIOC Customer Satisfaction1 Pre- & Post-COVID-19 Pre Post 85% 82% 83% 78% 76% 76% 73% 73% 73% 70% + 4% + 3% + 3% + 3% + 2% Speed of Knowledge & Pricing Clearly Not Pressured Coutresy
Slide 10: Core North America
Core North America Core North America Weekly Shipments • Strong performance versus our expectations in Q2 Indexed to January Weekly Average prior to impact of COVID-19 30% 20% 10% • Volumes down ~55% at trough; improving trends 0% -10% • Retail channel performance substantially stronger -20% -30% th
Slide 11: International
International Lubricant Volume including JVs1 Indexed to December • Rapid recovery in China 40% - Plant on-track for FY21 Q1 opening 20% 0% • Regional recovery anticipated to be -20% uneven -40% • Heavy Duty demand less impacted -60% -80% -100% Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 China Total Ex China
Slide 12: Strong Balance Sheet & Liquidity Position
Strong Balance Sheet & Liquidity Position Actions to increase liquidity Balance sheet – Current status • Borrowed under credit facilities, $540M • ~$775M in cash and cash equivalents • Increased credit capacity by ~$50M • Net debt of ~$1.2B • Deferring discretionary capital while continuing to • Pen
Slide 13: Spending Reductions
Spending Reductions • Advertising • Hiring freeze • Variable compensation • Other discretionary spending • Deferral of non-essential projects • Lower capex 13
Slide 14: April and Beyond
April and Beyond • Total volume and sales down ~40% YoY in April • Improved volume and sales trends in back half of April • Expect improving trends to continue as miles driven increases • Variable nature of Costs of Goods Sold allows for profitability at April volumes levels 14
Slide 15: Expected Drivers of Near-term Cash Flow
Expected Drivers of Near-term Cash Flow Sources Uses Reduced capital expenditures – Extended terms for certain customers Improved payables terms – Franchisee support China plant loan – Fiscal Q3 Dividend Positive EBITDA at lower run-rate – Continued funding of growth projects contribution with expec
Slide 16: Summary
Summary Road to Recovery 3 Weathering the Storm 2 Entering the Crisis 1 Entered COVID-19 crisis from a position of strength and well positioned for recovery 16
Slide 17: Appendix
Click to edit Master title style Appendix 17
Slide 18: Framework for Recovery
Framework for Recovery Pre-COVID-19 Weathering the Storm Road to Recovery Accelerate Miles Driven • Low-single digit growth • Significant decline mid-March – • Recovering - flat to down ~15% • Stable to modest growth April (down ~40 – 50%) Assumption • Pick up in May-June Corporate • Managing and re
Slide 19: Segment Results Summary
Segment Results Summary Quick Lubes Core North America International Q2 Q2 Q2 (YoY change) (YoY change) (YoY change) SSS1 (system-wide) 0.7% Total Volume -7% Volume -9% Sales 6% Sales -2% Volume with JVs1 -10% Net new stores2 57.7%, (company + franchised) 12 Premium mix up 420 bps Sales -14% $50 mil
Slide 20: Corporate Items
Corporate Items • Net interest and other financing expense of $38 million in Q2, up $19 million YoY - Includes $19 million of debt redemption and issuance expense (key item1) • Effective tax rate of 28.4% in Q2; adjusted1 effective tax rate of 26.0% • YTD cash flow from operating activities of $154
Slide 21: Second-Quarter Financials
Second-Quarter Financials ($ in millions, except per-share data) Fiscal Second Quarter Preliminary and unaudited Three months ended Mar. 31, 1 Adjusted P&L Results and Ratios 2020 2019 Change Factors affecting year-over-year adjusted1 EBITDA Lubricant gallons (in millions) 41.7 44.4 (6) % Sales $ 57
Slide 22: Quick Lubes
Quick Lubes ($ in millions) Fiscal Second Quarter Factors affecting year-over-year EBITDA1 Preliminary and unaudited Three months ended Mar. 31, 3 0 2 2020 2019 Change (6) (2) Lubricant gallons (in millions) 7.1 7.0 1 % Sales $ 212 $ 200 6 % 53 50 Operating income $ 40 $ 44 (9) % Depreciation and am
Slide 23: Core North America
Core North America ($ in millions) Fiscal Second Quarter Factors affecting year-over-year EBITDA1 Preliminary and unaudited Three months ended Mar. 31, 5 0 0 1 2020 2019 Change 0 Lubricant gallons (in millions) 20.9 22.4 (7) % Sales $ 238 $ 243 (2) % 51 45 1 Adjusted Operating income $ 47 $ 41 15 %
Slide 24: International
International ($ in millions) Fiscal Second Quarter Factors affecting year-over-year EBITDA1 Preliminary and unaudited Three months ended Mar. 31, 2020 2019 Change 6 0 Lubricant gallons (in millions) 13.7 15.0 (9) % (1) (3) Sales $ 128 $ 148 (14) % (7) 24 Operating income $ 18 $ 23 (22) % 19 Depreci
Slide 25: Key Items Affecting Income
Key Items1 Affecting Income ($ in millions, except per-share data) Second-Quarter Impact Preliminary and unaudited Total Operating Earnings Fiscal 2020 Income Pre-tax After-tax per Share Pension & OPEB income $ - $ 9 $ 7 $ 0.04 Debt extinguishment and modification costs $ (19) $ (19) $ (14) $ (0.08)
Slide 26: Reconciliation of Non-GAAP Data – Net Income and EPS
Reconciliation of Non-GAAP Data – Net Income and EPS (a) Pre-tax adjustments associated with acquisition-related costs and restructuring and related expenses were recorded in Selling, general and administrative expenses as reported within the Statements of Consolidated Income. Adjusted Selling, gene
Slide 27: Reconciliation of Non-GAAP Data - Adjusted EBITDA
Reconciliation of Non-GAAP Data - Adjusted EBITDA (a) Key items were recorded in Core North America and Unallocated and Other. The tables above reconcile Core North America and Unallocated and other operating income (loss) and relevant other items reported below operating income (loss), as applicabl
Slide 28: Reconciliation of Non-GAAP Data – Free Cash Flow
Reconciliation of Non-GAAP Data – Free Cash Flow 28
Slide 29: Liquidity and Net Debt
Liquidity and Net Debt ($ in millions) At March 31, Liquidity 2020 Cash $ 774 Available revolver and A/R facility capacity 2 47 Liquidity $ 821 Interest At March 31, Debt Expiration Rate 2020 4.25% senior notes, 02/2030 4.25% $ 600 par $600 million 1 Term Loan A 04/2024 L+175 475 3 Revolver drawn 04
Slide 30: Use of Non-GAAP Measures
Use of Non-GAAP Measures To aid in the understanding of Valvoline’s ongoing business performance, certain items within this presentation are presented on an adjusted, non-GAAP basis. These non-GAAP measures are not defined within accounting principles generally accepted in the United States of Ameri
Slide 31: Key Business Measures
Key Business Measures Valvoline tracks its operating performance and manages its business using certain key measures, including system-wide, company-owned and franchised store counts and same-store sales; Express Care store counts; lubricant volumes sold by unconsolidated joint ventures; and total l
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