Valvoline Inc. · NYSE:VVV
Valvoline — Q3 FY2020 Earnings Presentation
29 slides from Valvoline's earnings presentation, Aug 4, 2020
Slide 1: Third-Quarter Fiscal 2020 Earnings
Third-Quarter Fiscal 2020 Earnings August 4, 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 presentation, 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: Third-Quarter Results
Third-Quarter Results Reported Results (in millions, except per-share data) Q3 Key items1 Operating income $88 • Non-service Pension and OPEB impact; $7M after-tax income Net income $59 • Legacy and separation related impact; $1M after-tax expense Reported earning per share $0.32 (EPS) YTD Cash flow
Slide 4: Third-Quarter Overview
Third-Quarter Overview • Rapid recovery across the business YoY Change in Lubricant Volume for FY20 during the quarter 0% - Quick Lubes: led by new customer -10% acquisition - Core NA: strength of DIY category, lower -20% costs -30% - Sequential improvements in May and June -40% April May June • Und
Slide 5: Quick Lubes – Recovery Driven by New Customer Acquisition
Quick Lubes – Recovery Driven by New Customer Acquisition New Customers Contribution by Month • YoY new customer growth of U.S. Same Stores - FY20 v. FY19 8.5% in Q3 for U.S. company-owned same stores • Stores remained ~98% open during COVID-19 – Strong operational and marketing alignment with franc
Slide 6: Quick Lubes - New Customer Acquisition
Quick Lubes - New Customer Acquisition Estimated U.S Annual Source of New DIFM Oil Changes Customers Q3³ DIY 15% Quick Lubes 27% Tire & Repair 34% Car Dealer 24% Large addressable market Sourcing new customers New media campaign from broader DIFM category highlighting competitive advantages 1. Compa
Slide 7: Quick Lubes - SSS Progression and Store Additions
Quick Lubes - SSS Progression and Store Additions System-Wide SSS1 9.8% 10.8% 10.0% 11.6% 10.3% 7.9% 9.7% 8.3% 7.6% 7.1% -5.6% -18.2% -26.8% 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 Jan+Feb Mar Apr May June June (Pre-COVID) (Company) June system-wide SSS nearly back to pre-COVID-19 growth rates Ticket rem
Slide 8: Core North America
Core North America YoY Change in Lubricant Volume and Gasoline Demand1 • Volume recovery in Q3 10% 0% ‒ Retail Channel – timing of promotions, rapid recovery in -10% the DIY category -20% ‒ Installer Channel – partial restocking from April lows; -30% recovery expected to lag Retail -40% -50% Apr-20
Slide 9: International
International YoY Change in Lubricant Volume • Volume recovery in Q3 Including JVs1 ‒ India large-city reopenings in late May 0% ‒ Country-level reopenings Europe and Latin America -5% ‒ Steady performance in China -10% -15% • Uneven near-term regional recovery ‒ Latin America, India recoveries lag
Slide 10: The Original Motor Oil: Global Marketing Campaign
The Original Motor Oil: Global Marketing Campaign • New global campaign celebrates Valvoline’s history of innovation as America’s first branded motor oil INDIA Key tactics: Digital TV, Digital Video & Display, Digital Audio, Social, Out of Home, Radio, Truck Wraps, MotorTrend partnership 10
Slide 11: Third-Quarter Financials
Third-Quarter Financials ($ in millions, except per-share data) Fiscal Third Quarter Preliminary and unaudited Three months ended Jun. 30, 1 Adjusted P&L Results and Ratios 2020 2019 Change Lubricant gallons (in millions) 36.7 45.6 (20) % Factors affecting year-over-year adjusted1 EBITDA Sales $ 516
Slide 12: Strong cash flow from operations
Strong cash flow from operations Balance Sheet and liquidity Cash Generation • Total liquidity of $1.3B+ • Cash flow from operations increased $37M YoY • $751M of cash and cash equivalents ‒ Active, disciplined cash management • Net debt remained constant at $1.2B $1.3B+ total liquidity ($ millions)
Slide 13: Outlook
Outlook • Expect ongoing challenges from COVID-19 • Good start to Q4 • Key expectations1 - Q4 system-wide SSS2 growth in high-single digit range - FY20 adjusted3 EBITDA between $475 - $485 million, in line with prior year 1 The guidance provided in presentation is based on current data and expectati
Slide 14: Resilient Business Model
Resilient Business Model • Preventive maintenance is non-discretionary Market drivers • Demand for transportation lubricants 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 ev
Slide 15: Summary
Summary • Rapid rebound in Q3 • Financial flexibility and liquidity are strong • Remain focused on our long-term shift to a service-driven business model 15
Slide 16: Appendix
Click to edit Master title style Appendix 16
Slide 17: Corporate Items
Corporate Items • Net interest and other financing expense of $19 million in Q3, stable YoY • Effective tax rate of 24.4% in Q3; adjusted1 effective tax rate of 24.3% • YTD cash flow from operating activities of $271 million • Capital expenditures totaled $94 million; free cash flow1 generation of $
Slide 18: Segment Results Summary
Segment Results Summary Quick Lubes Core North America International Q3 Q3 Q3 (YoY change) (YoY change) (YoY change) SSS1 (system-wide) -8.0% Total Volume -21% Volume -20% Sales -6% Sales -20% Volume with JVs1 -23% Net new stores2 59.7%, (company + franchised) 13 Premium mix up 660 bps Sales -23% $4
Slide 19: Quick Lubes
Quick Lubes ($ in millions) Fiscal Third Quarter Preliminary and unaudited Three months ended Jun. 30, Factors affecting year-over-year EBITDA1 2020 2019 Change 0 0 Lubricant gallons (in millions) 6.2 7.2 (14) % (8) (1) (1) Sales $ 199 $ 211 (6) % 57 47 Operating income $ 36 $ 48 (25) % Depreciation
Slide 20: Core North America
Core North America ($ in millions) Fiscal Third Quarter Preliminary and unaudited Three months ended Jun. 30, Factors affecting year-over-year EBITDA1 2020 2019 Change 12 0 0 Lubricant gallons (in millions) 19.0 24.1 (21) % 16 Sales $ 207 $ 260 (20) % 55 Operating income $ 51 $ 38 34 % 46 (19) Key I
Slide 21: International
International ($ in millions) Fiscal Third Quarter Preliminary and unaudited Three months ended Jun. 30, Factors affecting year-over-year EBITDA1 2020 2019 Change Lubricant gallons (in millions) 11.5 14.3 (20) % 4 0 Sales $ 110 $ 142 (23) % 2 Operating income $ 12 $ 20 (40) % 23 (3) (12) Key Items 2
Slide 22: Key Items Affecting Income
Key Items1 Affecting Income ($ in millions, except per-share data) Third-Quarter Impact Preliminary and unaudited Total Operating Earnings Fiscal 2020 Income Pre-tax After-tax per Share Pension & OPEB income $ - $ 9 $ 7 $ 0.04 Legacy and separation-related cost, net $ (1) $ (1) $ (1) $ - Total $ (1)
Slide 23: 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 24: Reconciliation of Non-GAAP Data - Adjusted EBITDA
Reconciliation of Non-GAAP Data - Adjusted EBITDA (a) Key items were recorded in Core North America, International and Unallocated and other. The tables above reconcile Core North America, International and Unallocated and other operating income (loss) and relevant other items reported below operati
Slide 25: Reconciliation of Non-GAAP Data – Free Cash Flow
Reconciliation of Non-GAAP Data – Free Cash Flow 1. Free cash flow is defined as cash flows from operating activities less capital expenditures and certain other adjustments as applicable. 25
Slide 26: Liquidity and Net Debt
Liquidity and Net Debt 1. The Term Loan has an amortizing principal starting in 2022, with complete repayment in 2024. 2. $475 million facility, including ~$7 million for letters of credit. 3. AR securitization facility with maximum borrowing capacity of $175 million; remaining capacity of $85 milli
Slide 27: 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 28: 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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