Q3 Fiscal 2018 Investor Overview

Transcription

1 Q3 Fiscal 2018 Investor Overview

2 Forward-Looking Statements Certain statements in this presentation, other than statements of historical fact, including estimates, projections, statements related to Valvoline s business plans and operating results are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Valvoline has identified some of these forward-looking statements with words such as anticipates, believes, expects, estimates, is likely, predicts, projects, forecasts, may, will, should and intends and the negative of these words or other comparable terminology. These forward-looking statements are based on Valvoline s current expectations, estimates, projections and assumptions as of the date such statements are made, and are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward-looking statements. Additional information regarding these risks and uncertainties are described in the Company s filings with the Securities and Exchange Commission, including in the Risk Factors and Management s Discussion and Analysis of Financial Condition and Results of Operations sections of Valvoline s most recently filed periodic reports on Forms 10-K and Forms 10-Q, which are available on Valvoline s website at or the SEC s website at Valvoline assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. Regulation G: Adjusted Results The information presented herein, regarding certain financial measures that do not conform to generally accepted accounting principles in the United States (U.S. GAAP), should not be construed as an alternative to the reported results determined in accordance with U.S. GAAP. Valvoline has included this non-gaap information to assist in understanding the operating performance of the company and its reportable segments. The non-gaap information provided may not be consistent with the methodologies used by other companies. Information regarding Valvoline s definition, calculation and reconciliation of non-gaap measures can be found in the tables attached to Valvoline s most recent earnings press release dated August 1, 2018, which is available on Valvoline s website at 2

3 Click to edit Master title style Who We Are 3

4 Our Brand is Driving a Growing Global Platform ~$2.1B In Annual Sales Top 3 Premium Motor Oil Brand (1) Over 140 Countries With Valvoline Sales Our Sales Are Diversified Across 3 Segments 48% 26% 26% Core North America Quick Lubes International Do-It-Yourself (DIY) Do-It-For-Me (DIFM) Commercial and Industrial (C&I) VIOC Express Care Commercial and Industrial (C&I) JVs OEMs * Note all data are as of FY17 unless otherwise noted By volume in the U.S. DIY market in 2017.

5 A Proven Track Record of Earnings Growth Fiscal Year Ended September 30 th (Millions) $331 $359 $412 $440 $447 $465 - $ Outlook (1) Adjusted EBITDA Mix Shift Toward Premium Products (2) 11 Consecutive Years of SSS Growth in VIOC (3) Consistent Volume Growth in International Product Pricing and Raw Material Cost Mgt. 1. For a reconciliation of historical Adjusted EBITDA to Net Income, see appendix to this presentation Outlook for Adjusted EBITDA is a forward-looking financial measure that Valvoline is unable to reconcile without unreasonable effort as described in Valvoline s earnings release dated August 1, 2018, available on Valvoline s website at 2. Within branded lubricants. 3. System-wide same-store sales (SSS) growth. SSS growth determined on a fiscal year basis with new stores included after first full fiscal year of operation. 5

6 Core North America Overview Fiscal Year Ended September 30 th (Percent of U.S branded volume) 30.0% 33.7% 36.6% 41.4% 45.8% -1.0% Core NA Premium Mix (1) Targeted, Digital Marketing Products & Packaging Enhanced Services 1. As a percentage of branded U.S. volume. 6

7 Quick Lubes Overview Fiscal Year Ended September 30 th (000s) $ Years of Same-store Sales Growth (1) $579 $613 $649 $672 $713 $738 $774 $824 $882 $ Valvoline Instant Oil Change System-wide Average Sales per Store Customer Experience Marketing Platforms Store Growth 1. System-wide same-store sales growth determined on fiscal-year basis, with new stores included after first full fiscal year of operation. 7

8 International Overview 95.0 Fiscal Year Ended September 30 th (Millions of lubricant gallons) (5.0) International Segment Volume Reported Unconsolidated JV Volume(1) Channel Development Brand Awareness New Market Segments 1. Joint ventures are not consolidated into Valvoline s reported volume. 8

9 Our Strategy Building Significant Competitive Advantage in Each Channel with Products, Services and Technology that Drive Customer Value DIY RETAILERS INSTALLERS OEM HEAVY DUTY QUICK LUBES 9

10 Q3 Earnings Results 10

11 Q3 Earnings Summary Reported Results (in millions, except per-share data) Adjusted (1) Results Q3 Operating income $102 Net income $64 Reported income per share $0.33 YTD cash flow from operating activities (in millions, except per-share data) $181 Q3 Adjusted 1 operating income $101 Adjusted 1 EBITDA $115 Adjusted 1 EPS $0.32 Q3 Fiscal 2018 Overview Adjusted 1 EBITDA growth of 3% YoY; adjusted 1 EPS growth of 10% Continued strong performance in Quick Lubes Modest International volume growth, including unconsolidated joint ventures (JVs), with strong growth in targeted markets of China and India Weaker performance in Core North America driven by lower volumes and raw material inflation Returned $113 million of cash to shareholders through dividends and share repurchases 1. For reconciliation of adjusted amounts to amounts reported under GAAP, please refer to Valvoline s earnings release dated August 1, 2018, available on Valvoline's website at 11

12 Third-Quarter Financials ($ in millions, except per-share data) Preliminary and unaudited Fiscal Third Quarter Three months ended June 30, P&L Results and Ratios Change Lubricant gallons (in millions) % Sales $ 577 $ % Gross profit as a percent of sales 34.8 % 36.9 % (210) bp Adjusted 1 SG&A % Equity and other income % Adjusted 1 operating income $ 101 $ % Depreciation and amortization % Adjusted 1 Earnings before interest, taxes, depreciation and amortization (EBITDA) $ 115 $ % EBITDA as a percent of sales 19.9 % 21.0 % (110) bp Adjusted 1 EPS $ 0.32 $ % Factors affecting year-over-year adjusted EBITDA (1) (4) Q Vol/ Mix Margin SG&A Acq Other 2 Q For reconciliation of adjusted amounts to amounts reported under GAAP, please refer to Valvoline s earnings release dated August 1, 2018, available on Valvoline's website at 2 Other includes foreign exchange impacts, equity and royalty income, gains/losses on sales of assets, and other income/expense. 12

13 Core North America (YoY Change) Q3 Total Volume -1% Sales +2% Premium mix EBITDA %, up 470 bps $46 million, down $6 million Volume and Mix - Volume growth of 2% in DIY but below our expectations - Soft DIFM installer volumes - Continued strong premium mix improvement EBITDA - Lower overall volume - Price-cost lag impacts - Expect year-over-year EBITDA growth in Q4 1 For reconciliation of adjusted amounts to amounts reported under GAAP, please refer to Valvoline s earnings release dated August 1, 2018, available on Valvoline's website at 13

14 Core North America ($ in millions) Preliminary an unaudited Lubricant gallons (in millions) (1) % Sales $ 264 $ % Operating income $ 41 $ 48 (15) % Depreciation and amortization % EBITDA 1 $ 46 $ 52 (12) % EBITDA as a percent of sales 17.4 % 20.2 % (280) bp Fiscal Third Quarter Factors affecting year-over-year EBITDA 1 Three months ended June 30, Change Q (1) Vol/ Mix (7) Margin SG&A Acq Other 2 46 Q For reconciliation of adjusted amounts to amounts reported under GAAP, please refer to Valvoline s earnings release dated August 1, 2018, available on Valvoline's website at 2 Other includes foreign exchange impacts as well as equity, royalty, and other income/expense. 14

15 Quick Lubes (YoY Change) Q3 SSS (system-wide) +7.9% Sales +20% Adjusted EBITDA 1 VIOC Units (net added in period) $47 million, up $7 million 13 SSS Strength - Combination of growth in transactions and average ticket - Transactions driven by customer acquisition and retention programs - Average ticket improvements from pricing and premium mix Store growth - Year-to-date, added 27 net new stores to VIOC - Expect strong Q4, anticipating 17 new company stores and 12 new franchise locations Sales and EBITDA - Overall Sales and EBITDA benefitted from both SSS and store growth 1 For reconciliation of adjusted amounts to amounts reported under GAAP, please refer to Valvoline s earnings release dated August 1, 2018, available on Valvoline's website at 15

16 Great Canadian Oil Change Company Overview Founded in Saskatoon, Saskatchewan in franchised locations Footprint here Third largest quick lube system in Canada Long-time customer of Valvoline Strategic Rationale Immediate scale for entry into Canada Creates opportunity for company store expansion into Canada Opens door to other acquisition opportunities 16

17 Quick Lubes ($ in millions) Preliminary and unaudited Lubricant gallons (in millions) % Sales $ 167 $ % Operating income $ 38 $ % Depreciation and amortization % Adjusted EBITDA 1 $ 47 $ % Adjusted EBITDA as a percent of sales 28.1 % 28.8 % (70) bp Fiscal Third Quarter Factors affecting year-over-year Adjusted EBITDA 1 Three months ended June 30, Change Q Vol/ Mix Margin (5) SG&A Acq Other 2 47 Q For reconciliation of adjusted amounts to amounts reported under GAAP, please refer to Valvoline s earnings release dated August 1, 2018, available on Valvoline's website at 2 Other includes foreign exchange impacts, equity and royalty income, and other income/expense. 17

18 International (YoY Change) Q3 Volume -2% Volume with JVs +1% Sales +7% EBITDA 1 $22 million, up $2 million Volume - Solid volume gains in fast-growing markets of China and India Combined, including unconsolidated JVs, volume growth of 9% - Volume in other regions impacted by transitory items EBITDA - Favorable margins and JV performance driving EBITDA growth - FX benefits contributing 1 For reconciliation of adjusted amounts to amounts reported under GAAP, please refer to Valvoline s earnings release dated August 1, 2018, available on Valvoline's website at 18

19 International ($ in millions) Preliminary and unaudited Lubricant gallons (in millions) (2) % Sales $ 146 $ % Operating income $ 20 $ % Depreciation and amortization % EBITDA 1 $ 22 $ % EBITDA as a percent of sales 15.1 % 14.6 % 50 bp Fiscal Third Quarter Factors affecting year-over-year EBITDA 1 Three months ended June 30, Change 0 20 Q (1) (2) Vol/ Mix Margin SG&A Acq Other 2 22 Q For reconciliation of adjusted amounts to amounts reported under GAAP, please refer to Valvoline s earnings release dated August 1, 2018, available on Valvoline's website at 2 Other includes foreign exchange impacts as well as equity, royalty, and other income/expense. 19

20 Corporate Items Net interest and other financing expense of $15 million in Q3, up $5 million YoY - YoY increase due primarily to pension funding transaction Effective tax rate of 34.0% in Q3; adjusted 1 effective tax rate of 27.9%. YTD cash flow from operating activities of $181 million - YoY increase due primarily to lower cash taxes YTD Capital expenditures totaled $51 million; YTD Free cash flow 2 generation of $130 million Total debt of ~$1.3 billion and net debt of ~$1.2 billion YTD share repurchases of $224 million and YTD dividends of $45 million 1 Adjusted effective tax rate is a forward-looking non-gaap financial measure that Valvoline is unable to reconcile without unreasonable effort as described in Valvoline s earnings release dated August 1, 2018, available on Valvoline's website at 2 For reconciliation of adjusted amounts to amounts reported under GAAP, please refer to Valvoline s earnings release dated August 1, 2018, available on Valvoline's website at 20

21 Fiscal 2018 Guidance Updating guidance Operating Segments Updated Outlook Prior Outlook Raising SSS to % Adjusted 1 EBITDA to $465-$470 million Adjusted 1 EPS range to $1.26- $1.31 Free cash flow 1 updated to reflect adjusted 1 EBITDA range Lubricant Gallons 1-2% 3-4% Revenues 9-11% 10-12% VIOC Company Stores (excluding franchise conversions) VIOC Franchised Stores (excluding franchise conversions) No change VIOC same-store sales % % Adjusted EBITDA 1 (excluding pension & OPEB income) $465-$470 million $480-$490 million Corporate Items Pension & OPEB Income No change $40 million Adjusted effective tax rate No change 27-28% Diluted adjusted EPS 1 (excluding pension & OPEB income) $1.26-$1.31 $1.31-$1.38 Capital expenditures $85-$90 million $85-95 million Free cash flow 1 $245-$255 million $260-$280 million 1 For reconciliation of adjusted amounts to amounts reported under GAAP and a discussion of forward-looking non-gaap financial measures that Valvoline is unable to reconcile without unreasonable effort, please refer to Valvoline s earnings release dated August 1, 2018, available on Valvoline's website at 21

22 Appendix 22

23 Key Items 1 Affecting Income ($ in millions, except per-share data) Preliminary and unaudited Earnings Income Pre-tax After-tax per Share Pension & OPEB income $ Operating Third Quarter Impact Total Legacy and separation-related costs 2 $ 3 3 (3) (0.02) Acquisition-related foreign currency exchange loss 3 $ (2) (2) (2) (0.01) Total $ 1 $ 11 $ 2 $ Pension & OPEB income & remeasurements $ - $ 17 $ 10 $ 0.05 Legacy and separation-related costs $ (13) $ (13) $ (13) $ (0.07) Total $ (13) $ 4 $ (3) $ (0.02) 1 For reconciliation of adjusted amounts to amounts reported under GAAP, please refer to Valvoline s earnings release dated August 1, 2018, available on Valvoline's website at 2 Primarily related to Kentucky and U.S. tax reform. 3 Recorded in SG&A. 23

24 Historical Adjusted EBITDA Reconcilation Fiscal Year Ended September 30 th ($ in millions) Net income $246 $173 $196 $273 $304 Income tax expense Net Interest and other financing expense Depreciation and amortization EBITDA $416 $301 $335 $468 $574 Adjustments Non-service pension and other postretirement plan income and re-measurements (85) (35) (138) Separation Costs + Adj. associated with Ashland Tax Indemnity (1) Net Loss on Divestiture / Acquisition Costs Impairment on Equity Investment Restructuring and other changes in estimates (2) (5) Adjusted EBITDA $331 $359 $412 $440 $ Separation costs ($ in millions) were $32 while the Ashland tax indemnity was ($16) 2. Includes change in estimate for insurance reserves 24

25 Fiscal 2018 Presentation of Fiscal 2017 Adjusted Results Results for fiscal 2017 below reflect adjustments for Key Items as previously reported but now includes the addition of Pension and other post-retirement plan non-service income, which is treated as a Key Item beginning in fiscal 2018 Quarters ended December 31, March 31, June 30, September 30, Fiscal Reported net income $ 72 $ 71 $ 56 $ 105 $ 304 Adjustments Gain on pension and other postretirement plan remeasurements (8) - - (60) (68) Pension and other postretirement plan non-service income (18) (17) (17) (18) (70) Separation costs Adjustments associated with Ashland tax indemnity - - (2) (14) (16) Other adjustments (5) (5) Total adjustments, pre-tax (20) (11) (4) (92) (127) Income tax expense of adjustments Total adjustments, after tax (12) (6) 3 (49) (64) Adjusted net income $ 60 $ 65 $ 59 $ 56 $ 240 Reported diluted earnings per share $ 0.35 $ 0.35 $ 0.27 $ 0.52 $ 1.49 Adjusted diluted earnings per share $ 0.29 $ 0.32 $ 0.29 $ 0.28 $ 1.18 Weighted average diluted common shares outstanding

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