VVV - Earnings call transcript Q2 2019

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Operator

Good morning. My name is Carol and I will be your operator today. At this time, I would like to welcome everyone to Valvoline's Second Quarter 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, we will have a question-and-answer session. time, Sean like Cornett, this call turn At to over Investor Instructions] I to would the [Operator Relations. Mr. Cornett please go ahead.

Sean Cornett

which Good a conference Investor and be with Valvoline time yesterday Thank quarter remarks XXXX at Relations quarter Officer, should Carol. morning the investors.valvoline.com. SEC A the Xst. has at copy P.M. to XX, today call earnings is Mitchell; and welcome that you, Eastern X:XX with website until Valvoline's release we These Chief to on ended fiscal available Meixelsperger, March XXXX Mary and conjunction Commission. preliminary our results the And call viewed released on webcast. Officer. are May of in approximately Valvoline's results and a on release file for the Chief copy and Exchange second Sam XX-Q this presentation news Financial furnished are of Form the our Executive X-K. Form been me Securities With

from our Valvoline will As forward-looking are be similar are cause provided These discussing of not may companies. and to results risks used was of this not uncertainties in is the we and shown used The management's historical remarks by under of nature. information statements. remarks today enhances amounts non-GAAP to included by in on GAAP which be measures and and our restructuring any certain otherwise statements. that of management adjusted reconciliation exclude items unusual, In our assumes are to non-operational, forward-looking the any ongoing comparable forward-looking on our We to Adjusted reported such that differ X, of A update actual our measures obligation materially date fact are are assumptions may statements. this in on other to as earnings results our believe unless basis business. statements based no release. this and results approach presentation noted. current of understanding discussion of our subject statements non-GAAP adjusted of a an or slide use presentation results key

results As we we quarter. our reported turn slide the can for review X, to

fiscal Valvoline and $XX of the million, operating the second statement, the Year-to-date reclassification income activities year, and revenue a in recognition impact standard. the items sales, million. $X.XX. reported $XX Beginning of Valvoline new accounting delivered primarily flow The income million, this of of standard For is quarter, SG&A. certain from EPS of income sales, fiscal was of net cash impacting $XXX operating adopted cost essentially

after-tax. North a this was For key items. QX, million $X was profitability. million tied expense a last year the expense. quarter program to Restructuring and million changes Kentucky expenses The finalization of QX OPEB the amounted impacting after-tax $X there million Core $X were were benefit America's tax income $X we announced related after-tax. to pension Non-service four roughly tax reform in and In

The of shut items legacy U.S. key for cost, of and expense separation associated and In One to of interruption of million were a third-party after-tax. terminal. business down to OPEB $X after-tax and reform. $X after-tax tax income, were $X million million related expense pension after-tax related major at plants fire XXXX, of QX due nearby our costs petrochemical temporarily million $X a was fiscal

we results. as slide our review X, adjusted let's to Now, move

actions better were to business. adjusted segments, where and was was operating $XXX the EBITDA results in we particularly $XXX in our across stabilize North adjusted income are QX Versus million, notably QX adjusted overall Core business all was sequential America EPS $X.XX. Our million, taking

in and excellent and X%. EPS another QX. negative In Overall, in and strong International, impact adjusted volume sales adjusted unit addition. solid Lubes business with markets softness is year continued grew last in same-store Quick line QX very with delivered our best-in-class emerging our Our quarter foreign EBITDA growth exchange

it over review results. me to let Now, to our Sam turn segment

Sam Mitchell

Thanks Sean. nearly In Quick Lubes, we XX%. sales growth delivered same-store of

actions far the advantage. stores. Our better more XX% America by was gain stack than excluding of growth Year-to-date more results just of aftermarket automotive to EBITDA of and XX% In significant quarter sales same-store XX% in our XX%. and and grew last than the two-year the branded the retail XX%. in Core drive was stores we franchisees for sales net better channel same-store performance in broader sales sales reflect two-year are the segment. growth sequential of XX% stack was QX. grown over new just volume the addition same-store growth the the The competitive in growth in quarter one our in dynamics growth Overall, driven response over than year and to on to our would've implemented North DIY sale recorded a helped market in sequential improvement leading XXX

mature unconsolidated grew was continuing and market for America in several Sales discuss attributed DIY minutes. EBITDA X%. volume the ventures, I'll North installer volume emerging which decline soft declines year-over-year joint markets year-over-year The was foreign However, factors remain. in a offset impacts. few Core In primarily channel to the driven volume growth by in challenges in exchange were in volumes International, markets. by Including

stores exceptional was grew our same-store in slide. Fueling non-oil-change revenue sales growth QX penetration take ticket closer of system-wide. pricing was average of retention day our benefits Quick growth focus sales we as the The mix increases. at ticket further Overall XX.X%, on experience grow menu balanced drive continues full services. we XX.X%. that our a the Company are between premium in transaction Lubes every of in growing XX.X% performance same-store and high. and franchise while which to the key is grew a stores service Let's next our deliver average growth look base customer rates keeping stores

stores franchise in new stores stores during QX. including unit XX built We opening and that pace of began driven continued primarily investment XX stores was our steady across Store our system, the last company year. growth by newly growth company

Our stores starts XXX a with stores new our the we've In Canada Oil to Canadian Oil than added their transitions. Great of acquisition commitment show franchise Change both XXX also are franchisees to off those to Changers in good being more through and recent last continue months, growth. in which of XX

During most first local pilot now the in quarter, three JV XXXX services we announced and its venture in a joint province. Lubes China provider. opened February operating has Quick stores China's populous with in a The store

of expansion on year, sales slowdown year performance, our largely some company to raising in same-store we X% presence sales the are of half a year-to-date represents actions our growth the This full market. store to Quick pricing significant independent X%. we of of Lubes lapping guidance late this a Soon Las an second we same-store important strong in Based after implemented last the to end due marking significant our acquisition QX, completed Vegas, an system in modest year. for

Let's DIY next encouraged America's in turn North by volume better the EBITDA in by were retail to slide. the channel. improvement branded We driven the sequential Core

items our due in volume reminder, category. a As heightened timing-related QX weak the DIY and was to dynamics competitive particularly both

new items moved positioning. the have timing improved with promotional We and competitive we're addressing dynamics past

motor also the price benefited branded We've points volume a instance, we EBITDA with cost increase in combined In on our The to XX% compared improved optimize substantial the QX. a impact channel effectiveness strengthened communications our still DIY sequential of in oil from focus versus year-over-year helped these to other on of brand drive in improvement especially short-term Core value Valvoline product end worked which to lower America's of from of though volume we material promotional offerings. consumer to also For the increase retailers with the raw line. led retail promoted down North actions our basis. conventional the key QX,

competitors. sets bilingual to instance, that us our debuted new late on our broadcast digital in ad quality and For April apart product from commitment a highlights unique campaign media that

sales In cost installer of announced expected program most X% with sales concentrated to over key America's Overall Quick of savings and of shift volume proceedings. lower the including timing in the account was a the from stabilize distributors, volume that decline of revenue-recognition to last new help to the to addition, declined along attributed in the time. year-over-year with channel. reorganization North Lubes of and product More of two-thirds Canadian accounting quarter than standard results is adoption that decrease impact Core restructuring Great we

are slide look our East driving and implemented prior next to we Volume solid International X% channel at in the that to a Europe periods turn the growth. this results. development The actions grew Africa Let's Middle in region.

other in volume these regions Soft gains. offset

plant in we year in We second calendar distributors Asia-Pacific. the small In to new Serbia. lubricants expect half agreement regional by signed Latin stronger and bolstered definitive improve volume America across in QX, of a events in promotional acquire a to key markets in the brand a a

chain million our exchange share EMEA the Eastern investment $XX to in to to declined continue segment supply due foreign our and expect enhance gains the back we region growth European in EBITDA respectively We year. adding continued expect volume of in in half this our access Sales in to this market impacts. the European and the to million $X

Now let me Mary to over our financial review to results. pass it

Mary Meixelsperger

Sam. Thanks

basis QX and headwind of this X%. from Pricing of which X% increased drivers favorable standard, accounted items the also with in for between increase $X of a revenue reclassified increases. cost $XX gross SG&A. are results we million cost sales mix million primarily increased of exchange offset fiscal primary adopted roughly on recognition Reported and slide margin. XXX recognition Beginning X. The and sales by impacts summarized revenue-recognition the foreign organic by of the adjusted sales, adoption new Our a decline were sales for revenue of points certain X% XXXX, sales or

was recognition affecting the QX declined the SG&A year. company's impact of benefits net stores recognition recognition unfavorable primarily profit year-over-year offset was effect to The year-to-date FX the Adjusted million of was by gain and X% and million lower charges flat sales $X America. on of unfavorable year-over-year. restructuring revenue and revenue Core unfavorable. income last revenue EBITDA Excluding with of impact in The North impacts fiscal $X mix in overall SG&A and

to slide items. Let's XX discuss corporate move to

XX.X%. rate Kentucky items quarter finalization Our reform. reported rate Adjusted tax XX.X% was for the tax benefiting was key of effective effective the our tax from for

capital expect $XXX were to For million, year, XX% the operating Year-to-date XX%. expenditures free to be $XX adjusted rate leading our continue Year-to-date was million. flow activities cash from we to cash full amended extended to $X.X our our increasing flow through debt $XX borrowing flat facilities our lowering modestly costs. and was XXXX last quarter liquidity credit billion. at of million. Net and to We

turn the to next Let's slide.

our near Our Texas and a in largest third-party in U.S. related a Park, terminal chemical experienced is that petrochemical the releases. second fire Deer recently and and plant is fuel

was damaged, of March It following down shut not reopened but restarted was fire. beginning XX start the facility operations. has Our and the

the through shift managing acting of job excellent other our an quickly to did blending chain to shutdown, facilities. supply by led teams Our production

to little impact to no customers. expect We

We of weeks. in are in QX about in related process to $X which QX. was reported cost of the total related cost million five the recorded determining results the shutdown impacting balance with lasted shutdown, the

non-recurring earnings. We are treating excluding them costs these and adjusted a key as from item

to business loss, majority the against insurance costs. of have and We interruption expect recover these the

let's Last for next quarter turn saving drive to a we announced reduce on program and program. the slide restructuring our overall update efficiencies cost Now operating an costs. designed and our to restructuring

North the We simplification process our the Core organizational also business. program and America stabilization to to expect drive of support

of design During organizational the completed the phase we program. QX,

QX. was We recorded charges for to year, full $XX million of in pre-tax restructuring $XX million in which related expect of the record SG&A million $X to

We are next a range modest $XX run this on benefits expense million to the basis rate of annualized on year, by the savings achieve million realized of track $XX fiscal with to year. broad-based operating end in

to reinvested savings the business. We expect these some be of in portion

turn let's the look guidance. to slide Now next at and

our sales are We performance. sales lowering raising on modestly while total growth first expectations, guidance based and volume half same-store

we lag recent anticipate year. of raw impacts in half back cost the posted increases the With costs, material the price fiscal in negative

$XXX are We increases. a EBITDA result to reducing $XXX as adjusted of to million guidance cost million these

guidance reducing million budget flow to our million We EBITDA reflect are capital our expenditure free and to cash our maintaining $XXX updated $XXX to expectations. anticipated

wrap to Sam to over back it up. turn me let Now

Sam Mitchell

are particularly North challenges Mary. recognize We in Thanks America. there Core

a and place we We programs stabilize as to cost good these business. savings We including operational and of starting level, generate plan performance savings address the progress to perform in high units. Quick not importance adding at significant here could be to growth Lubes year. restructuring in should that made have a that our and driving QX, next progress improvements The overstated. continues very work on

it York. be in we significance I New Q&A. over and talking Investor about the to for And more at vision May XX In fact, our company of Day our Sean on will that, this with hand long-term upcoming the for

Sean Cornett

Sam. Thanks

one Q&A, Before limit reminder, can for questions Carol, if the your we to please we could line. be to would get so open appreciated. you That line that one the everyone. follow-up, a open quick and just that

Operator

you. Thank

this from comes first Please ahead. Our Morgan morning question from Gutman Stanley. Simeon go

Sam Mitchell

Simeon. morning, Good

Operator

Sorry, on. moving

comes Our Dmitry Research. next from Buckingham Silverstein question from

Dmitry Silverstein

the Good more in morning. talked what taking bit detail, call. just about some for year. growth headwind? of the do Or comps? second a provide slowdown you difficult half it it Lubes Thank outlook expect the you in more is question, the you of my Quick other why little is? the Is Quick you Can

Sam Mitchell

last the new second year second No. the then We continued into half up in We're where had in the strong our execution side into expecting improvements taking particularly to be against benefited marketing the year. continue half of comps driving second store, ticket some half the that we're in customer were seeing as the continued retention that driving momentum and the we stores year, our adjustments of on But too. very pricing momentum and programs within strong in really solid trial us. good ticket we're the

of quarter just more this between was quarter out One in ticket we this ticket both improvements were -- past balance and pointing good was pricing. traffic that highlights too just than that a

saw revenue. change to better some a change progress also In words, improved our other penetration of non-oil non-oil services. our We on

Dmitry Silverstein

Okay. That's helpful.

against So -- getting it's good difficult just basically, comps. momentum going more

that Or guess did distributors in to On growth? to a how did of the that, still to of trying they follow-up before, about little around performance being wasn't distributor dynamics has you done? I the go distributor but understand you then emerging kind Is just that of in talked fell a always your And the to off it change side -- the delivering below been expectations, it because process the market. as International some reason? bit Is table some market bothering the emerging for maybe you changes business, done? needing So the and there just the were markets?

Sam Mitchell

we Sure. distributor went Actually that's licensee. it about the Brazilian to we change and year business from made that ago significant a one a and a our in transferred was where

No had our risk and our impact significant other impact of It in in reduced a So year in QX. we throughout words, exposure into Brazil negative QX. good a part volume significantly. last on then

network. Southeast process words still we in distributor progress in too. strengthen other for too. years China, market a developing recent But in focus of our good really work still some of emerging adding regarding recent markets, in So in network work-in-progress. made markets distributors. like Really is absolutely in to also we're been distributor us Asia in our the broader our progress In years good base That's existing And markets we've Mexico.

effects expecting material part distributor-driven there. What is So do some markets, results get And QX no did in into And prices. see year. change the to at do going of there tend particularly our in that purchases. where were price timing in significant quarter, changes half on raw we when was if like hold they looking back lower of we potentially and you first the the costs, feel we decreases in the distributors are

of that seeing and base move up course However, reversed now has with oils crude. we're

And emerging from our so ordering those we markets. pattern a are distributors more expecting normalized in

of work And business the set programs in beginning good think too. because the nature for continuing a that a second building more we're the building in in International we year good value-driving are -- with still make you network get business. our lumpiness, But this our bit of little the up of the of half. on capabilities, on distributor-driven the distribution progress business do International So -- to to solid we brand-building

going I was some see half. half The real progress the good we're first disappointing. certainly But think in to second

Dmitry Silverstein

very you much. Thank Okay.

Sam Mitchell

You bet.

Operator

question go English next Sachs. comes from Please Our Jason from Goldman ahead.

Cody Ross

X% straight was morning for Cody actually down for Thank everyone. is you volume taking America quarter. nearly Core Ross this second for questions. organic Good North morning. our the This Jason on

transitory indeed are the was not early the issue? in distributors this to for last we February? time timing the you quarter. foresee occurred of onetime to this were as onetime are the that a revenue past? Why such cited has spoke recognition this why shortfall And You And to who in confident you issues this blame able

Sam Mitchell

review of first Yes. the QX of dynamics in the America. DIY factor The volume in North -- some that Core all was some some onetime. the to on and business major significant was of softness

was QX issues in weaker DIY in one we're to that the Just coming biggest performance QX in first with reiterate into of quarter. the dealing

to communicated that QX. we we result inventory continue as had level DIY the a to we adjusting And in merchandising retail challenging our improvement excess the The so, February nice were we expected inventory, But as dynamics be QX. plan. really some that with impacted those QX. promotion at business saw in some And as

the that recognition North by QX Oil also. lastly, installer that a the business Core of shift channel side And impact the business. is do over larger in going too. Change includes different And part reorganization revenue America and were one with in of Now business. number to factors of have business was does of volume of that's The to it. that softness the national there our some And Canadian decline the in QX was obviously of accounts our with distributor in effects timing Great then part then our driven

the a as combination So the I factors of we was get year. into mean of it half back

some winning progress the are business. side We're teams business. in in stabilization of seeing We installer new some seeing the our

and really heavy where business Core for America. headed installer about good North feel duty I is So the

slightly pressure But are as we've our where changes dynamics where that than DIY in shifted plan merchandising said, still more are we We important good some I private QX. label saw with was some competitive years. made benefit in from challenged the in previous segment the there

some continue in I'm be DIY DIY while feeling the we'll half taking challenged on So results the about better to second we're that the during actions in impact and the market, year. of our market

Cody Ross

for other Okay, And great. one question. color. Thank you the

improvement Previously recognition this this quarter. to a you the per You segment America in guys had $X.XX gross Core nice in to change. profitability North including revenue $X.XX guided be profit gallon

for now, Thank us you can outlook provide updated higher your you. Given outlook? base your oil

Sam Mitchell

to million. full as roughly oil -- shared adjusted EBITDA you, The we base that into. moving we're have And our has that for Yes. our $XX the downwards with guidance Mary higher adjusted environment with of year do

a meaningful significant increases So in couple last there's oil base been the quarter.

So oil particularly while modest actually in business. had of to feel some a base QX and lag a QX we lower in DIY the benefit to we're into going in cost effect QX, bit begin of

the is us oil so do the a And rising will dealing market we in but we're factor negative base lag that be that with for second effect something expect half.

dynamics, we price have we pricing price Regarding increases. -- announcing are announced

price increases. announced Our competitors have also

lag job better So need cautious now much be really And do expect because and cost we to making at do do to business dynamics. that points to doing we are But coming the pricing a bit we that are expect our of longer the price healthy. with recover and they we a us. current there DIY of the impact sure promoted where market keep right -- that little increases are especially

Mary Meixelsperger

slippage gave. our expectation with is some very some Cody But expect overall do the at then full bottom for in in range QX QX. we to of improvement be the So, year we the

to was we low gallon I North like Core said -- the a which be had America. So end provided, to at we $X.XX the for overall, range $X.XX of expect but

Cody Ross

one. sneak very can more, I quick Got a just you. And in if one

X% felt down X%. And Is you. pass Thank quarter You one. told to it us case? that last still you with I market will that was that the the

Sam Mitchell

Yeah.

America DIY speaking Specifically bit market in and improvement recent there. of North about results I little was Core show a the

to the seeing of And back trends -- at the so expecting when of year, we're down in current X%. we what X.X% we're look X.X% half to decreases in

in like of But X% the down bit single-digit there. accurate the to the range. market's probably a have side, feel don't data we low DIFM feel there's that DIFM softness. X% On we real We probably

Operator

Harrison Mike from Global ahead. Our Seaport next question comes Securities. go Please from

Mike Harrison

morning. good Hi,

Sam Mitchell

Good morning, Mike.

Mike Harrison

business, it's what and very growth. to looks XXXX to of we're Sam Lubes leverage maybe Quick margin you The half margin us track like terms pressure strong look that hundred happen seeing in the seeing? below better But sense first strong you obviously, at sales first operating give the seen we've performance, what going And XXXX. back the basis needs points order it at couple that half a Can sales just XXXX, in in why we're in a of if there? to looking same-store better with growth a realize

Sam Mitchell

Sure.

impact presentation we the year. the in in in As pointed out there was relative -- I'm or to QX sorry part of an earlier QX last

close so And saw a SG&A And to on ramped-up was the overall only then growth the stores the newer revenue growth in quarter. is online difference that EBITDA very we and the newer margin the actually with stores. profit coming lower

it the are are the then little QX negative high the and of very bit and contribution, they bit see we've on at where perform to where Over as excellent business ground or stores -- So good maybe to little year our time breakeven as level. the see we usually maybe perform. half but the more of out more mature close and speak of this margins how leverage in by effect. in have solid to perform But to those they going this regard a past to close to to a But just to with obviously, pretty above. come time shared continue QX a what they're new a And stores in profit does should one stores. slightly get we,

up stores, the negative ramped effect a you there. really bit do a new get So of as we've

make also advertising ramp-up the tend to acquisitions, we we As spend.

we new real And the spend Our has factor levels been the competitors spend a for driving that marketing same do. at customer and those accounts. key trial don't driving

inflation. keep get that. And a And just of -- too. the team's and between excellent Go there bit ahead. we around differences same with on has labor. job growth driving labor margin quite key the EBITDA our basis. the time been the with with our to asked hiring the been we've in really turnover performance pricing able down an cost are done our success on actions, pressure business those up the there sales actually But in a So plans at We're and

Mary Meixelsperger

other So that Quick was impacted few recognized operating that year comparison the really franchisees. piece And revenue gain sale gain of margin a the impact. a year-over-year to that with stores that sold no we one on was our last Lubes with in other income

So of that operating decline accounted for year-over-year about XXX the the margin as well. in basis points

you do last the about. sale -- talked if an that So year that related component it those decline a was apples-to-apples operating basis to on try big repeat. things that Sam But it to was on won't margin of on gain modest a there

Mike Harrison

in down you detail. All a if can bit. they of provide volumes. sounds little you conventional were breakout And also DIY? versus and It right. like of Could additional then within appreciate Thanks. DIY label the a that I saw maybe you wondering premium bit color private little what

Sam Mitchell

in so growth overall in our definitely was substantial our across improvement and overall share also performance, improvement performance DIY a the in share Well, volume significant dynamics business. so real our

oil-change very segments the in has mileage to been XX.XX impact. pressure like in synthetic, the special is we've high segment, had share comparing where where the difference on greatest points meaningful our adjusting that's and down the it's a conventional and versus had lower price price conventional Our and really the

modestly for and as been on growing of share synthetic over we've us to number solid years the side Valvoline's last we've that. continued focus synthetic On the has been share

our could thing, to Mike dynamics But even So more pressure environment competitive current in vis-à-vis has guess, where conventional label, continues particularly if that one soft. I the I the the on been on just is progress got this grow. segment DIY product we've synthetic -- add that in

So off off the being in the X%. XX% But X.X%, has conventional talked the about been we category range. segment

So that's in segment. growth been really And full-synthetic very in significant declines offset the conventional. significant by

and how share there synthetic impact letting term same is focus the on not there. delicate that the in important is line. this decline it really in It But portfolio on product interesting shows much for So dynamic conventional our long time, at front. growth really synthetic us just and too us balance to driving

be And are and need out. sure price where proved really making that points to really QX is for so they our us, key

Mike Harrison

All right. Thanks very much.

Operator

comes from Chris question Wolfe research. ahead. next from Bottiglieri go Our Please

Chris Bottiglieri

I was appreciation question. of hoping DIY a my as taking for give we you us the versus can think for in greater difference Thanks mix. Hi. profitability DIFM about

a a last drove volume headwind. profit million this drove $XX decline quarter headwind So quarter a gross a But million million X.X $X X.X million headwind.

anything of So of the like of But difference about quarter outsized so loss to profitability. it explain pretty you. that quarter seems Thank relative that like is there last quality volume the this maybe variance? would some

Sam Mitchell

business. Chris, to is Yes. side higher the impact relative is DIY business the difference installer heavy-duty the the the of of gross profits that generated in the

a in the business. impact installer than volume volume DIY side a of loss has losing bigger so the And on

just pressure stays strong. action the strong, business brand the though making our right so our so now it's kind sure that address reinforces taking that of that And DIY stays under business, it of even we're -- importance that to

and So a presence, side, right label feel had like business. heavy-duty on were of long-term private progress progress. the replaced summer. shelf its one got our last were attention brands significant months, business, has which growth side installer single-digit-type to steady became seeing it And evident maintain that with And as growing America, mid-tier the North XX win I We've that weak last about to the And is business ability we're we're and new of optimistic before, as I that to really our mentioned really although that this so some Valvoline. it's comes a is our our replaced The able though DIY what the of actions you we're were margins. really over bit that some shelf quarter, is the about on the mid-tier see to we little earlier, brands taking private-label the on business. low the even Core this been when for good think to some seeing the a in stabilize – installer dynamics review, competitor I'm

into a mid-tier gap brands now gap grown label. has essentially, value relatively larger offering so a versus And small the with versus private the

felt And share this that period. for decline reason so the is past that we over the

And to that got and making to we adjust changes. we've are so

I on The we've was that business. that promoted nice high that, points rebound conventional reduced in and we've segment our mentioned price seen mileage with a first the our

do really steps by a the stores. that value that. brand also it address is just versus our I that that taken is label has as not encouraged effect private marketing. closely the traffic that, with trade lot strength what and help you to to partners. success real And consumer with just that's The like where into offering very promotion, the DIY your gap a of lot too. some to to see end, importance we've the having drive work the advertising And consumer support not has And category consumer accounts much we they the key brand that brands stronger want to it's the being your competitive get from it's value to addition and In do with and trade relationship plan to brand continue I'm too the now. end they a with key Valvoline to on price going understand our but strong And

solid. relationships those And so are

get some this to think stabilization into see we lap months, period loss seen some over we share I QX and QX. And so last the begin there as we'll we've while XX as

cost-restructuring healthy think be that to progress I as the program the gives in while keep for that because so the hope part America really that to importance room we the see last important investments and the fiscal that for But like to strategy. place, to won't stabilization in QX QX, our I'd in ourselves put see DIY. make this So to prepare right is to aspect, for we us we'll much North years emphasize Core the I us XXXX, to That is a come. adjustments of closer volume we make business of

for long-term been our becomes evident Lubes the American growth to success investors. and company consistent obviously and to restructuring program our case continues the So, long that the certainly this has North sure as do business term. very to help the be generator, make to cash that. The that the be us is should us – business that Core generator working profit going a in important Quick we're cost in to more And

units, better again, approaching with investment and focused stabilization business growth drive franchisees pour the Quick both taking units, building to on our on we're and aggressive of So, then operations, Core America we're in Lubes also the but how North working our continuing quick action adding on growth experience plans, changers offers growth that very make Valvoline spot environment oil there its demanding really trusted to the consumer the continuing where we're acquisitions. The continued easy is sweet various else. is than and and anybody and for encouraging hitting that

look about we And weeks for of be so what means more as going And that mentioned coming and forward for plans strategy. a sharing got in Investor the couple to I key we've earlier, our is long-term up the a business. to an Day that of part

Mary Meixelsperger

is QX that, costs. other one thing in raw reductions any I didn't see to add in our we oil there's material which Chris, base would

And of quarter. beginning in first America the costs in the second so business we North we in decline, with a raw our more more Core And month negative favorable environment across QX. did because see QX, margin those did became which have material some

that differential as So for of that make margin QX does up between QX some well. and

that wanted to Just point out.

Chris Bottiglieri

what it big restructuring. bit process cost Like of as onto lower your helpful. think helpful. more to through maybe just you acquisition – the manufacturing be and to Or to how like the that some product price control? solve about competitive? you don’t is one Then be will out are stream I I secular that of or a manufacturing us easily the that are more some really know it going That walk your issues – just little these addresses restructuring these it Is guess adapt able That's will that you – were follow-up is on like issues? of restructuring quick picture

Sam Mitchell

cost broader of all cost our U.S. and the savings really effort affects attacking restructuring it aspects business here is The structure, Yeah. effort in particularly our as

both and efficiency, is Core goods manufacturing America. leveraging formulations. purchasing our corporate the includes it's structure. so, optimizing of North Cost which the cost but working within structure And business, power of It on our side also cost addressing global

company that that very will us disciplined more is a of effective effort structure, our It will a goods to performance. a obviously very it's just operating our cost get and timely and aspects it's margin make cost I it's And, our us necessary. it competitiveness. to so, cuts work believe all And it too. improve across expense will of both And now operating improve And place. better

strengthen all So process we've And is team progress. lot by process of continuing we effort the This efforts the our and customer continue focused our and of I'm and on of change a how our adjustments making really through across these from as independent operating company. businesses. Ashland of encouraged been that delivering the going with and I'm driving really improvements an But IPO how to team through. separation operate a all pleased leadership important an and is with to we're the lot stay value.

-- really like to us giving North healthy sure long-term us it's ability it's Core business and for I said, success, a important make America be the to flexibility and that business continues come. our years to for particularly So the to the

Chris Bottiglieri

Thank Great. thorough responses. for both you

Operator

Tong Our Merrill Please Olivia next of Bank comes from America ahead. Lynch. question from go

Olivia Tong

the both America, QX, I in dynamics Thank about a moving North a lot QX pieces guess in couple we've of them. Good of of versus talked lots you. morning. and Core

break could So, in a little it terms just I guess the shares. just market down if of you bit

couple in are market any your direction move stand? the share curtailing? are Thank stand a price does And prices commodity in the detail, view ability your of some If you the to share terms the that opposite environment of commodities does And you. starting in where pressures other now? seeing signs of, label of you the now? sort given to Where to, your competitors now of private have

Sam Mitchell

on Olivia, the segment? focused primarily DIY is your question

Olivia Tong

Right.

Sam Mitchell

right as And XXX the the result, brands place. of losing grown their overall mentioned Yeah, category. that, I share roughly to and private basis mid-tier XXX, as the DIY distribution XX% XX% before around label so label has private Okay. a to from Good. points XX% major dynamic has taking been the

so, period you've short had a And time. significant in very growth relatively share of

of Super growth, share offering has premium Pennzoil the has the in value mid-tier premium Valvoline. expense impact the So, brands that brands brands of had lost label Castrol while and the especially most that like the Mobil year gap came on last price an and versus private of the at distribution. That

two what competitor. needed that cost XXXX our became had to. that at private while and adjusted, in value had went to time years pushing and that increases we And so, the the same dynamic, that with respond That is what label of through chief prices up and XXXX, to of gap, be grown the we more

so, done mileage the And our pricing, second seen share quarter, we've as particularly conventional high promotional promotional we've better the on performance segment. as in that, changed we've much plan,

to behind the So plan, And for too. and some continue modest brand, thing share consumer move we've as that then that forward marketing merchandising the had Valvoline us is we -- to but it's that's losses. strengthen again goes key share for is the

follow-up with quite while so the new DIY the action still we -- taking yeah, question it. that? settled segment dynamics, And to any But, address to not are the so is

Olivia Tong

there year your No. going That into I expectation to could offsetting was Obviously guess great. Quick that. the comps continues if what's for the Lubes, switch driver on And the above I there. really strong

understand lot just a And competitive saturated? Would actually this to terms response? back guys. Jiffy trying get come so, you I to of in and that does with tired to eventually assume have they're of sick share when losing guess hasn't

would continue seeing view well suggest ahead grow the How the of you and there is change you market to that are any to So that that? anything do market? to your ability

Sam Mitchell

in And what's attracting market the The and lubes from also now are is from exciting we're taking other competitive share. quick we on front. taking share from that we're perspective DIFM obviously -- customers the my channels Yes. lube quick growing that,

so consumers the gets And kind to and Valvoline's able deliver. and of what back to looking are for what it dynamic consumer

Jiffy strategy after to more add market. the to a biggest to they're Lube competitor And franchise with little in traffic. they've and taking had XXX% Their is quick a Our unit response is ticket challenges the space services lubes to tact Shell's, the of bit different that additional group. in some go try

strategy business. have to they So different how take for their want they a

on to focus experience. that customer deliver continuing Our really quick is trusted and easy

services. add to looking better those looking not services we're future. We're execute so even the to And against into

on market got us into strong And attract then better continuing to dynamics terms visit to consumer continuing the we're learn the services that we've behind store DIFM category. service tailwinds that our and customer more technology to times and in terms leverage the effective a the of provide in includes to like to speed feel they some with in they to wait the reducing and how our ways learn of of to consumer communicating stores. we experience we're So clearly need customers when

developing of the that database investments the that our three on drive ago to continuing build. are and leveraging operational those focus tools, process we and really we’ve team, the that improvements, marketing and to them paying-off drive And our commitments -- giving technology really strengthening all long to improvements. point made it's So of sale, improvements

we get in to learn continue we that we And growth fully car growth will and count. and better, ticket continue so, in to expect as drive

the of So your in terms in that's near saturation question in we're of saturation us. opportunity of nowhere front levels any

Olivia Tong

Thank you, Sam.

Operator

from Our next from question Laurence go ahead. Please Alexander comes Jefferies.

Your line is open.

Nick Cecero

Cecero on is Nick This for Laurence.

side International point. EMEA. up the guess on So, on just I were volumes weak Europe's of based And X% company things sort been of commentary in general a

differently? you're wondering seeing in there a what doing could to a provide the to you're was bit I of bit if color So region what and you

Sam Mitchell

that focus Cummins on too business. with of factor the Europe, improving the In on good that's improve front had basic distribution a been help for place performance. on our has strong our installers focus definitely too and network that strengthening in and heavy-duty some coordination been growing have our European marketing The we’ve a we also plans their

over us the to chain And our different on strengthening Northern across to service Europe, is fronts we've us going that years in times is Europe. good but the also to few that in our So product not this help our customers in our And levels. getting service going Eastern production ship last things going The has solid Dordrecht efforts focused Europe plant our just been and lead very Europe. is Serbia our strengthening in between and facility timely been in and one improving supply I the our fashion. between business of order mentioned to balancing in and also with us by help reducing levels acquisition acquisition investment help with

good very feel about I the So is making. team progress that

Nick Cecero

on about running for we capital Great. to half guess improvement back guide. the question full XXXX? guess free should in Or the working what how about did flow And then should think year? there? similar the the I of And maybe think overall I year we just cash a it to it

Mary Meixelsperger

Yes.

On the forecasting we're working the side benefit for year actually the half capital in working from back a of back capital the modest half.

year. it So in terms we saw last we were should better what be than where of

Nick Cecero

very much. you Thank Great.

Operator

& Hardt. comes question next from from Crespi Our Chris Shaw Monness

Chris Shaw

is improved doing? remember these much one in Hey about sometimes an And Just good someone mostly competitive in -- and the would improvement? take the promotions is XQ. lead quarter response the was Or morning there improvement share to from back on gains you share talked But on private come to North I are or discounting. past back everyone. one it marketing another lot some over for label? recent with a business. maybe obviously competitors Core in quarter Is you from it sustainable next else, more potential stabilizing the that something the How America,

Sam Mitchell

Yes.

market, relates market happening it to stabilized. overall new I label. Valvoline of private from some the -- dynamics as to It's it's say yet in the level DIY the competition, the adjusting pressure competitors in the and and are would Regarding of not increased that what's

So their that own regard what they with merchandising includes do might plan.

the So keep gaps. dynamics label on a we addition private to eye have to close in those

like to And We're that. business. adjustments. that competitive this keep going us make going to to And in from continue so -- stabilization could see respond we we're activity any we're would to to

our comments in messaging that sure that are investing right and plan is is earlier, merchandising So strong. particularly in making message my consumer our is, getting making the our we the and addition as earlier in to said on to comments I front consumers sure the

a the QX. to QX. So adjustments and balance we in saw And year QX progress in to learn the and those of look we'll good make

but we've that yet, business are stabilized focused the I and actions. declaring not just that we're is much am communicating what we on it I very appropriate that So taking think

a as got solid way insights our share we to Core business learn to importance plan. to and too. And stays to restructuring plan North it that continue our as of the we'll do America we've execute that So the back get -- make this be our efficient does we sure as

growth really that steps on North side and the on is in on installer American we growth continue Lubes take both the the and our appropriate driving that DIY stay focus sure business and Our business, investing to Core the make front. for Quick we healthy us. so see to International But want

Chris Shaw

once stabilization I historically think to going side? net of, they oil any sort the for of market of of on that sort where do margins And to -- of were guess, achieves return while, a base sort you kind apples-to-apples ex

Sam Mitchell

that. answer the That's have question and don't to good Yes. yet a we

half have in back and they've over pressure years for now, the the us the been So the while really -- unit margins of feeling XXXX XXXX. on we're with right that solid dynamics current into

through got make be about to moving we now stand we we sure how forward. adjust is points. we price where pass have right our got and that's So the pricing to then we've right that And merchandising smart plan that

to that So that's Valvoline with thing share, label. solid, bit light though but -- in very with The through that a the dynamics we is sure we're and It's to significant. the the nothing now. that lost share emphasize that's I begun further just of going be of doesn't it would go brand to stabilize market that that private make been have we've continues just brand little right business of new that nature the we've

Mary Meixelsperger

in this as that it strategic positioning the of faster the the synthetic help benefits pricing will that it's agree We'll to business we quarters parts rate the margin guidance Sam well. be and out of have of over margins that where the But longer-term. give see those of growing to doing we better continue we're -- with a plays with the how few terms higher to carries we the next need before business unit in with here expect I some conventional that really can you

Chris Shaw

Great. insights. the Appreciate

Operator

Our Morgan from next question Please Simeon ahead. comes go Stanley. from Gutman

Simeon Gutman

hear you Hey, me thanks. Can now?

Mary Meixelsperger

hear you. Yes. Simeon, we can

Simeon Gutman

great. Okay,

how the pivot other some reinvesting -- customers? you of it share on you are. North And concentrated follow-up again. I mentioned the is here? it's been under-investment? do-it-for-me, also the the the DIFM Or back been some or has just Sam DIY was have decline market of Whether then forget Has a question missed market it's Or largest with or in America consistent broad-based? some Just business. into loss

Sam Mitchell

separating if the restate I first about questions sounds could your Is question, of right? overall your Simeon the asking it you're health like DIFM market. that

Simeon Gutman

of some two Yes. is or Also DIFM, the pain? particular customers customer going seen size in been decline there's in been that in consistent whether been among where or one -- has of has some it it DIY or has you've it

Sam Mitchell

but market, DIFM in relationships but distribution also national the we're smaller direct selling with in seen our too. there's through accounts, what accounts where distributors, large through we've we direct direct customers our have In Okay. both of markets is Valvoline with some not --

the lubricant on market We softness front. have some seen

the think drain extended I just impact seeing is of So what we're intervals.

drain interval do And with little synthetic that. get mix so bit as improves, a you longer

general, we've the best in some a operators. seen there. difference There been So has softness between

of accounts focus better strong some accounts some a than national operators with regional our the the on our doing -- market. that of really accounts are So are customer broader

is probably front. the we overall in DIFM to X% on that operational the on down DIFM results lubricant I still demand would the key success is see X% in say, what side. excellence the to based on So range But

Mary Meixelsperger

over that on gallons. bankruptcy on specific accounting little volume -- the basis their by is of took that to impacts, large And that expect account one terms on, year-over-year proceedings we down write-off their be Sam debt million in a a the went into volume bad we

were of the that the us big business business in and as over from GCOC basis. certainly a on the a the volume impact they impact moved So That's for we to shift Quick volume significant DIFM was a comp acquired Lubes. also

Sam Mitchell

business our of front, we've seen do installer we more see particularly Yes. large what business in To the for stable Mary's point been as you the with us regional on the -- that nice progress, accounts. when it's then ongoing some some

And just I teams. for so, platform growth. we've better driving the And across feel about our right like and it's got execution sales marketing

Simeon Gutman

Great. Thanks.

Operator

go Our comes next Benjamin question from SunTrust. from ahead. Stephanie Please

Stephanie Benjamin

just set not wanted Valvoline just integration, from further but capacity hear funding model. through and enough of standpoint, little to a made Hi, Lubes year to Kind side good additions. some M&A wanted over and on last Quick bit morning. grow some further obviously significant pretty just much store M&A, moves more having employees about environment, your just that so and a customer-focused on that store new meaning the I managers the the talk really

kind about going And M&A we approach should the how what think So the overall like? Thanks. of forward? environment just looks

Sam Mitchell

to things if systems, we'll manager, we stores from service first M&A one because ready environment needs strong the it's level acquired still pay From limiting their talent issue those Talent integrating certainly isn't talent factor. Stephanie talent us. the existing an at the it to attention for where important area as evaluate means a capital's positive is store is be level. it the to other remains standpoint, word, When into in at a very the moving level have Yes. store of acquisition, market for we that that. really we capacity too. be, make talent stores. And a acquisition need center for manager managers to In not

make these really sure ready have the so are make our service that's move talent be that expand we talent making to we that center investment acquisitions And And managers around the to top integrate news and to within continue key continue people go these is to talent have we as of to and effectively. is here ready developing system. stores the acquisitions that And that in we our for capacity this continue because acquisitions. development the good so to in we to

see getting our we're system, skills we're for I it's in progress that see opportunities. their one down why then too too they -- hourly to of think making them staff turnover among is driving the And responsibilities. the investing course, growth the the career ready they and that some them of real reasons new develop in in leadership

Stephanie Benjamin

Thanks so the for it. color. Got much

Sam Mitchell

bet. You

Operator

for attending now disconnect. would like This today. may today's thank everyone We to and event concludes you

Sam Mitchell

Thank you.

Valvoline (VVV) 3 May 192019 Q2 Earnings call transcript