VVV - Earnings call transcript Q3 2020

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Valvoline's Fiscal Third Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Mr. Sean Cornett, Head of Investor Relations, please go ahead.

Sean Cornett

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

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

review we As to Slide the quarter. let's our financial for X, results turn

related quarter key Year-to-date of were million operating activities the The reported million, expenses expense, $XXX was fiscal separation million, of OPEB and income EPS pension $X.XX. offset million. income non-service million $X of million. million of of key after by delivered $XX expenses QX the after of expense legacy third items tax. quarter, items flow net and In followed cash interruption from related OPEB of after partially $X and Valvoline $XX income in business of and For pension operating XXXX, $X $X of including and by income of million restructuring totaled $X tax million fiscal $X tax

of and items, was flow $XXX $XXX results of income cash the $XX current free of adjusted Year-to-date key Excluding million. adjusted adjusted quarter million for EBITDA included operating EPS million, $X.XX.

move over me discuss detail. Slide operations we let more the and to as turn call X, Now, to our to in Sam results

Sam Mitchell

morning, is and Sean. healthy you My are safe doing and and time. Thanks, that hope well in Good staying challenging families this your everyone.

decline restrictions COVID-XX by driven shelter-in-place in by to abrupt the our of caused impacted limit was the designed crisis business virus. the spread As unfolded, miles the

As in for ease, to began you well. perform back and updates business our May bounce as June continues those we reported the to restrictions and sequential that quickly saw

and people took the and our our flexibility. developments, to financial decisive we the action ensure safety key other As health we to of stakeholders monitored increase

sales. the America, contribution In our North same-store saw are Quick Within Quick the North Core we that recovery results in saw DIY Lubes, rapid recovery. expectations came in of The quite Our the quarter considering segments. America the increasing line and the for to of strong on scale from new Core led impact the ahead category customers was by April. our led we and top Lubes an

America's profitability. combined and lad of Core DIY, do-it-for-me, While and the our retail expenses benefited volume cost impact performance lower North

$XX region. was over but XX% by free year. during include QX sequential the face recovery cash adjusted last the year-over-year. segment increase a from also generating In significant there of XX% fact, quarter, volume varied flow, in international, a improvement million results In grew also EBITDA in

prior and that demonstrates the business healthy performance underlying preventive the fundamental and COVID-XX resiliency remains Our QX to maintenance showed in model. our strength of our

a Lubes the slide. Quick recovery on Let's take look in next the closer at

is Lubes. attracting We've Quick business. sales component true acquisition That's fundamental successful of of new years our the a retaining since approach customer and been entered XX New for in at growth. we especially customers been same-store

in during our to in marketing was in mix June, impacted we due increase that the efforts customers in we stores, strength service the that our and to by our during of overall saw our QX of the social May. April an model a saw itself distancing. we last Then in increased acquisition we a reduced despite lent significant new customers growth company-owned sales is performance member second new of same-store and this X.X% part half same-store While customers fact customer transactions the in the new an saw sales total were in quarter. customers In the COVID-XX, March, of part quarter. versus of as recovery in a year, of new stay-in-your-car This increase key beginning percentage

this in-store for kept prepared Our customer keep and created competitors seen. Combined in some healthy We we working in competitive keep acquisition able unlike to opportunities. DIFM execution, recovery were the drive customers. stores open, new excellent the our franchisees their to growth new this our and we've advantages helped teams our space, which with to worked actively hard

I'll to significant comments focused satisfaction new meaningful customers, The the both also We slide. higher is source existing enhancements of cover made driving are our survey favorable new to on our and and some experience results. these scores in in-store next also that as health customers

performed space. based experience. estimate accelerated relatively a focused a our reminder, the has Lubes service Quick large convenience on Oil digital This low in the DIFM oil QX. market Most We're new creates oriented noticeably time. further share category, targeted a our do-it-for-me yet momentum our for customers Quick new in maintaining the addressable of roughly but year and have position $XXX broader in-store safety for outside in Lubes share and share. a campaign model. U.S. Change changes are customers, within Valvoline market. million come Instant there for July, As typical aspects solid that we that we opportunity this a In representing is new highlights grow haven't This the the customers. Valvoline, us who from tried ad to in winning convenience of category campaign some This safety at launched a

fast. next and Let's sales slide. turn Turnaround to during was QX the remarkably same-store

growth back June and fact, sales our same-store pre-COVID-XX those stores. back In to was to was company-owned system-wide levels in levels nearly

Those virus of had Transactions in not located sales concentration are stores driver greater that hit early were recovering, but quickly. stores changes also in the been a on. have miles variations. regions hardest reflecting as franchise same-store by We the of driven

throughout strong period. positive at COVID-XX been Importantly, a the average recent contributor Ticket level consistent with ticker a has has history. recent remained pre-COVID-XX

not seen, presence. the have our With the we've of recovery expansion slowed that retail we

third XX of accounting XX built excuse additions or across increase open company of to an stores the fiscal expect the as X% growth. QX. with help would than – more this nearly me, stores unit company a system our of of in to We year, built plan XX nearly new for These part newly on stores growth newly drive XX stores add about

stores to bounced our XXXX sale Point North to a of by of shows step XX XXX quickly stores went which prior-year still our of newly-built XX% back modest The the stores of company-owned Slide decline June. that year-over-year in goal recovery channel. quarter, sales lead for below April the QX moves was annually. in the retail DIY from in suggest opening the though levels. us improvement data year per in roughly growth category nearly volume America oil target and rapid supports fiscal in in volume motor are from Our X pipeline closer current a Core

Our solidly in volume of sales retail the the some driving quarter. QX with promotional at end performed timing stronger

rapid, unit of more versus was significant U.S. unprecedented year. the in While new year-over-year. higher volume retail three we comparison, of than as and most miles data, end the significant April driven installer as level of improve channel by success margins well the Core factors: generation, Per the driven have improved a quarter. declined in trending an lagged saw with inventory in demand since declines overall mid-teens down channel the drive Trends to miles Despite improved July America installer impacts Overall, XX% cash May mostly America by Margin Core expect improvement a June year-over-year the North higher-margin in substantially as the strong favorable on showing normal April mix DIFM contributor. with was driven single in first, recoveries. gasoline levels anticipated, destocking last reversed our recovery winning North perspective, volume substantially based digits. expenses. And declined the the continued was we and was by accounts, main the volume channel helped pace I in driven we lower XX% profitability high early in DIY on decline. the

we expect forward; due operating channel raw benefits to in installer to price-cost cost recovers, lower a we and savings As normalized to expense more costs continued a expect provide meaningful volume QX; going initiative positive lag broad-based mix reductions in continue don't we also saw material third, second, expenses. which our

be for performance remains these lag per The not gross would in price-cost segment forward. stabilizing we and solid, we health as So QX. meaningful, the to impacts progress business $X. we With lapping gallon make and should to anticipated in begin expect moving be mix benefits profit continued of underlying to near expect QX

next volume as Let’s April. slide. June Trend QX turn during progress in with on performance in improved continued to International, was from much the of

quarter, was strong sequential regions. the the saw growth by China volume recovery several While throughout in driven

And reopened continues March those few country. improved to be in of and as plants two. as to Latin India across the some Our Many countries shut larger over America the restrictions by well part began began of to its ease the timing in It late measures There in volume lockdown recovery reopen, across expect down end will offset Asia and to up closely quarter to see their next vary seen of and severity Europe, geographies. had a We areas that primarily and during the in region way. strict steady might cities while to or disparity the likely India come quarter. are limitations we with are as opportunities more across America so performance. as are joint generally recovery, in dynamics well strict needs Latin venture country Margins as remain that from May we evolve Europe restrictions. anticipated and/or leading fully impacted the in locations of not lower Overall to our by counterweight. the reduced a exchange can U.S., engaged segment Asia-Pacific decline on capturing along by partially customers volume. material in and as lower lag cost meet and activity by were impacted in absorption internationally acts was did Raw expenses. profitability as rapidly headwinds as from reduced discretionary foreign the they fixed costs often and did JVs, FX contributions though at also

recovery opportunities near-term to While continues remain. long-term build,

continued to in expected We parc car dynamics expect in underlying many developing should for over drive key expansion lubricants market grow. of the regions demand time. growth With markets,

engine will these evolve grow technology our plan capture continues These as well. ongoing need business, make lubricants to in premium to for in share. the and brand to for As channel markets, development building and opportunities investments we market are

oil, the global Core the campaign trademark in is International. the and in first there. recently first motor motor brand the heritage oil, builds The lubricants next oil motor in off review about strengthening formulas being oil is high-mileage oil U.S., motor initiative We North of slide. Let's lines for the campaign product across racing XXXX. synthetic our celebrating on first brand innovation, of stopping original across category, aren't our but business blend The broadly business. improved and and we oil first our Valvoline's Supporting our in our recent America campaign launched our across important marketing

our globally motor build Valvoline and we well is more and with customers ad with And Mary technology, offering a one resonates original me and it over element on messaging value focus to combined strong review time. We've a over heritage innovation as markets, development The target let learned equity product component of robust our the share to turn an As our consumers. with brand-building penetrating than brand to awareness. oil that, critical channel key further strategy International profitably with our is with associated campaign, financials. our that grow to and

Mary Meixelsperger

the by decline volume Sam. was the by results variable QX. Thanks, impact our sales for in sales quarter Slide XX profitability costs mix. raw our expenses in moderated retail as of adjusted and on sequentially higher costs business America in well was and early were volume expenses discretionary overall the of Core declines recovery while shows in The drivers SG&A. favorable across the mix nature rapid structure the and QX. North as in moderated Steeper of margin, gross material lower cost reduced lower improvement and A the primary benefited

on in Quick a Lubes and benefits broad our initiative we of QX. partially North expense recorded to SG&A. lower SG&A Mix the operating adjusted also This offset outlook, was EBITDA than contributor which savings in $XX full and Our by to International. expenses of other. more in in variable in we was both Core offsets Based recovery million year cost margin million $X and QX favorable unallocated and growth drove compensation declines lower and America, recorded

nearly of happened growth pandemic on Without quarter, fiscal We the EBITDA testament in $XX in significant business impact While with our is to crisis, the which we're the a COVID-XX the in were range QX. we million did to health poised pleased all results. million, of rapid of that business. have year, $XX significant recovery a reduced estimate the for which of this the the fundamental

to Slide cash discuss flow. move Let's to XX

essentially mentioned net was over our in financial these June, globally COVID-XX to $X.X March, The total end our we decisive actions of taking our of actions our position billion effect increase began increase net leaving earlier, spread and pandemic the just as to liquidity strengthen flexibility. As at to while debt Sam unchanged. the liquidity

Our balance strong. remains sheet

crisis. at XX% is in liquidity held of access are ample we stand end on equivalents. cash well weather available the our nearly remainder the to Based cash COVID-XX we and credit, of and to the have positioned QX, where We of

$XX million free generated the Importantly, working flow Operating and of flow quarter $XX of positive cash cash free cash is grew year-over-year, increased the a as substantial during capital by QX declines. Most and the crisis. the due management million. in by business flow top despite aggressive result increase operating to line

We our we approach cash ongoing to capture opportunities position in With are that our normalize arise going and expect working might forward. to QX. capital liquidity healthy ready to any performance,

from impacts. to far the our COVID-XX crisis slide outlook. is move over, review The ongoing we near-term next Let's and to expect

For of state-specific America, example, market challenges. are largest in our North there

the North to However, based recent on cases Quick significant has yet adverse July's impact weeks of Lubes or not Core resurgence in had America a performance.

indicate start, stabilizing sales saw top growth to July good below same-store improvement with line be trends results still to July that in In sequential off fact, the a system-wide to preliminary QX level year. above expected is QX with a X.X% prior recovery strong Overall, we in point though June.

visibility improved remains, since uncertainty quarter. Although last has

we with months in providing a So limited are this few fiscal year, guidance. only left

be our providing single-digit sales We store growth will units. in in regional Quick EBITDA expectations to such which be dependent with driven. range guidance roughly to is in the of incremental want additions in restrictions range same-store COVID-XX, and changes that million on expect I significant we Lubes factors or high impacted anticipate the XX We as by could external that system-wide to miles be significantly are $XXX year QX of surrounding adjusted state, the million. $XXX full country-specific emphasize current

I'll pass Sam to back wrap Now things to up.

Sam Mitchell

you, Thank Mary.

performance at we As This made model we recession, impact, clearly recovery short-term see its rapid quarter's last they our locations maintenance one business of business in demand which steady, our is model resiliency, consumers allows the the in on during already followed the our across stores back. cycles. in and advantages to and to non-discretionary. buying is our last of is by well own, perform remain of bounce customers' discussed you a care a similar or quick for can call, a our are to QX. vehicle taking preventive the new Whether one This

cost its Lubes geographic lag Our offsetting channel International multiple highly a With Quick price-cost strong segments impacts structure, from retail diversity routes effective also benefiting in and segments. variable deeper market diversification during business volatile protection performance our Core favorable across America COVID-XX three provided North this to and time. and

to made acted spread. right and impact the weathered our our our model and COVID-XX QX, to resiliency of and Let's last teams. financial significant efforts as to turn the crisis moves We the quickly to and in flexibility began liquidity but recovered quickly, durability We the slide. the now thanks enhance of a

Given the to current to status change miles on of improving, COVID-XX, trends is driven we're which subject solidly and road with recovery. the

a and straight growth, clear of see to With year the we XXth expect in pathway we be adjusted QX, last sales line strong our year's with EBITDA. same-store

forward because learned our North times to QX International. in Core that have is What expect execution America Quick We develop these customer and well is Lubes. stabilize service take another safety the and we trusted to Lubes, Quick and effective approach have of of unprecedented our continue in-store grow because advantage our step be during positioned the grow of we quick, We're of experience easy delivery. aspects to to the opportunities to

highly intend growth to a shifting service-driven a share consolidator being by of more the strategy of a fragmented long-term a of is our our of also aspect This to model. market. business key part accelerate We

For the XXXX. Q&A. hand strong line momentum now, Sean open finishing focused a that, to year position we're for building staying things in highly back for the I'll fiscal to With on and

Sean Cornett

limit that we remind open Thanks, open get time everyone. to before have follow-up -- the like the line Q&A to everyone get a I'd to your to X just line. can please and to Sam. we Krystal, questions to so

Operator

the of Morgan from first Gutman Simeon with [Operator Instructions] line Your question Stanley.

Simeon Gutman

Thanks, everyone. Good morning.

Sam Mitchell

Good morning, Simeon.

Simeon Gutman

Sam. per is gross and profit America North morning, good on question gallon. Hey, My

to particularly to time get If you it where channel. price And a a were well. I or prices And increases, there. normalization you're calling consumers prices down it now the for in DIY us was two as we're gross year little that's think, will I gallon. back, in prices guess, in come in took profit per and why theory, back take seeing moderation rising,

in that up about now of volatility talk you down occurred that go we getting What back prices and can to forward? can going So going expect and just terms dynamic? we're any

Sam Mitchell

Valvoline Right. has you bit through a in Yes. impact. whether yet increases through Historically, lag little heavy-duty. and And cost to passing price have tend different installer, been at DIY, effective always the longer DIY, channels, it's

on posted recall, based the pricing some Quick of the on it is basis. much oil also quarterly base our prices to our volume and on As installer Lubes channel, may contractual side, adjusts a

don't where promotions with in effect negotiated lag retailers, different some a set So the DIY, more and you've you lag. increase, get there. really can got price But see much it's of you

So that. in from see similar the installer raw we a cost of to environment, rising of material do and parts In environment in QX. where last through in bit the years, passing rapidly and falling the that current benefited we taken lag couple costs, business positive and that effect headwinds and DIY And had pricing, a as we through of really going decreases. competitors we price then our to similar actions pass the have from moderates you forward,

the margins last is for $X we note Core to year. level on Core where effect What of the QX America, during we’ll unit down American were North side margins see channel retail and the when you expect that closer our a the consider from the in business. gallon good presentation per very across, that and I North still on total we particularly did the will range So installer QX, the is bring the which to business, both be

so confident stabilizing in made we’ve we’re that some the of some executed. we’ve margins, with nice efforts cost-saving particularly steps that And forward those

Simeon Gutman

would total. a is be, number I XXXX or or pre-COVID Sam, then still And guidance that I XXXX my in follow-up, than the Yes. $X better the think think to

$X so in is becomes still normal? there $X anything Or subject volatility the the a to level – the market? And structural it that is new

Sam Mitchell

a I be structurally initiatives of has still much effectiveness and talking XXXX, that and than $X pricing improvements mean, $Xs It’s the a were with range that possibly overall to business. structurally cost the that for the good to relatively – a range is to place into we’re low going savings our But there’s margin different some of us in and being better where range in to basis on about, right? we’re high do we managing and segments. small in

Simeon Gutman

you. Thank

Sam Mitchell

bet. You

Operator

of from comes with Seaport line question next Securities. the Mike Harrison Your Global

Mike Harrison

Hi, good morning.

Sam Mitchell

morning, Good Mike.

Mike Harrison

a nice challenging Congratulations a quarter on in environment.

Sam Mitchell

that. you, Thank appreciate

Mike Harrison

of think typically oil activity we driven. Sam, tracking miles change is

that bit a You little based year-on-year. mentioned demand, driven down miles gasoline on still

growth Lubes You business. the are high single-digit in to guys guiding Quick

new seeing all gains? May? the demand mentioned Maybe from in bit more now? delta share still pent-up that how customer gains. shaping change from that you think You seeing a Or on – some lower little happened and you’re color oil there’s activity we’re Is that do right that April up demand

Sam Mitchell

the same-store late saw months, for bounce pent-up up. see the early Quick as the prior there But of what Yes. say, April to results the things performance back some at Maybe seeing. delivering we with sales after in look pent-up to and if in we’ve demand I open last it comp, that in couple what early COVID-XX demand you really we’re was our business delivering the they’re on began been May very don’t that in we’re that impact. and consistent Lubes back,

back executing So plan, tells that programs a me are our executing customer this the on that experience strong really very track, working. marketing we’re

hasn’t prior returned a our imply than to that to increasing quite that driving COVID-XX. normal, behavior even was it delivering us at share does for to while faster be So rate is growth

out So business right the a call momentum I’m consumers. Lubes the important to the and the becoming safety with really aspect of that and now, performance there did got Quick is impressed benefit we’ve more that

resonates well hard customer in And that Oil more to the markets so the we working consumers where Valvoline with really introduce Change more safety you base. this compete, our fact Instant benefit stay-in-your-car while and and to we’re

messaging from the getting stores, and we some our customers. advertising the the that with processes we’re some in that safety feedback great of we’re so into And have

and same-store to execute level a have sales just going into fiscal QX I confidence at of share we’re and in a So able to to that driving grow in XXXX. lot performance be high continue

Mary Meixelsperger

tire quick of repair seeing to dealerships would and advantage our I car we’re and our other to some our types easy competition. centers. Mike, trusted of the And that, really showing of coming customers XX% and new It’s service model and safe relative auto shops of almost from competitive add

that’s store-sales reason and seen we’ve in comp and So but up our in I July, where June a divergence year-over-year, being that better been why in we do driven being miles June. think still some than were down

as might So been is pent-up really the but broader said, share. think really there some demand, taking Sam have business I that

Sam Mitchell

to back very the that your Mike, Instant environment. dependent America. the And question Oil much see demand had just Core regarding impact Valvoline businesses. that the Yes. know We We and on has it’s do certainly as too, in Change see it on We driven. an North it International impact miles

of markets, in the when you can other So feel cases the results improves, like that that is at hard level that in that should watch the think key QX I And still obviously, performance hopefully, as the admit there’s our normal is this with current through that the miles we away upside deliver and and closely environment, it’s implies to good take driven in U.S. look hasn’t the everyone of this we impressive. strong the balance that some it high in fact returned But we But to of recovery point we’re that driven environment we miles into predict. it’s environment. something have battling year. to

Mike Harrison

Number the how and whether advertising taken number comment in a buckets. And Lubes, you. I related the comp fourth about that you lot going have had headwind is different another costs. one, quarter? segment ask And also we’re out. of costs then to that? Thank unallocated appears Core associated is additional that comes other in you with incentive How campaign to the Quick North that. the wanted for three back? of had All Then cost also America I much see discretionary question much in SG&A on right. to Thanks corporate to can

Sam Mitchell

But overall are incentive advertising QX. we Yes. to comp the the and then during both American Core QX. the our SG&A. speak The speak – for Lubes Mary be in me and this to we significantly in because business And businesses can QX, Quick advertising spend let business goes also increasing and back cut North versus both

So in year's normalized we see Core with Lubes level, America both business. more consistent a the spend Quick more and to expect last North

I want Mary, So any provide detail? to if you more don't know

Mary Meixelsperger

Core add And saw Yes. America, on in as with down in flow other holds our pullback sales a the back certainly some I did spend well discretionary spending projects travel on The substantial portion largely North we for would other putting quarter. being only the benefit a thing quarter. we expenses, locked field in discretionary of and force discretionary the

think travel that while and a in for Quick the be on that North that continued an period some low expect you'll reinstituted And will get from return both continue the investment to America from I see over the next the to XX business we we likely Lubes advertising, a the the of Sam have benefits time. on of advertising and that said we've strengthening seen months. Core based

we that we business we based the the expense of that corporate that on in because surprised pleasantly accruals we've thresholds unallocated of comp, We incentive saw guidance QX that. today. on $X and if not all And us allowed those not we about segment. provided to incentive – that's still we frankly, – we're thought in with our have some our but we're quarter, second that make the did million to reinstitute would compensation down in relates really it the the reinstate pulled the plans As rebound back in

on based payout. to incentive we plans current we're that those think are our So to outlook, properly accrued relative where

Mike Harrison

much. very Undertood, thanks

Operator

question from America. next line of of with Bank comes the Our Tong Olivia

Olivia Tong

morning, Good morning Mary. good Sam. Thanks,

Mary Meixelsperger

Hi, Olivia.

Olivia Tong

How are you?

Sam Mitchell

Very good.

Olivia Tong

a quite owners business back clearly, bit in right are in small wanted terms the seeing probably M&A fairly Lubes I now coming because, – So to nicely? little seem presumably, you're be those exhausted of to about Quick you are numbers environment. the ask environment by what current

So Thanks. explore for are what doing M&A Lubes to an and opportunity share in further Quick there that? you consolidate is to you via

Sam Mitchell

– and continues we focus. solid last had be Yes. some The our the bringing few regional some in opportunity in for operators And is good to very success that us. years, we've significant

are So in we're much make stores a shared with to Day to is for XX-plus be and solid and working the estate still sense some The over the the good us. solid Cagny with those with market, yet a very and bit to at operators year larger operators. a operators developing to those real Investor them than again, two that that is good focused estate given and reach the going relationships working may with that effort the the large of small that those the of opportunity stronger most that we strength stores, one information last operate little presentation operators there's with different and operators, on real

a of small benefit could team think our this to from our Quick So those where is they development reaching Lubes being out team, more system. part in the of aggressively focus Valvoline operators we

in our stores Valvoline, other come We But year, – – about we've growth. in further expect going been is last success is developing XXX-plus kind the the from that's the to the consolidate a that that and back the this we – feeling ahead our of a of to to to XXXX, to ramp that half stores we have building of that years so over couple important us franchisee And as of to half that the up of into come going the from going gets at some is laid combination for growth growth out XXXX, rates to years. space. grow pressing markets for in be very of

making on Valvoline model we their be and more potentially out that part so work to locations think to we're that with focus continue support relationships. there working opportunities. going to to We well have that our also than to be growth those X,XXX-plus develop we But franchisees acquisitions system, of hard

Olivia Tong

it. And reinstate just talked feeling Got the sort of that. to advertising bit enough Thanks. of a you then on about confident

just I'm national the on none Thank pull quickly the your in either us flex your advertising? or of depending to the you. change can push or to next regional, going ability trying to the But obviously, understand frequency whether to How flexibility couple with spend? So know ADT talk of you market? about happen that environment. can months the you content, what's of

Sam Mitchell

the we regard both to with quickly in days. can Yes, terms and the messaging within of Yes. advertising, move spent XX very typically

to ability quickly enhances media our messaging spend. with to to shift the regard move and So digital

to good reasons the become the to customer nice there's part Quick Obviously, what's Lubes customers continuing with the key Quick on in effectiveness very a there. have our to reaching get is sale and And then ticket. why advertising marketing we grow of So spent. one of that's continue new opportunities of improve balance transactions we business, the that and in and enables growing we and improve that to to Lubes has such flexibility feedback continue us same-store quick the have a growing confidence the base, between really working

So deliver that delivering us been combination for we've time. to now very some quite that allows these comps strong

Olivia Tong

Thank you.

Sam Mitchell

You’re welcome.

Operator

Goldman line Instructions] Your Sachs. from comes English [Operator with next question Jason of the

Jason English

in. me allowing morning folks, thanks for good Hey,

Sam Mitchell

Good morning.

Jason English

the I want Quick off to question of on build Lubes build-out. Olivia's

plans? what of vision build Are that of opportunities COVID-XX the M&A there what just depressed are And your your an own seeing think in response to has perhaps fiscal has accelerated estate in there. changed EBITDA to beyond for context out to new opening question, Olivia's values XXXX changed seeing real How like the by We're real for Quick side? I story? up of over you and a on XX% you in count, wake organically, sounds if accelerate of Lubes store XX-store XXXX. all? at generate also, the estate company How calls it lot

Sam Mitchell

anything, some on signs that are too, in that In post-COVID-XX, and growth years opportunities of more Quick We're transition as environment, a going over Lubes seeing service-driven of has from I acquisition faster the to you tight seeing be if competitive like real more it business. the us accelerate do front, changing couple think the helps real COVID-XX more seeing feel and and estate in Jason, estate the been last And highly mentioned business I we're opportunities. there and operations. in to front. the Yes. our then the

So in stores that's if really developing us. too. internal course, we've very encouraging developing capabilities our for then, And new been

that the that consolidator businesses be the I for think that challenges pleased acquisition this Valvoline progress. that strong front real the But the there. in do particularly on smaller a high-quality So environment given systems position presents, a good to with out is really

So for improve and to target have that today more growth we confidence significant what's I is we retail, for, where that. exceed that competitive than long-term shared is we have about continues back towards advantage just mean, getting to Valvoline that opportunities. have so investors I and XXXX, we'll our before where that important ever That – this I understand to think, mix

to So there. when North that on is the over six Core delivery, of good look growth stabilizing help consistent you'll enhance at in think the time last and drive margins serve pretty over faster say, rates. I we make But continue you see EBITDA America. It this performance progress to can our the important, performance course, quarters,

I go. piece, now, long-term made right still tougher environment are and significant So And Valvoline. opportunities it's of last to internationally but good real But still some progress, like quite the we've feel international trends there's growth. for steps is and course, a

Jason English

and a is opportunities why go on right bills new XXX slam had estate If you the why real the you've accelerator that M&A just new target? higher XXX not opening opportunities target Sam, for really up, still up, before? got a than opening the

Sam Mitchell

year time. and and we've three for and the our the said had capabilities acquisition And build from investments a – over growth team, to But XX, can the we it do stores beyond. it's franchisees way that as than see faster front we now us that where XX just developing in we on new moving make for zero our building a Yes, how And in is to development move we long on about great question. and stores a number the of come continue talking Quick years because we're terms certainly, opportunity team, frequently Lubes and there. just continuing is ago key what and Hopefully, better XXXX be too. XX, is prepare we will just the

with And more And some the of bringing their we franchise our We'll partners in operators smaller front, have so will then to we're the need growth in. get terms of to solidify breakthrough on working better. plans. closely acquisition

and system, to at at the able have had those much to in bringing we we a feel a a part be And stronger smaller the opportunity as that rate. success how of smaller being – because we operators where biggest we're so outreach enough that's Valvoline more after bring fast But we're be deliver to in on key conservative operators operators, working to stores past also than haven't will probably the should the regional now our and the in to we make year. on it focus, be after XXX

Jason English

Okay. Got much. it. luck. you Good Thank very

Sam Mitchell

Thank you.

Operator

of next comes line JPMorgan. Zekauskas from Your Jeff the question with

Jeff Zekauskas

your on at of years and don't do-it-for-me we five Lubes. appreciate I looking Lubes will Quick So presented? of about you've very the ago, is slide, Lubes was than ago? market got much. of market. be do-it-for-me numbers market years very know, If in it you've were What Quick different the slide, five the size that Quick Thanks slide share I relative that XX% overall

Sam Mitchell

Jeff, about the same number.

has the not Lubes Quick grown. really So market

success. from rate, versus changes So in same we've Lubes. at little probably And while market instead, car bit Valvoline growth has a more been really all has dealers Quick conducting a not the seen the seen overall nice growing

we Quick growing taking So of not Valvoline only to Lubes model doing which our share that know the market. the our speaks been and of with opportunity to grow we and relatively competitors, larger into our to flat ability and also has into we're can kind some from grow that

Jeff Zekauskas

you slide, quarts, Valvoline five your average so million something gallons, X.XX Lubes and the is, the change in business XXXX Quick XX don't in gallons maybe an in in maybe used that. Quick oil So Lubes – – know, I like

your don't to something XXs in Lubes or XX% about market the slot? know, market low fair it is, Quick of that share is say So given I

Sam Mitchell

when slide, you – it's the Actually, say XX Yes. you'd changes. million look oil at

and Now here at not oil looking we're changes gallons.

that. we're XX So strong And that potentially the But of if stronger than you basis million a right when Quick estimated synthetics, yes, et we're it's range, our that of at so million oil XXX Lubes. doing growth premiums, the in share you consider fact in to with our Lubes, mix right? look look in Quick it – on dollar cetera, of changes

Mary Meixelsperger

just you that it and our customers broader the Quick our if we're XX% share from forward going look less. the coming from underlies Lubes is and which a addressable we substantial coming outside of to And total that's have at Yes. DIY And now growth of in seeing market, quite bit new where relative of the opportunity business. course, marketplace,

Jeff Zekauskas

have market So years for How share you share Lubes was or what five years the your ago? Quick much three taken? ago

Mary Meixelsperger

It's kind that's a seen relatively been of across high with stable. macro been growth that the significant same-store sales environment single-digit we've

share over environment, the of five three change terms to within last the In macro seen we've gain overall space oil years. substantial the DIFM

Sam Mitchell

the our in system last back we've years. at wide We'd that but Go teens year-over-year on the we've have earlier to over of also to millions when store some changes four the size growth some growing the the go our and overall look system-wide sales high presentations math, and made. but back acquisitions have added in been you the growth certainly, of consider transactions, both and of oil

Mary Meixelsperger

Quick the margin, especially towards we've in able high own directly to capital since Lubes the allocate gains amount we've substantial when that's the And seen high where been of separation our growth, X years. Ashland, from last business

Jeff Zekauskas

amount wondering No, was. it. I Thanks know the that. was of much. gain Got share I what just so

Sam Mitchell

Sure.

Operator

Your the with Benzema next comes of from question Stephanie line SunTrust.

Stephanie Benzema

Good morning. Hi.

Sam Mitchell

Stephanie. morning, Good

Stephanie Benzema

the margins. made to wanted Core improvement I this nice touch North Obviously, year. some America unit on you've

possible, that throughout year. on just kind in that to and cost if that left, on some improvement? go-forward update for a reductions I Obviously, is be what there's year, launched program? touch unique that think If more been is some and quarter, I expect could some seeing room benefits still Thanks. on, mix, little have unit room specific, think Sam, were – – to just basis? quarter some but but last you you this wanted us opportunity some happen the margin what savings kind left to mentioned we for range been made that of how for situations that all about more and each nice those some after some has some were also a then over And last there also still being should that year? that it of you you of what effort the whether

Mary Meixelsperger

expectations about and Well, forward. just going I'll start, Stephanie, talk

about around margins. we got normalization we a today the talked unit first do see to – I Sam expect more a – think talked We it about of bit our question little with in outperforming we've DIFM channel based mix. we've the from the unit our strong in QX DIY you – can And business. business the on in substantially the that strong growth benefit margins tell had

with look volume Core America than recovery in business the in – DIY business if QX DIFM. faster much in versus came our QX DIFM what versus So you from North DIY a at the two-thirds of volumes,

been So driver. And COVID-XX that. to we a more there uncertainty mix is But lot that environment, that has still given going really normalize do of a around the expect forward.

channel that a base, unit that, continuing impact extent DIFM margins we based may has that the mix. to to our customer upside So on see on bigger just some

that a next lap it call, for of had, a it North we fiscal outlook stabilization And as to that earnings per to our business. QX. we'll showing And we'll in our in normalized starting program more see that lap in for better that program now, right with the for Core for QX. margin high more program Although and we've significant as America unit more we're the XXXX relates in range, a happening then guidance we provided, low the profit our have $X gallon range improvement QX, be in $X we provide are to

what So I at than improved in a still saw in a of although to be more modest QX it level QX. margins, expect driver we

Stephanie Benzema

there more the be should we that regions those what whether and is Is regions? mean, press else, then the slower Latin we've terms And are and anything Or some something is in kind The those it's International. – there just of just a in particular slower about of called just in estimating recovery where India. behind in with I to pace – thinking America seen situation in release it. of recovery this switching Thanks. gears Europe? out recovery U.S. Got

Sam Mitchell

there and government just Yes. slower We those a out regions two more recovery restrictions. because call seeing we're

And have been so again. with down India, locked we've seen certain that markets large

where that's where in behind, has recovery. true Latin India Central operating also is North been example. And fits share we and starts. have So is and America of America kind of when parts Core its comes good Mexico Mexico, particularly for and America too focus it And recovering to in

And of our just of lot we're of poised advantage exist. as the we've taking last opportunities So and staying months. to shutdowns seen teams they a customers, connected But impact over couple continued recovery. improvement have regional – nonetheless, the we're some are our International and good the with steady

we internationally improvement stronger on forward, too. the look think gives obviously the feel from I performance some the early progress of the impact year. that COVID-XX there across and the in And in the some stronger business, going example, I year, Stephanie, won't think, through markets completely board. see basically, as to International still in we're next the but and us for we'll I China, impact, confidence when that look business, we'll be see especially our believe the you But movement like at we

Stephanie Benzema

you Thank Got much. it. so

Operator

and your does participation ask that time. at disconnect for This today's allotted We for questions. you And please our call. conference conclude this that thank you concludes time

Valvoline (VVV) 5 Aug 202020 Q3 Earnings call transcript