VVV - Earnings call transcript Q2 2022

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Operator

Ladies and gentlemen, hello and welcome to Valvoline's 2Q 2022 Earnings Conference Call and Webcast. My name is Maxine and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Sean Cornett from Investor Relations to begin. Sean, please go ahead when you're ready.

Sean Cornett

Thanks Maxine. to quarter welcome call XXXX and webcast. and morning Valvoline's fiscal second conference Good at PM XX, approximately released Xth May On X:XX the quarter results Eastern second ended March XXXX. for Valvoline Time, viewed in which investors.valvoline.com. of on This presentation available should conjunction that a is website earnings Relations Investor with our copy release, at be that note with preliminary Securities Exchange and are the file we Please until results Commission. these XX-Q our Form our Mitchell, On this and Meixelsperger, our is morning's CEO; CFO. Mary Sam call

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

to As we Sam. over turn I'd call to to turn like the X, slide

Sam Mitchell

the XX% thank services demand Both line remains a to strong our of an and an the XX% of to volume share. QX morning. in segments challenging growth you XX% demonstrate increase we impacted sales. quarter with strength X%. for continued and us continue and this results growing Global Profitability EBITDA Services remained Retail joining as same-store by increasing everyone sales our top and sales The contributed by Sean, XX% for up performance products Products in was increase in inflationary environment with Retail Thanks of highlighted robust. in sales that Services gain Global transactions growth led X% that adjusted by Products

half raw supply growth through cost Our profit team and challenges, fiscal year. chain managing in the is of well second material improved these the us for positioning

next slide. turn Let's to the

Given guidance sales our plans, margin share adjusted gains and our are for raising recovery our volume are for reaffirming we and growth. our in confidence our pricing reflecting actions, continued EBITDA, we business and growth guidance

with Services momentum highlights XX%. store look Let's in segment take Retail in slide with and a sales The Retail closer driven X. units. XX%, starting Services XX% X% increase growth our a same-store sales segment System-wide by increased sales increasing continues at on QX

network the billion. store For the added sales year-over-year. we excess stores in of to fiscal XXX $X.X year, system-wide expect We

for store store franchisee and in to accelerating year full system-wide to Our growth. XXX are growth new outperformance our driven guidance store is our by raising units, we XXX additions

their with and continued remain partnership encouraged strong, we're Our franchisees, by and our investment growth.

growth XX%. to led that same-store us sales share to guidance confidence XX% the to actions raise pricing our ongoing April, we with Our in executed in combined gains has

on review across Let's system, our slide. the growth, next transaction the

and Oil Our to Change broad-based. DO IT increasing growth market FOR faster ME, the transactions than broader continues be are

company among across store the new are level performance and stores, measured car across Our and day levels stores. in as oil increasing and counts, changes mature per system, franchise

geographies transactions year-to-date. We growth delivering across regions, all are with in strength also seeing

new win easy, quick, experience continues to Our trusted customers.

confident that are Given continue. model, the competitive in our advantages transaction growth will momentum we our of

the margins in in Let's retail services. slide. taken turn profitability to We've improve to action next

attract rising into already average-ticket higher combination penetration staffing reinvigorated continued from further growth. increased we pressures especially address for the And QX, labor environment. labor rates as performance. levels we inflationary These services, to are and new to change and non-oil pricing continued is benefiting We our product-related of transaction We to April's retain and is we've Optimizing costs. summer important pricing onboarding investments, and programs training seeing pulled actions drive will share have our in both important performance, move improve driving season. the Based forward talent. post-COVID and key our gains on

we for QX in we pricing power our on to While customers, adding and QX. profitability our anticipate focus value enhance

Let's next the move slide. to

Retail confidence of performance for Services outlook the continue is mature to stores, strong XX% margin margin of Our in based leverage. on our our drive XX% to which long-term

mature expect Our we expansion we And stores by XXX points, nearly average-ticket. further and improved continue share forward, have basis XXXX. since to grow margins going as

from the as point well pass-through product dilutive effects new to from these include a basis were franchisees. margins QX, segment XXX stores total nearly versus last our year. sales reminder, effects a price In our combined impact of As as

slide. success growth increases Let's the regions volume Global pricing. increase Products. cost to increase. impressive in with strength QX our a Global year-over-year review with passing-through this X%, grew Sales Products top outpaced contributing line in continued all of Sales highlighting on demonstrated ongoing XX% the next strong

While margin year remained Discretionary costs. million generation EBITDA roughly track our on last cash $XXX free currently dilutive for significantly raw the overcoming modestly adjusted grew material steady and year. rates, in flow this pass-through fiscal versus to higher is quarter

our we our do to over and we believe challenges ability impacts and chain our and our the created Demand demand. supply continues outperforming for which an past share our on remains impressive opportunities. to for our installer share outstanding core business of our channel on and expand and channels. volume robust, ability across building few volume outstanding highlighting customers, to the from years, deliver growth channels brand. regions demand closer are increased job contributing have Let's distribution International as continues ongoing with this our to with slide. providing that The is our believe the meet in ability to value has customers, the signals team cost Performance recover The to strong approach capture competition while of focus coupled has service. customer been where are gains, our share environment positions we is added take current both keeping differentiator We COVID. up to in DIY, a growth look to gains and We us and at solutions demand for products supply and continue well margins. recovery as next

XXXX, of as As We year for material unit QX fiscal raw ability from saw I'll continue and pass through our to this With previous cost our of in confident have sequential were for things QX, low while detail. results inflation in hand discuss that, anticipated, last cost, in continued more meaningful QX financial points cost as inflationary increases to margins we to we to has in year we we recover a this impact year remain unit periods. margins. Mary

Mary Meixelsperger

Sam. Thanks

Slide Our XX. QX summarized results are on

both volume Growth pricing was from top quarter was mix. and points leading growth to largely significant We the XX% and largely line mix and volume a profitability costs by growth of see from favorable offset sales as strong driven offset acquisitions unfavorable XX across in raw foreign segments. modest XX was Overall continue nearly of material higher benefits year-over-year impacts. pricing adjusted as in by labor increase by exchange Flow-through of EBITDA. to well to points

gains Retail growth segment in Let's are the next Services slide. robust and and Strong both at take a continued transaction in on in share segments. Products Global of demand results closer volume growth look indicators

Our in fiscal in second the year. same-store sales this XXX two-year of stack the above of with dilutive of and of decline XX% due in product expect in services basis points retail the system-wide remainder year-over-year by we was to driven costs, to pace half and rates remained higher labor-related continue the primarily pricing QX, of raw margin pass-through costs. effect the material

margins are ability volume pricing ahead executed products our Sales increases, actions pass-through in continued that growth to in strong QX. anticipated of with incremental to pricing. costs to well highlighting improve beginning have inflationary run We global

we margins efficiently cost margins unit versus pre-pandemic average. expect noticeably pass-through QX raw Our unit their QX increases and toward material to increased back driving in recent

our next review guidance updated slide. on Let's the

of XX% growth low growth raising in guidance sales line reflecting are top pricing to expect the while metrics XXX our to same-store for total grow are System-wide our unit and gains expectations power now benefits sales. share range, XXX low the we We in raising segments. We both to are additions. teens anticipated in

to continue to EBITDA growth $X.XX. adjusted of to between $XXX adjusted million, high expect We $XXX $X.XX EPS, year-over-year overall single-digit and million representing

of the $XXX strong Excluding, free anticipate million. $XXX cash of generation impact to expenses, separation-related flow million we

back things turn as up. turn to Sam I'll XX, Slide to Now to wrap Sam? we over

Sam Mitchell

are headwinds significant supply businesses Despite and inflationary Mary. performing well. chain-related Thanks, two our

demand We maintenance are margin importantly, cost pressure, from services addressing for Most strong. term near our be actions. with very to preventive products continues increases and pricing

confidence have in to operational ongoing power normalization margin drive strategy, and our We execution pricing profit growth. and

today, process don't we'll making good our significant on share news any and appropriate at to details we are we While announcing have separation progress be the time.

for turn Sean, call open I'll the line the to Q&A. back Now to

Sean Cornett

Sam. Thanks,

to can open everyone. just to remind with open few so that we Maxine, limit follow-ups, And one we line. your please and Q&A, like everyone to the Before to get questions that the

Operator

Morgan Stanley. Simeon Our first Instructions] you Gutman [Operator Thank from question from comes

open. is line Please Your ahead. now go

Michael Kessler

for on Thanks for Kessler, the Hi, guys. is taking Simeon. This Michael questions.

First, acceleration to should the And much Services. to more implies Is not being the Retail due is case -- of multiyear with an thinking I That the as of price most competition price about, raised you as how I the is about consider you that we catching kind are X% a I that these What of are and X% in if pricing? sales we this on the both think in guidance is guess investments how versus you roughly cost marking-to-market? you're little priced, now from guess, the to I is these of versus others? that then, you I you kind be, taken? would start cited peers, assume wanted same-store of be stacks. presentation? making of where And I seeing the also of guess as jumping how ahead responses with far on adjustments marking-to-market guess, kind kind play, state up? to are all

Sam Mitchell

has growth regarding transaction guidance, continued Yes, growth the to the first Michael, the strong. Okay. quite be and transaction

that in saw we QX again in and So QX.

is Pricing going the half of drivers guidance, so nice just the because broad-based an have in benefit to the see back of that the fiscal so ticket the a for one performance the in certainly, the pointed out we we that we're see year, of strength to behind half our year full back that in continuing impact And presentation. is on will year.

a it product the the then process XX% and increase, involves very the on transaction increases measuring, combination made that price important we So to the price And in for the regard, second pricing to half the the noted that increased move as in we we increases in growth because But as lower, transactions, I as of our of somewhat past and disciplined comparisons. pricing how the take in have pretty and to these saw will impacts expectations full very XX% the earlier, side, comps, significantly that took side nature performance. on first does have that growth imply, moved for up range both the in volume That year. potential to half us is costs on continued and like and for going labor we've as take these be above are of we the the With adjustments. price April. put we fiscal these COVID-XX us

our price noted also similar that have increases. taken have We competitors

So market when at board. across a across you take the up pricing consumers do-it-for-me to are look the prices

Mary Meixelsperger

COVID two-year And we comp you stack the it X% asked was QX, fiscal in add, from had to look you almost you because the in the negative XXXX lockdown have COVID would at Michael acceleration look first I of at about, QX the just a that for was depths when then that of the three-year if that a our started. stack of

period. the So yes, up two-year some stack that's but that against acceleration the there deep in year earlier was COVID really because prior the impact is comping primarily from

would price in the back than bit I first the the by mid-XXs two-year driven that little primarily that half to expecting a So in stack see the changes. stronger say half, we're

Michael Kessler

Got it.

that core if we're you North Are all still Products. we just America is guess America side – the in to you the to bit core the That's the Maybe on maybe segments? then standing we're a progress growth recovery DIY the of where process? kind helpful. little the where one is growth follow-up from are old international. guess it's like shifting just that And dissect other mean the Does of installer acceleration recovered mentioned disclosure seeing the trailing still don't super volume know recovery on Global coming coming Okay. – bit I little is this side, the rebase North whether from. is it I most can segment international. a that versus we feel relative recovery and where I I

Sam Mitchell

Yes.

at retailers, First, strength seeing channels. the picked that we've some this And America key regions. new the news so to good in into that's it across expanding distribution business, real where North we're fiscal We've and seen the that our year line, is the growth also where strong contributing is DIY outperformance. yet particularly in product is

has this And been driver year. nice that so a

installer the we're picture. the I'd more that's recovery business, say of And seeing DIFM also the side volume. On good

the business If the volume pretty strong the significant you remained whereas through hit. recall, business impacts DIY COVID took installer

we're some seeing so I And pretty say now consider close more levels. what normalized to would I'd recovery good

that lockdown joint good feeling the of at growth the just we business. business growth is in look exclude of we're we're effects included China China the certainly regions. strength excluding The the But on North international the American of we X% side good when have seeing core now. so feeling across our to So the And sales excess about venture. international COVID in we really in of right we're business, then just total strength total, seeing also apples-to-apples

current So the we're performance. seeing softness there in some

encouraging And so is and year, Europe strength Pacific, look back the but not in in that, now. international distributors. of the impact to through risk see that -- bit America We note an of business at not a And a parts would profitability. we really the Latin sales Asia Russia got I a in impact right of in half momentum we've of the it's but to significant business course, too regions that bit Russia so. across had small a a of too is significantly and

decision. $X we've took to for operations so close We Russia. in that accounts write-off receivable suspended primarily million And a

Michael Kessler

Thanks much. so

Sam Mitchell

You're welcome.

Operator

from Thank Mike you. Seaport Instructions] [Operator Our comes Partners. next Harrison from question Research

Your Please line ahead. go is now open.

Mike Harrison

Hi. morning. Good

that's In -- higher terms the see. to higher first all of great that store guidance, additions of

this company is be this your to from franchisees. how What contributing Second, larger thinking growth, is year is that a franchisees fiscal driving of additions about How momentum the of broader as handful and it it into this XXXX? seems or changing this that's like by driven you about additional group? franchisees? think store Is rest a this might you're

Sam Mitchell

strong years is well-capitalized. closely Yeah, together with really that where by over our the them in putting franchise franchisees last growth are worked we've driven largest couple of being development the build in agreements growth of we've store acquisition. and done place on put combination markets incentives opportunities out and analysis through with for store them their the to in build those them a markets And

beginning the that fruits we're see so work. of to And

that would out encouraging next we growth to that And say have confidence the we is in as the growing is project franchise so really of number it years. I

to growth strong store company And you number year picked acquisitions too. build has the ago, had quite as but successful continues know steam. our up we a program store So a of be

helping combination XXX two is year that the of in XXX so range. to And us deliver the another

split where franchise, markets drive the between to opportunity. we focus as far now our is where and right continuing as And us. for presence and encouraging there's really So company have and penetration

robust a model. estate real have We

our we operator, so franchise with that be we're positioned a growth have focus them. market best in if working we'll company or And that's if for strong

with better penetrate their to to working growth store are drive We markets. them

ahead. we store that significant the of earlier base our so company location households presentations, both in us to for will in of are XX% driving years a continue As reaching see within roughly in we're opportunities And five-mile a we've franchise of that store opportunity Valvoline distance shared and we think front be and growth.

So has moving stores maturity presentations strong just momentum. stores. and that ups both the the in growth saw we've encouraged seeing the by And performance one we're of good that especially got these in of performance got up a program good newer really quite you that quickly. seeing the very good curve we're new acquisition and I'm aggressive ground where

Mike Harrison

question And Great. a inflationary right. the then on All environment.

to have there's inflation seeing are to consumers any Just from on Thank change vehicle demand any you. if started pressure non-oil maintenance the to more inflationary impact lubricants As at gas pressure? see conventional? you premium or down trying on some pump trading your the of or delaying revenue from understand,

Sam Mitchell

answer no. great is a And That's the question.

to our We our on have pricing. performance regard seen pressure pressure, negative with downward not a

And business markets performance outstanding look performance in so volume again seeing California at we too. higher-priced ticket --we're study like and the as we and growth

the the resisting So quite performing consumer increases is well. model and cost far is not the

we'll supports So able experience I the system to customer up think power really that with watch to deliver but it to continue us costs. closely, it the and superior keep across gives pricing that our we're

at the since so by performance we're And weeks encouraged we took as really last that. weeks, look increases of the six again five price we

Mike Harrison

All right. Thanks much. very

Operator

We have further for remarks. no questions so Valvoline team Instructions] it to closing I'll [Operator hand the back

Sam Mitchell

QX. to is thank improvements Well, see Products. in in our benefit with pricing profitability right. QX appreciate and We're is Retail actions that for in good year and Global significant today. confident both increases everyone the business quite in I But performing in of Services All we'll and back and the pretty that we news well quite expect half the steady listening you particularly

in our would strong much. attention to just the to future. our the and very ability and Thank services drive you performance to back again point so everyone's demand products And for continue that I

Operator

this and for you call. concludes Thank today's gentlemen, joining. Ladies

You may disconnect. now

Valvoline (VVV) 10 May 222022 Q2 Earnings call transcript