The soon-to-be-independent Valvoline division of Ashland Inc. reported lower sales (down $10 million, or 2 percent, to $500 million) but higher operating income (up $2 million, or 1.9 percent, to $109 million) for the fiscal third quarter ended June 30, 2016.
Lower product pricing decreased sales by $22 million, or 4 percent, while higher volume increased sales by $17 million, or 3 percent, as lubricant gallons sold increased to 45.80 million. Unfavorable foreign currency exchange decreased sales by $5 million, while changes in product mix increased sales by $5 million. Additionally, the divestiture of the Valvoline car care product assets, which decreased sales by $16 million, was partially offset by $11 million in increased sales from the acquisition of Oil Can Henry’s.
Valvoline’s gross profit increased by $9 million, while gross profit margin increased 2.7 percentage points to 39.7 percent. Selling, general and administrative expenses increased $7 million, primarily because of employee cost increases and higher advertising costs.
Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by $3 million, or 3 percent, to $119 million in the current quarter, while EBITDA margin increased 1.1 percentage points to 23.8 percent. This marked the 11th consecutive quarter of year-over-year EBITDA growth for Valvoline.
According to management, results were driven by solid overall lubricant volume growth with particular strength among DIFM customers, including those served through installers and those served by Valvoline Instant Oil Change (VIOC). In total, lubricant volume grew 3 percent.
At VIOC, same-store sales at company-owned sites rose 7 percent led by a nearly 6-percent increase in average oil changes per day. Average ticket grew 1 percent, reflecting a 2-percent increase in premium oil changes and higher earnings from non-lube products and services.
Over the past 12 months, VIOC has added 116 shops, bringing the total to 1,055 locations at the end of June. This increase includes the 89 stores acquired through the Oil Can Henry’s acquisition. VIOC opened an additional 27 stores over the past 12 months, of which seven are company-owned and 20 are franchises.
Volume to customers serving the DIY market declined 3 percent, primarily driven by the timing of promotions, which shifted between the fiscal third and second quarters. Year-to-date, volumes sold to DIY customers are up 1 percent because of an 8-percent increase in branded volume sales.
Within Valvoline’s international channel, volume grew 6 percent.
Because of securities laws restrictions associated with the planned separation of Valvoline from Ashland, management is not providing a fiscal fourth-quarter outlook for Valvoline.
