Valvoline Reports First-Quarter Results; Updates Full-Year Outlook

For the quarter, Valvoline Instant Oil Change (VIOC) delivers
system-wide same-store sales (SSS) growth of 7.9 percent, Core North
America premium mix increases 400 basis points and International volume,
including unconsolidated joint ventures, grows 9 percent

• Reported net loss of $10 million and loss per diluted share of $0.05
• Adjusted earnings per share (EPS) of $0.29 and adjusted EBITDA of $108
  million
• Lubricant volume growth of 2 percent to 43.8 million gallons
• VIOC system-wide SSS growth of 7.9 percent
• Repurchased 1.6 million shares for $39 million; board authorizes $300
  million in share repurchases
• Increases full-year adjusted EPS guidance to $1.30-$1.38, which
  includes a lower adjusted effective tax rate of 27-28%, reflecting the
  benefits of tax reform

LEXINGTON, Ky.–(BUSINESS WIRE)–Valvoline Inc. (NYSE: VVV), a leading supplier of premium branded
lubricants and automotive services, today reported financial results for
its first fiscal quarter ended Dec. 31, 2017.

Reported first-quarter 2018 net loss and diluted loss per share of $10
million and $0.05, respectively. These results include a provisional
charge of $75 million ($0.37 per diluted share) related to recently
enacted U.S. tax reform, after-tax income of $7 million ($0.03 per
diluted share) related to non-service pension and other post-employment
benefit (OPEB) income that is now classified as non-operating under
early adopted new accounting guidance, and an after-tax charge of $1
million (negligible EPS impact) of separation-related expenses.

Reported net income and diluted earnings per share for first quarter
2017 of $72 million and $0.35, respectively, which includes after-tax
income of $16 million ($0.08 per diluted share) related to non-operating
pension and OPEB non-service income and remeasurement adjustments and an
after-tax charge of $4 million ($0.02 per diluted share) of
separation-related expenses.

Adjusted first-quarter net income, excluding the impact of tax reform,
pension income and separation costs, was $59 million, compared to $60
million of adjusted net income in the prior year. (See Table 7 for
reconciliation of adjusted net income.)

First-quarter results were driven by strong SSS in VIOC, growth in
premium product mix across all segments and continued volume gains in
international markets. Adjusted EBITDA of $108 million declined modestly
compared to the prior year with overall favorable volume and mix, offset
primarily by planned investments in SG&A.

"First-quarter results were consistent with our expectations, despite
modestly higher-than-anticipated costs from hurricane impacts and our
new packaging launch," said Chief Executive Officer Sam Mitchell.
"Premium mix improved across all segments, International volume growth
continued and same-store sales were strong, even compared to the
outstanding quarter VIOC had last year – all demonstrating the health of
the business and that we are on track to meet our goals for the year.

"In addition, we continue to demonstrate our commitment to return
capital to shareholders. We raised our dividend by more than 50 percent,
repurchased shares and, just last week, the board authorized an
additional $300 million of share repurchases."

Operating Segment Results for the First Quarter

Core North America

• Lubricant volume declined 1% to 23.8 million gallons, branded volume
  up slightly
• Branded premium mix increased 400 basis points to 47.8%
• Operating income declined 16% to $43 million, EBITDA declined 13% to
  $47 million

Core North America branded volumes grew slightly in the quarter. These
gains were offset by a decline in non-branded volume, primarily driven
by the timing of promotions. Core North America realized benefits of its
strategy to grow premium product sales, with premium mix increasing 400
basis points to 47.8 percent of branded volume.

Overall favorable mix was offset by planned investments in SG&A and
higher-than-expected raw material costs, due to the hurricanes and new
packaging launch, which led to the decline in segment EBITDA. Unit
margins improved sequentially, the result of pricing actions taken
during the latter part of fiscal 2017, and are expected to improve
further in the second quarter.

Quick Lubes

• VIOC SSS increased 7.9% overall, 8.2% for company-owned stores and
  7.7% for franchised stores
• Operating income and EBITDA grew 21%, to $35 million and $41 million,
  respectively
• VIOC ended the quarter with 1,139 total stores, an increase of 12
  during the period and 63 over prior year

The Quick Lubes operating segment had another strong quarter, building
from its exceptional quarter in the prior year and demonstrating the
momentum of the company's retail operations. Growth in SSS was the
result of both increased transactions and average ticket. Transactions
benefited from the strength of VIOC's ongoing customer acquisition
programs, while pricing and effective store execution were the drivers
of improvements in average ticket.

Sales and segment EBITDA growth were driven by SSS and the addition of
63 net new stores as compared to the prior year, as well as the
previously-announced acquisition of 56 Henley Bluewater franchise
locations.

As part of Valvoline's strategy to expand its retail presence, VIOC
added 12 net new stores to the system during the quarter, two
company-owned and 10 franchised locations.

International

• Lubricant volume grew 4% to 14.3 million gallons, 9% including
  unconsolidated joint ventures
• Lubricant volume from unconsolidated joint ventures grew 16%, to a
  record 10.8 million gallons
• Operating income and EBITDA each declined $1 million, or 5%, to $19
  million and $20 million, respectively

The International operating segment again reported broad-based volume
growth across emerging and mature markets, the result of ongoing market
penetration efforts that build on the strong volume base from the prior
year. Equity and royalty income from unconsolidated joint ventures grew
17 percent, due primarily to strong results in India and China.

Volume growth, improved joint venture results and foreign exchange
benefits were offset by planned investments in SG&A and modestly lower
unit margins, impacted by the lower contribution from higher-margin
geographies and higher raw material and supply chain costs in some
markets. Unit margins are expected to improve in the second quarter.

Balance Sheet and Cash Flow

• Total debt of approximately $1.2 billion and net debt of approximately
  $1.1 billion
• Year-to-date cash flow from operations of $20 million and free cash
  flow of $6 million
• Repurchased 1.6 million shares for $39 million

Cash flow from operations during the quarter was negatively impacted by
the timing of working capital investments.

Tax Reform

As a result of the enactment of U.S. tax reform, Valvoline recognized a
total charge of $75 million in the quarter, which included $67 million
from the estimated impact of the remeasurement of deferred tax assets
and $4 million due to the deemed repatriation of foreign earnings. In
addition, tax reform had an impact on the Tax Matters Agreement with
Ashland, Valvoline's former parent company, generating an estimated $7
million of additional pre-tax expense and a $3 million tax benefit. The
estimated net impact of tax reform may be refined in future periods as
regulations and additional guidance become available.

For fiscal 2018, due to the enactment date of tax reform, Valvoline
expects to be subject to a federal tax rate of 24.5 percent, which is
blended proportionally based on the number of days of the fiscal year at
the former federal rate and the number of days at the new rate. This is
expected to result in a full-year consolidated adjusted effective tax
rate of 27 to 28 percent, which includes the effects of international,
state and local tax rates. The lower tax rate had a favorable impact on
adjusted EPS by approximately $0.02 during the quarter.

Beginning in fiscal 2019, the company estimates an ongoing adjusted
effective tax rate of 25 to 26 percent.

Capital Allocation

Valvoline's board of directors has authorized the company to repurchase
up to $300 million of its common stock. This amount is in addition to
the previously announced $150 million share repurchase authorization, of
which $118 million in shares have been repurchased as of Feb. 6, 2018.
The timing and amount of any purchases of shares of common stock will be
based on the level of Valvoline's liquidity, general business and market
conditions and other factors, including alternative investment
opportunities.

The term of the new share repurchase authorization extends through Sept.
30, 2020. This authorization is part of a broader capital allocation
framework to deliver value to shareholders by first driving growth in
the business, organically and through acquisitions, and then returning
excess cash to shareholders through share repurchases and dividends.

Fiscal 2018 Outlook

"As we said last quarter, we are focused on accelerating our growth,"
Mitchell said. "We are on track to deliver full-year adjusted EBITDA of
$480 to $500 million and expect to see top- and bottom-line growth in
each of our operating segments. Our shareholders will continue to
benefit from our capital allocation framework to drive growth in the
business and return cash to shareholders. Valvoline is also a
significant beneficiary of tax reform, as reflected in our updated
adjusted EPS guidance."

Fiscal 2018 updated full-year expectations:

Our outlook for adjusted EBITDA, diluted adjusted EPS and the adjusted
effective tax rate are non-GAAP financial measures that exclude or will
otherwise be adjusted for items impacting comparability. We are unable
to reconcile these forward-looking non-GAAP financial measures to GAAP
net income and diluted earnings per share without unreasonable efforts,
as the company is currently unable to predict with a reasonable degree
of certainty the type and extent of certain items that would be expected
to impact GAAP net income and diluted earnings per share in 2018 but
would not impact non-GAAP adjusted results.

Conference Call Webcast

Valvoline will host a live audio webcast of its first-quarter fiscal
2018 conference call at 9 a.m. ET on Thursday, Feb. 8, 2018. The webcast
and supporting materials will be accessible through Valvoline's website
at http://investors.valvoline.com.
Following the live event, an archived version of the webcast and
supporting materials will be available for 12 months.

Basis of Presentation

For periods following Valvoline's initial public offering in September
2016, various assets and liabilities were transferred to Valvoline from
its former parent company, Ashland Global Holdings Inc. ("Ashland"), and
Valvoline operated as a stand-alone business with arms-length transition
service agreements with Ashland. On May 12, 2017, Ashland distributed
all of its remaining interest in Valvoline to Ashland stockholders,
marking the completion of Valvoline's separation from Ashland (the
"Separation").

Our consolidated and segment results for periods prior to the Separation
are not necessarily indicative of our future performance and do not
reflect what our financial performance would have been had we been an
independent public company during the period presented.

Additionally, certain prior-year amounts have been reclassified to
conform to current-year presentation. In particular, non-service pension
and OPEB income is now reported below operating income.

Use of Non-GAAP Measures

To aid in the understanding of Valvoline's ongoing business performance,
certain items within this news release are presented on an adjusted
basis. These non-GAAP measures, presented on both a consolidated and
operating segment basis, which are not defined within U.S. GAAP and do
not purport to be alternatives to net income/loss, earnings/loss per
share or cash flows from operating activities as a measure of operating
performance or cash flows. For a reconciliation of non-GAAP measures,
refer to Tables 4, 7, 8 and 9 of this news release.

The following are the non-GAAP measures management has included and how
management defines them:

• EBITDA, which management defines as net income/loss, plus income tax
  expense/benefit, net interest and other financing expenses, and
  depreciation and amortization;
• Adjusted EBITDA, which management defines as EBITDA adjusted for
  certain non-operational items, including net pension and other
  postretirement plan non-service income and remeasurement adjustments;
  impairment of equity investment; and other items (which can include
  costs related to the separation from Ashland, impact of significant
  acquisitions or divestitures, restructuring costs, or other
  non-operational income/costs not directly attributable to the
  underlying business);
• Free cash flow, which management defines as operating cash flows less
  capital expenditures and certain other adjustments as applicable;
• Adjusted net income, which management defines as net income/loss
  adjusted for certain key items impacting comparability as noted in the
  definition of Adjusted EBITDA, above, as well as the estimated net
  impact of the enactment of tax reform; and
• Adjusted earnings per share, which management defines as earnings per
  diluted share calculated using adjusted net income.

These measures are not prepared in accordance with U.S. GAAP, and
contain management’s best estimates of cost allocations and shared
resource costs. Management believes the use of non-GAAP measures on a
consolidated and operating segment basis assists investors in
understanding the ongoing operating performance of Valvoline’s business
by presenting comparable financial results between periods. The non-GAAP
information provided is used by Valvoline’s management and may not be
comparable to similar measures disclosed by other companies, because of
differing methods used by other companies in calculating EBITDA,
Adjusted EBITDA, free cash flow, Adjusted net income, and Adjusted
earnings per share. EBITDA, Adjusted EBITDA, free cash flow, Adjusted
net income, and Adjusted earnings per share provide a supplemental
presentation of Valvoline’s operating performance.

Adjusted EBITDA, Adjusted net income, and Adjusted earnings per share
generally include adjustments for unusual, non-operational or
restructuring-related activities, which impact the comparability of
results between periods. Management believes these measures provide
investors with a meaningful supplemental presentation of Valvoline’s
operating performance. These measures include adjustments for net
pension and other postretirement plan non-service income and
remeasurement adjustments, which includes several elements impacted by
changes in plan assets and obligations that are primarily driven by
changes in the debt and equity markets, as well as those that are
predominantly legacy in nature and related to prior service to the
Company from employees (e.g., retirees, former employees, current
employees with frozen benefits). These elements include (i) interest
cost, (ii) expected return on plan assets, (iii) actuarial gains/losses,
and (iv) amortization of prior service cost. Significant factors that
can contribute to changes in these elements include changes in discount
rates used to remeasure pension and other postretirement obligations on
an annual basis or upon a qualifying remeasurement, differences between
actual and expected returns on plan assets, and other changes in
actuarial assumptions, such as the life expectancy of plan participants.
Accordingly, management considers that these elements are more
reflective of changes in current conditions in global financial markets
(in particular, interest rates) and are outside the operational
performance of the business and are also primarily legacy amounts that
are not directly related to the underlying business and do not have an
immediate, corresponding impact on the compensation and benefits
provided to eligible employees for current service. These measures will
continue to include pension and other postretirement service costs
related to current employee service as well as the costs of other
benefits provided to employees for current service.

Management uses free cash flow as an additional non-GAAP metric of cash
flow generation. By deducting capital expenditures and certain other
adjustments, as applicable, management is able to provide a better
indication of the ongoing cash being generated that is ultimately
available for both debt and equity holders as well as other investment
opportunities. Unlike cash flow from operating activities, free cash
flow includes the impact of capital expenditures, providing a more
complete picture of cash generation. Free cash flow has certain
limitations, including that it does not reflect adjustments for certain
non-discretionary cash flows, such as mandatory debt repayments. The
amount of mandatory versus discretionary expenditures can vary
significantly between periods.

Valvoline’s results of operations are presented based on Valvoline’s
management structure and internal accounting practices. The structure
and practices are specific to Valvoline; therefore, Valvoline’s
financial results, EBITDA, Adjusted EBITDA, free cash flow, Adjusted net
income and Adjusted earnings per share are not necessarily comparable
with similar information for other comparable companies. EBITDA,
Adjusted EBITDA, free cash flow, Adjusted net income and Adjusted
earnings per share each have limitations as analytical tools and should
not be considered in isolation from, or as an alternative to, or more
meaningful than, net income and cash flows from operating activities as
determined in accordance with U.S. GAAP. Because of these limitations,
you should rely primarily on net income and cash flows provided from
operating activities as determined in accordance with U.S. GAAP and use
EBITDA, Adjusted EBITDA, free cash flow, Adjusted net income and
Adjusted earnings per share only as supplements. In evaluating EBITDA,
Adjusted EBITDA, free cash flow, Adjusted net income and Adjusted
earnings per share, you should be aware that in the future Valvoline may
incur expenses/income similar to those for which adjustments are made in
calculating EBITDA, Adjusted EBITDA, free cash flow, Adjusted net income
and Adjusted earnings per share. Valvoline’s presentation of EBITDA,
Adjusted EBITDA, free cash flow, Adjusted net income and Adjusted
earnings per share should not be construed as a basis to infer that
Valvoline’s future results will be unaffected by unusual or nonrecurring
items.

About Valvoline

Valvoline Inc. (NYSE: VVV) is a leading worldwide marketer and supplier
of premium branded lubricants and automotive services, with sales in
more than 140 countries. Established in 1866, Valvoline's heritage spans
over 150 years, during which it has developed powerful brand recognition
across multiple product and service channels. The highly trusted brand
ranks as the No. 3 passenger car motor oil brand in the DIY market by
volume and the No. 2 quick-lube chain by number of stores in the United
States. The company operates and franchises more than 1,100 Valvoline
Instant Oil ChangeSM centers in the United States. It also
markets Valvoline lubricants and automotive chemicals, including the new
ValvolineTM Modern Engine Full Synthetic Motor Oil, which is
specifically engineered to protect against carbon build-up in Gasoline
Direct Injection (GDI), turbo and other engines manufactured since 2012;
Valvoline High Mileage with MaxLife technology motor oil for engines
over 75,000 miles; Valvoline Synthetic motor oil; and ZerexTM
antifreeze. To learn more, visit www.valvoline.com.

Forward-Looking Statements

Certain statements in this news release, other than statements of
historical fact, including estimates, projections, statements related to
our business plans and operating results are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995. Valvoline has identified some of these forward-looking statements
with words such as “anticipates,” “believes,” “expects,” “estimates,”
“is likely,” “predicts,” “projects,” “forecasts,” “may,” “will,”
“should” and “intends” and the negative of these words or other
comparable terminology. These forward-looking statements are based on
Valvoline’s current expectations, estimates, projections and assumptions
as of the date such statements are made, and are subject to risks and
uncertainties that may cause results to differ materially from those
expressed or implied in the forward-looking statements. Additional
information regarding these risks and uncertainties are described in the
Company’s filings with the Securities and Exchange Commission, including
in the “Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” sections of our most
recently filed periodic reports on Forms 10-K and Form 10-Q, which are
available on Valvoline’s website at http://investors.valvoline.com/sec-filings.
Valvoline assumes no obligation to update or revise these
forward-looking statements for any reason, even if new information
becomes available in the future.

TM Trademark, Valvoline or its subsidiaries, registered in
various countries

SM Service mark, Valvoline or its subsidiaries, registered in
various countries

Contacts

Valvoline Inc.
Investor Relations
Sean T. Cornett, +1
859-357-2798
[email protected]
or
Media
Relations
Valerie Schirmer, +1 859-357-3235
[email protected]

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