Valvoline Inc. reports strong First Quarter Fiscal 2017 financial results and raises full-year outlook

Net income growth of 11 percent, operating income growth of 25 percent

• Reported net income of $72 million and reported earnings per diluted share (EPS) of $0.35
• Adjusted EPS of $0.35, up 9 percent
• Reported operating income of $120 million
• EBITDA from operating segments (Core North America, Quick Lubes and International) grew 8 percent to $109 million
• Lubricant volume growth of 7 percent to 43.1 million gallons
• Valvoline Instant Oil ChangeSM (VIOC) system-wide same-store sales (SSS) growth of 9.0 percent
• Expects full-year adjusted EPS of $1.36-$1.43, an increase from prior guidance

LEXINGTON, Ky. – Valvoline Inc. (NYSE: VVV), a leading supplier of premium branded lubricants and automotive services, today announced financial results for the fiscal first quarter ended December 31, 2016. ValvolineTM results were driven by growth in premium product sales, the increase in VIOC stores versus prior year, exceptional performance in SSS and continued volume growth in international markets.

Reported first-quarter EPS of $0.35 was up 3 cents compared to the same period last year. Adjusted EPS of $0.35 was also up 3 cents year over year, with 2 cents due to improvements across the operating segments. The remaining 1 cent was due to certain items related to the separation from Ashland, including the transfer of postretirement plans which generated income resulting in a 4 cent benefit versus prior year period and interest expense related to the creation of Valvoline’s new capital structure which resulted in a 3 cent decline.

Adjusted first-quarter earnings excluded the gain on other postretirement plan remeasurement and separation costs, which combined had no net material impact. Prior year results included no adjustments.

“I am very pleased with our first quarter results, as each of our segments delivered solid year-over-year volume gains. While overall industry trends have been favorable recently, our teams continue to outperform the market,” said Chief Executive Officer Sam Mitchell. “Disciplined margin management and strong performance from our two growth engines, Quick Lubes and International, drove better-than-expected profitability for the quarter. This performance gives us a great start to our first year as a public company.”

OPERATING SEGMENT RESULTS

Core North America

The segment volume increase was the result of share gains and timing of promotional campaigns. The EBITDA decline was largely the result of modestly lower unit margins versus prior year. As previously announced, Valvoline implemented price increases across all channels during the first quarter of this year in order to offset the base oil cost increases announced in the latter half of fiscal year 2016. The first half of fiscal 2016 benefited from a positive lag effect, as the result of declining raw material costs.

Quick Lubes

The Quick Lubes operating segment had an outstanding quarter, reflecting continued execution of our SuperProTM model, the effectiveness of our digital marketing tools, solid customer retention at VIOC and the performance of the former Oil Can Henry’s stores. Improvements in SSS growth were primarily due to an increased number of transactions in the quarter, driven by continued success of our customer acquisition and retention tools. In addition, SSS was positively impacted by an additional sales day and favorable weather versus prior year.

On January 4, Valvoline Inc. announced a definitive agreement to acquire 28 quick-lube stores from Time-It Lube, expanding VIOC’s presence in east Texas and marking its entry into Louisiana, accelerating the expansion of our store network. The acquisition is expected to be completed in the fiscal second quarter.

International

The International operating segment delivered broad-based volume growth across both emerging and mature markets. Volume gains were driven by a combination of ongoing market penetration, as well as growth in the heavy-duty market.

The increase in EBITDA versus prior year reflects volume, sales and margin growth, as well as an increase in joint venture equity and royalty income of $2 million.

Balance Sheet and Cash Flow

Free cash flow in the quarter was up $44 million over prior year. The increase was primarily driven by the timing of cash settlements of separation-related working capital accounts.

Fiscal 2017 Outlook

“Our strong performance in the first quarter and our ability to manage margins give us confidence that we will deliver full-year results above our prior expectations, and as a result we are raising our full-year EPS guidance,” Mitchell said. “The business has good momentum and we are well positioned for driving faster growth.”

The company expects Ashland to distribute its 83 percent stake in Valvoline following the release of fiscal Q2 earnings by both companies, subject to market conditions and other factors.

Conference Call Webcast

Valvoline will host a live audio webcast of its first-quarter fiscal 2017 conference call at 8 a.m. EST on Friday, January 27, 2017. 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.

Initial Public Offering (IPO) and Basis of Presentation

In September 2016, in connection with the IPO, Ashland Inc. contributed the capital stock of its business unit Valvoline to Valvoline Inc., which continues to be a controlled, public subsidiary of Ashland. Prior to this time, Ashland held substantially all of the assets and liabilities related to Valvoline’s current business.

The financial statements for periods presented prior to the IPO were prepared on a stand-alone basis, derived from Ashland’s consolidated financial statements and accounting records using the historical results of operations, and assets and liabilities attributed to Valvoline’s operations, including allocations of expenses from Ashland. For periods following the IPO, Valvoline was transferred various assets and liabilities from Ashland and has been operating as a stand-alone business with arms-length transition service agreements with Ashland. Our consolidated and segment results for periods prior to the IPO are not necessarily indicative of our future performance and do not reflect what our financial performance would have been had we been a stand-alone public company during the periods presented.

Use of Non-GAAP Measures

In addition to our net income determined in accordance with U.S. GAAP, we evaluate operating performance using certain non-GAAP measures including adjusted income measures such as EBITDA, which we define as our net income, plus income tax expense (benefit), net interest and other financing expenses, and depreciation and amortization, and adjusted EBITDA, which we define as EBITDA adjusted for unusual, non-operational or restructuring-related activities, such as losses (gains) on pension and other postretirement plan remeasurement and separation costs. We define EBITDA from operating segments as operating income from Core North America, Quick Lubes and International segments plus depreciation and amortization. These measures are not prepared in accordance with U.S. GAAP. Management believes the use of non-GAAP measures on a consolidated and reportable segment basis assists investors in understanding the ongoing operating performance of our business by presenting comparable financial results between periods. The non-GAAP information provided is used by our management and may not be comparable to similar measures disclosed by other companies, because of differing methods used by other companies in calculating EBITDA and adjusted EBITDA. EBITDA and adjusted EBITDA provide a supplemental presentation of our operating performance on a combined and reportable segment basis. We have also given prospective guidance using non-GAAP measures, determined in the same way described above, but have decided it is not practicable to reconcile that information.

We use free cash flow as an additional non-GAAP metric of cash flow generation. By deducting capital expenditures from operating cash flows, we are 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 available to capital providers. Free cash flow has certain limitations, including that it does not reflect adjustments for certain non-discretionary cash flows, such as allocated costs. The amount of mandatory versus discretionary expenditures can vary significantly between periods. Our results of operations are presented based on our management structure and internal accounting practices. The structure and practices are specific to us; therefore, our financial results and free cash flow are not necessarily comparable with similar information for other comparable companies. Free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as an alternative to, or more meaningful than, cash flows provided by operating activities as determined in accordance with U.S. GAAP. Because of these limitations, you should rely primarily on cash flows provided by operating activities as determined in accordance with U.S. GAAP and use free cash flow only as a supplement.

About ValvolineTM

Valvoline Inc. (NYSE: VVV) is a leading worldwide producer and distributor of premium branded automotive, commercial and industrial lubricants, and automotive chemicals. In 2016, it ranked as the #2 quick-lube chain by number of stores and #3 passenger car motor oil brand in the DIY market by volume in the United States. The brand operates and franchises more than 1,070 Valvoline Instant Oil ChangeSM centers in the United States. It also markets ValvolineTM lubricants and automotive chemicals; MaxLifeTM lubricants created for higher-mileage engines, SynPowerTM synthetic motor oil; and ZerexTM antifreeze. Visit www.valvoline.com to learn more.

Media Relations:

Valerie Schirmer, +1 (859) 357-3235, vschirmer@valvoline.com