Valvoline Inc. (NYSE:VVV) Q2 2018 Earnings Conference Call - Final Transcript

May 03, 2018 • 09:00 am ET

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Valvoline Inc. (NYSE:VVV) Q2 2018 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good morning. My name is Denice, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Valvoline Second Quarter 2018 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] Thank you.

Sean Cornett, Director of Investor Relations, you may begin your conference.

Executive
Sean T. Cornett

Thanks, Jenice. Good morning and welcome to Valvoline's second quarter fiscal 2018 conference call and webcast. Valvoline released results for the quarter ended March 31, 2018 at approximately 5:00 PM Eastern Time yesterday, May 2nd, and this presentation and remarks should be viewed used in conjunction with that earnings release, a copy of which is available on our investor relations website at investors.valvoline.com. These results are preliminary until we file our Form 10-Q with the Securities and Exchange Commission. A copy of the news release has been furnished to the SEC on a Form 8-K. With me on the call today are Valvoline's Chief Executive Officer, Sam Mitchell, and Mary Meixelsperger, Chief Financial Officer.

As a reminder, any of our remarks today that are not statements of historical fact are forward-looking statements. These forward-looking statements are based on current assumptions as of the date of this presentation and are subject to certain risks and uncertainties that may cause actual results to differ materially from such statements. Valvoline assumes no obligation to update any forward-looking statements.

In this presentation and in our remarks, we will be discussing our results on an adjusted basis, unless otherwise noted. Adjusted results exclude key items, which are unusual, non-operational, or restructuring in nature. We believe this approach enhances the understanding of our ongoing business. A reconciliation of our adjusted results to amounts reported under GAAP and a discussion of management's use of non-GAAP measures was included in our earnings release.

As you can see on slide three, Valvoline delivered reported operating income of $100 million in Q2 and net income of $67 million or $0.33 per share. Year-to-date cash flow from operating activities was $108 million. There are a few items related to pension that we want to call your attention to. First is pension and OPEB income. Valvoline early adopted new accounting guidance in the first fiscal quarter of 2018 that we classify as non-service pension and OPEB income as non-operating.As a result, our adjusted EBITDA and adjusted EPS now exclude pension and OPEB income.

Also related to pension is interest expense, which is higher this year than it was in the prior-year period due to the borrow-to-fund transaction that we executed in late fiscal 2017. Key items netted to a small expense in reported net income. Pension and OPEB income was $7 million after tax in Q2 this year compared to $10 million last year. Legacy and other separation-related costs were $6 million after tax in the current quarter and $4 million in the prior year period. A modest update to our provisions related to US