Valvoline Q3 Earnings Call Highlights

Key Points

• Strong Q3 performance: Sales rose 24% to $545 million, adjusted EBITDA increased 25% to $162 million, and adjusted EPS climbed 21% to $0.57. System-wide same-store sales grew 8%, driven primarily by pricing and premium services, while the store network surpassed 2,400 locations.
• Lubricant costs are pressuring margins: Tight Group III base-oil supplies could push finished lubricant costs roughly 60% above March levels, or $5–$7 per oil change. Valvoline is implementing pricing actions, but expects fourth-quarter EBITDA margin compression of about 300–400 basis points.
• Full-year outlook raised: Valvoline increased its fiscal 2026 same-store-sales forecast to 7.5%–8% and sales guidance to $2.05–$2.1 billion, while maintaining adjusted EBITDA guidance of $550–$560 million and adjusted EPS guidance of $1.70–$1.75.

Valvoline NYSE: VVV reported third-quarter fiscal 2026 sales and profit growth that management said met expectations, supported by higher pricing, transaction growth and continued network expansion. The company also raised its full-year same-store-sales outlook as it works through rising lubricant costs tied to constrained Group III base oil supply.

For the quarter ended June 30, system-wide store sales rose 19% to more than $1 billion for the first time in a quarter. System-wide same-store sales increased 8%, with ticket growth contributing more than three-quarters of the gain and transaction growth accounting for the remainder.

President and CEO Lori Flees said all ticket components contributed, including net pricing, premiumization and non-oil-change revenue service penetration. Net pricing was the largest factor after pricing actions during the quarter. Franchise same-store sales exceeded the system average, she said.

Financial Results and Cash Flow

Net sales increased 24% year over year to $545 million, reflecting momentum in the core business and contributions from the Breeze acquisition, according to CFO Kevin Willis. Adjusted EBITDA rose 25% to $162 million, while EBITDA margin expanded 30 basis points to 29.8%. Adjusted earnings per share increased 21% to $0.57.

Gross margin was 40%, down 50 basis points from the prior year. Willis said product-cost favorability during the quarter was offset by higher service-delivery costs, including depreciation from new stores. Excluding depreciation, gross margin would have increased 10 basis points year over year.

SG&A expense as a percentage of net sales declined 90 basis points to 17%, supported by higher summer-season transactions and cost discipline. Willis said the company expects further year-over-year SG&A leverage in the fourth quarter.

Year-to-date operating cash flow improved by $105 million to $285 million, while free cash flow rose about $93 million year over year to $112 million. Valvoline used a portion of the cash to reduce debt during the June quarter. Its net-debt-to-adjusted-EBITDA leverage ratio declined sequentially by about 10% to 2.8 times.

The company also completed a repricing of its Term Loan B, which Willis said is expected to reduce annual cash interest expense by about $1.8 million based on the current balance. Management said it remains focused on returning leverage to its target range and restarting share repurchases.

Lubricant Supply Constraints Drive Pricing Actions

Management said the closure of the Strait of Hormuz has disrupted the global oil supply chain and constrained supplies of Group III base oil, a key ingredient in full synthetic lubricants. Flees said Valvoline’s scale and supplier relationship have provided reliable access to product and that the company does not anticipate near-term supply concerns absent a significant change in the environment.

However, finished lubricant costs began rising in the third quarter and continued to increase entering the fourth quarter. Based on current forecasts, Flees said finished lubricant costs could be about 60% above March levels, equivalent to roughly $5 to $7 per oil change depending on lubricant type.

Willis said the base oil index understates current industry cost pressure because supplier costs reflect tight Group III supply, inventory replenishment and other supply-chain factors. The company has implemented additional pricing actions to protect gross-profit dollars as costs rise.

For the fourth quarter, Willis said the midpoint of the company’s guidance implies roughly 300 to 400 basis points of EBITDA margin compression, driven by product costs. He said Valvoline expects its pricing actions to match the price-cost dynamic, while management continues to balance margin protection against consumer affordability and competitive conditions.

Flees said the industry historically has not rolled back prices when lubricant costs decline. As costs eventually moderate, she said Valvoline would expect margin-rate expansion toward historical patterns. Management expects elevated costs to persist for at least four to six months after the Strait of Hormuz is fully reopened, as the supply chain replenishes inventory.

Demand Remains Resilient, Though Management Watches Consumer Trends

Valvoline reported transaction growth across its system and said it did not see broad evidence of customers trading down or deferring services. Flees said the company did observe more moderate growth among lower-income households in June and some softness in non-oil-change revenue penetration, consistent with seasonal patterns during the summer driving period.

“Overall, our customer has remained resilient,” Flees said, adding that the company continues to view preventive maintenance as a non-discretionary service.

Management said it monitors pricing elasticity, customer return rates and discount usage when determining pricing actions. Flees noted that the anticipated $5 to $7 increase is a relatively small percentage of the company’s average ticket, which she said is approximately $115 or higher at some franchise locations.

The company launched a marketing campaign called “The Ride Wrangler,” built around the “Change wisely” tagline. Flees said the campaign is intended to reinforce Valvoline’s position as a preventive-maintenance provider and reach consumers through national and local marketing channels.

Network Growth and Breeze Integration

Valvoline added 47 net new stores during the third quarter, bringing its network to 2,456 locations. The additions included 26 franchise openings, one franchise closure, 20 company openings and two transfers from the Express Care platform, management said.

Flees said the company continues to have a strong pipeline for both company-operated and franchise locations. The fourth quarter is typically a seasonally heavy period for openings, she said, and the company expects to finish the year within its planned addition range.

The Breeze business continued to perform at or above expectations, management said. Valvoline had converted 12 Breeze locations to the Valvoline Instant Oil Change brand as of the third quarter, and Flees said early performance at converted stores was slightly ahead of expectations.

She also said the company has experienced little employee attrition during conversions and is ahead of its expectations for G&A synergy capture, though the dollar amounts remain relatively small. The Breeze deal thesis and return expectations outlined at the company’s December investor update remain intact, according to management.

Updated Full-Year Outlook

Valvoline raised its fiscal 2026 system-wide same-store-sales forecast to 7.5% to 8%, reflecting pricing actions taken to date. The company raised the midpoint of its sales outlook by $25 million, guiding to $2.05 billion to $2.1 billion in full-year sales.

Management narrowed adjusted EBITDA guidance to $550 million to $560 million and adjusted EPS guidance to $1.70 to $1.75. Willis said the company had previously expected roughly 100 basis points of full-year EBITDA margin compression but now expects closer to half that amount.

Flees said Valvoline’s actions to navigate the supply environment are intended to support profitability, cash flow and long-term growth despite near-term lubricant cost pressure.

About Valvoline (NYSE:VVV)

Valvoline NYSE: VVV is a leading global producer and distributor of automotive and industrial lubricants. The company's portfolio spans engine oils, gear oils, transmission fluids, greases, coolants and driveline products, all designed to help improve vehicle performance and longevity. Valvoline's products are marketed under the Valvoline®, Valvoline NextGen® and Valvoline™ SynPower® brand names and are formulated to meet the stringent requirements of passenger cars, light trucks, heavy‐duty vehicles and off‐road applications.

In addition to its core lubricant business, Valvoline operates one of North America's largest quick‐lubricant service networks through Valvoline Instant Oil Change℠ (VIOC).

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