Valvoline Inc (VVV)

A. Company Overview

Valvoline Inc. is recognized as a leader in automotive preventive maintenance services, primarily operating retail outlets throughout the United States and Canada. The company has established itself over 155 years of operation, with a strong commitment to providing quick, easy, and trusted vehicle maintenance solutions. Valvoline’s core operations focus on oil change services, accompanied by a suite of complementary services such as battery replacements, bulb and wiper replacements, and tire rotations. With a mission to create shareholder value, the company emphasizes network growth and the innovation of services to meet the evolving needs of a diverse customer base.

Valvoline operates and franchises more than 1,850 service centers, specifically through its Valvoline Instant Oil Change service (VIOC) and the Valvoline Great Canadian Oil Change (GCOC) brand. In addition, the company assists nearly 300 locations through its Express Care platform. The business model combines convenience with expertise, providing a stay-in-your-car oil change experience that has garnered high customer satisfaction ratings. The company’s operations are underpinned by a proprietary technology system, known as SuperPro™, which helps technicians deliver exceptional service and make tailored maintenance recommendations.

B. Company Background

Founded by Dr. John Ellis in 1866, Valvoline took its first major step towards innovation with the creation of the world’s first petroleum-based lubricant derived from distilled crude oil. The brand gained official recognition in 1873, becoming the first trademarked motor oil brand in the United States. Rapid expansion followed as automobile ownership surged, with Valvoline becoming synonymous with high-profile racing victories and recommended oil for the Ford Model T.

Incorporated into Ashland in 1950, Valvoline benefited from resources that facilitated the development of new all-climate and racing motor oils. The late 1980s marked a significant transition as the company entered the consumer market by franchising VIOC service centers. Over the years, Valvoline has remained at the forefront of automotive maintenance innovations, introducing advanced products like synthetic and high-mileage motor oils aligning with changing vehicle technologies.

Valvoline became an independent corporation after its initial public offering in September 2016, following a comprehensive restructuring process that transferred key assets from Ashland. Today, Valvoline trades under the ticker symbol “VVV” on the New York Stock Exchange, positioning itself as a dedicated automotive retail service provider.

C. Discontinued Operations

In March 2023, Valvoline completed the divestiture of its former Global Products segment to Aramco Overseas Company B.V. This major transaction marked a strategic shift for Valvoline, allowing the company to concentrate on its core retail service offerings and streamline operations.

D. Retail Services

Valvoline's retail services encompass a robust network of service centers where comprehensive automotive maintenance services are offered. The business operates through its major brands—Valvoline Instant Oil Change (VIOC) and Valvoline Great Canadian Oil Change (GCOC)—and bolsters its market presence with the Express Care service model. The core services provided include:

• Oil changes
• Brake services
• Tire rotations
• Battery, bulb, and wiper replacements
• Other manufacturer-recommended maintenance services

The stay-in-your-car oil change model has been widely adopted, providing customers with convenience and a faster service experience. Valvoline technicians are trained to use the SuperPro system, ensuring service quality and consistency across both company-operated and franchised locations.

E. Industry Overview

The automotive aftermarket service industry is characterized by steady growth, driven by the increasing number of vehicles in operation and their complexity. With more vehicles on the road and rising mileage, demand for maintenance services continues to expand. Additionally, the fragmented nature of the North American automotive service market presents substantial opportunities for consolidation, enhancing Valvoline's growth potential.

F. Business and Growth Strategies

Valvoline is strategically focused on maximizing shareholder value through several initiatives:

• Core Business Enhancement: The company aims to increase market share and non-oil change revenue in existing service centers while reinforcing its marketing and technological capabilities.
• Expansion of Retail Footprint: Valvoline is actively pursuing growth in both company-operated and franchised stores to enhance market penetration.
• Service Expansion: The company is dedicating resources to capture new customers, particularly in the fleet management segment and other evolving areas of the automotive market.

G. Retail Store Development

Valvoline boasts a track record of system-wide same-store sales growth for 17 consecutive years as of 2023, reflective of the operational efficiency and effectiveness of its retail services. Over the past five years, Valvoline has seen a substantial increase in its store network, adding over 467 net new locations and expanding into Canada. The company adopts a three-pronged approach to grow its service center footprint, emphasizing franchise expansion, strategic acquisitions, and new store developments.

H. Competition

The automotive aftermarket service sector is highly competitive, and Valvoline faces a diverse array of competitors in various service categories. Competitors include automotive dealerships, independent repair facilities, and other franchised quick lube operators. Notable rivals include Jiffy Lube, Grease Monkey, and Take 5 Oil Change, all of which present challenges related to brand recognition, pricing, service quality, and customer convenience.

Valvoline's market positioning relies on its reputation for quality service and brand trust, which are critical factors in attracting both customers and franchisees.

I. Marketing and Customer Experience

Valvoline places significant emphasis on delivering a positive in-store customer experience through efficient service and relationship building. Various marketing tactics are employed to enhance customer awareness, promote service offerings, and provide insights into locations and pricing. Digital marketing strategies have proven effective, leveraging data analytics to refine customer acquisition and retention efforts. Feedback mechanisms ensure customer satisfaction levels are regularly evaluated, enabling timely improvements to the service experience.

J. Intellectual Property

Valvoline's intellectual property portfolio includes approximately 260 trademarks across over 60 countries, safeguarding both the Valvoline brand and its associated logos. These trademarks are renewed periodically, representing valuable assets for the company. Following the sale of the Global Products segment, Valvoline retains brand ownership relevant to its retail services globally, except in China and select parts of the Middle East and North Africa.

K. Product Supply and Pricing

The products utilized in Valvoline's services are predominantly sourced from its former Global Products segment, under a long-term supply agreement established post-divestiture. This agreement positions Valvoline to benefit from favorable terms due to its operational scale and enhances the value proposition for its independent operators. As cost dynamics fluctuate, Valvoline adjusts its pricing strategically to maintain margins while prioritizing customer loyalty and service quality.

L. Seasonality

The automotive service business at Valvoline experiences moderate seasonality influenced by driving patterns, which typically rise with increased daylight hours and holidays. Weather conditions can also impact customer transaction volumes across different regions, resulting in stronger performance in the second half of the fiscal year as driving frequency tends to increase.

M. Regulatory and Environmental Matters

Valvoline adheres to an extensive array of federal, state, and local regulations that govern operational practices, including compliance related to health and safety, environmental protection, and employment. The company has established policies and procedures to ensure compliance with hazardous materials management, waste disposal, and other obligations, while actively engaging in risk mitigation efforts across its service centers.

N. Executive Officers

As of November 2023, Valvoline's leadership team consists of experienced professionals with backgrounds across various industries. The executive roster includes:

• Lori A. Flees, President and Chief Executive Officer
• Mary E. Meixelsperger, Chief Financial Officer
• Julie M. O’Daniel, Senior Vice President, Chief Legal Officer, and Corporate Secretary
• Jonathan L. Caldwell, Senior Vice President and Chief People Officer
• R. Travis Dobbins, Senior Vice President and Chief Technology Officer
• Linne R. Fulcher, Senior Vice President and Chief Operating Officer
• Dione R. Sturgeon, Chief Accounting Officer and Controller

Each officer brings a wealth of experience and leadership to drive the company’s strategic objectives and foster its ongoing growth within the competitive automotive services market.