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Valvoline Gears up to Divest Global Products Business, Post Q3 Results

Story Highlights

Valvoline’s decision to divest the Global Products business is expected to boost the long-term prospects of the remaining business and value for its shareholders. In the near term, better-than-expected results for the third quarter of Fiscal 2022 would be another positive for its investors.

Valvoline Inc. (NYSE: VVV) has decided to divest its Global Products business to Aramco, a petroleum and natural gas company in Saudi Arabia, for $2.65 billion. An agreement in this regard was signed on Monday.

Meanwhile, Valvoline released its preliminary results for the third quarter of Fiscal 2022 (ended June 30, 2022) on Monday.

Following the announcements, shares of the $5.7-billion automotive oil and lubricants manufacturer declined 2.7% to close at $31.35 in the normal trading session on Monday. However, VVV stock grew 1.5% in the extended trade.

The Rationale behind the Divestment of Global Products Business

Valvoline’s Global Products business primarily deals with preventive maintenance products for engines and automobiles. It has operations spread across 140 countries. In the first half of Fiscal 2022, Global Products revenues were $1,048 million, representing 60.1% of Valvoline’s total revenues.

In addition to the Global Products segment, Valvoline has another segment, Retail Services.

Valvoline’s CEO, Sam Mitchell, said, “The sale of Global Products will represent the successful outcome of our strategy to unlock the full, long-term value of our strong but differentiated Retail Services and Global Products businesses.”

The completion of the divestment of the Global Products business (either by the end of calendar 2022 or early 2023) is contingent upon the receipt of regulatory approvals and fulfillment of closing conditions. After-tax proceeds from this transaction are expected to be $2.25 billion.

“After closing, we will focus on our market leading Retail Services business, including further enhancing our growth trajectory and world-class service model. Retail Services will benefit from a strong balance sheet and a clear strategy for value creation, including extending our world-class preventive auto maintenance service model to EV owners, OEMs and fleets as the car parc evolves,” Mitchell added.

Preliminary Fiscal Q3 Results

For the third quarter, Valvoline expects adjusted earnings to be $0.58 per share, higher than the consensus estimate of $0.57 per share.

Revenues are forecast to be $957 million in the quarter, compared with the consensus estimate of $938 million. Sales of the Retail Services segment are forecast to increase 16%, and revenues of the Global Products segment are likely to grow 24%.

Valvoline is slated to release its results for the third quarter of Fiscal 2022 on August 3, 2022.

Wall Street’s Take on VVV Stock

According to TipRanks, the Street is unanimously optimistic about the prospects of Valvoline and has a Strong Buy consensus rating based on three Buys. VVV’s average price forecast of $37 mirrors 18.02% upside potential.

Similarly, financial bloggers on TipRanks are 100% Bullish on VVV versus the sector average of 72%.

Closing Remarks

The divestment of the Global Products business will make Valvoline a pure-play Retail Services company. The net proceeds from this deal will help the company lower its debts, enhance the prospects of the Retail Services business, and reward shareholders with share buybacks.

In addition to the abovementioned tailwinds, the company’s expectation of delivering better-than-expected results for the third quarter of Fiscal 2022 might help enhance the stock’s appeal.

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