EUR 850.00 For Business Accounts Only

Morningstar | Although Conventional Oil Competition Is Intense, Valvoline’s Premium Lineup Should Drive Results

We expect Valvoline to leverage its strong motor oil labels to generate further growth in its international and instant oil change segments, capitalizing on an intangible asset-based competitive advantage that we expect to intensify. While the vehicle fleet is changing quickly, with lubricant needs shifting toward longer-lasting but higher-priced synthetic items and the prospect of electrification looming, we anticipate Valvoline will be able to use its core product strength to keep pace.In its core North American segment (45% of sales), we contend that the shift toward premium lubricants favors differentiated firms like Valvoline that can use their superior lineups to manage a move toward less frequent but more expensive motor oil changes. With a lineup that is well suited to the shift toward higher-end products (with the company’s premium products accounting for nearly half of U.S. branded volume in fiscal 2018, up from 30% in fiscal 2013), we expect Valvoline to benefit from rising demand for top-end products in newer vehicles and a vehicle fleet that continues to age as increasingly reliable cars and trucks remain in service.Valvoline should be able to leverage its innovation and brand-building investments outside the North American market, with its faster-growing international unit (about one fourth of sales) continuing to build the firm's standing. Valvoline can use its domestic leadership to foster strong relationships with original-equipment manufacturers that can act as a beachhead into new markets (such as its Cummins joint venture). As incomes rise and motorists’ dependence on their cars and trucks grows, we anticipate Valvoline should benefit as its higher-quality lineup takes share from small local players.In instant oil change (nearly 30% of sales), Valvoline should be able to capitalize on its lubricant brand strength to take share in a fragmented industry. Furthermore, we expect its network of company-owned stores (which stands in contrast to fully franchised market leader Jiffy Lube) to deliver benefits as Valvoline works to differentiate its service offering and drive absolute profitability growth.