Parent company Ashland Inc. reported Monday that Valvolines operating income fell 4.9 percent to $77 million for the fiscal year ended Sept. 30, due to declining sales of R-12 refrigerant. Excluding R-12, operating income jumped 13.2 percent, thanks largely to rising sales of premium products.
For several years, Valvolines strategy has been to develop new products, add new product lines and enter geographic markets to build revenues from other sources, Ashland President and Chief Executive Officer James J. OBrien said. This strategy has worked very well. We have emphasized premium products and Valvoline now excels in that category.
Formerly a big money-maker, R-12 has been a drag on Valvolines performance since 1995, when industrial nations banned the manufacture of it and other ozone-depleting chlorofluorocarbons. Governments have allowed sales of existing stockpiles to continue. Including R-12, Valvolines operating income grew less than 0.5 percent per year over the past five years. Without it, officials say, operating income has grown approximately 8 percent per year. For fiscal 2002, R-12 contributed essentially no gross profit, officials said, after contributing $13 million a year earlier.
Valvolines total sales revenues grew slightly in 2002, from $1.09 billion to $1.15 billion. Lubricant sales jumped from 183 million gallons to 194 million gallons. More important than the overall increase in volume, officials said, was the growth in sales of higher-margin products, such MaxLife motor oil for high-mileage engines. Valvolines sales of that and other premium motor oils jumped 37 percent for the year, with strong results in North America and Europe.
Without disclosing specific data, officials said that Valvoline Instant Oil Change enjoyed a record year, thanks to increasing numbers of oil changes using MaxLife and Valvolines synthetic and synthetic blend motor oils.
During a conference call Monday, OBrien told stock analysts that Valvoline will increase its advertising budget by $12 million this year.
Earnings for Valvoline and Ashlands other wholly-owned businesses – APAC, Ashland Specialty Chemical and Ashland Distribution – were a combined 25 percent higher in fiscal 2002 than the previous year. Overall, income from continuing operations fell 68 percent to $129 million, due to reduced earnings from refining and marketing joint venture Marathon Ashland Petroleum, Ashlands largest source of operating income.