Ashland’s Consumer Markets segment — its lubricants, automotive chemicals and appearance products business — reported improved financial results on a sequential basis for the fiscal second quarter but not on a year-over-year basis. Sales for the three months ended March 31, 2012, came in at $520 million. This was up 6 percent over the prior-year quarter and up 9 percent sequentially. And, while gross profit was down 290 basis points versus the prior year, it improved 110 basis points sequentially to 26.4 percent of sales.
On a call with members of the financial community to discuss Ashland’s fiscal first quarter earnings, management noted that Consumer Markets’ gross profit was running at 28 percent in January. However, Sam Mitchell, president of Ashland Consumer Markets, said on an April 24 conference call that higher trade promotion activity and reduced volume in the higher-margin DIY channel negatively affected gross profit as the quarter progressed. “Trade promotion typically refers to reduced pricing offered in support of short-term retail activities. This practice is common throughout the industry and takes place at selected times throughout the year to drive volume and increased brand awareness,” Mitchell told analysts. “However, in the second-quarter many retailers were focused on reducing inventory, thus negating the volume rise we would have expected.”
Markets were particularly soft in North America. “This channel has been weak due to overall market softness and retailers reducing their inventories, thus negatively affecting our shipments,” Mitchell said. “Despite our volume declines, our market share has improved over this period based on point-of-sales data.”
As for the Valvoline Instant Oil Change (VIOC) business, Mitchell said car counts have improved over the last one to two months. He told analysts “we see some good signs there.”
“Our quick-lube business continues to perform well. Our same-store sales continue to be up this year,” Mitchell said on the call. “Longer-term, we expect to add more units as noted by the acquisition that was made by one of our largest franchisees, so that’s going to create some good opportunities.”
As you may recall, Henley Enterprises (the largest franchisee of VIOC shops) has purchased 72 EZ Lube oil change centers in southern California. The shops — located predominantly in Los Angeles, Orange County and San Diego — are being re-branded under the VIOC banner.