Ashland’s Valvoline posts Q4 op income down 27%

28 October 2008 17:51  [Source: ICIS news]

HOUSTON (ICIS news)--Ashland’s lubricant segment Valvoline reported fourth-quarter operating income of $13.1m (€10.48m), down 27% from $17.9m in the same period last year on raw material cost increases in the early to mid-summer, it said on Tuesday.

The raw material cost increases “created margin compression through much of the quarter”, Ashland CEO James O’Brien said.

Base oils are among the raw materials to finished lubricants.

The price of feedstock crude oil skyrocketed to a high of $147.27/bbl in July, elevating the posted price for ExxonMobil’s Group I, 250-grade base oil by 68% compared with a year ago to $5.19/gal, according to global chemical market intelligence service ICIS pricing.

O’Brien said finished lube price increases implemented in August and September fully mitigated the impact of raw material increases only in the latter portion of the quarter.

Sales and operating revenue increased 18% to $454m over the September 2007 quarter largely due to the price increases, the company said.

Gross profit as a percentage of sales declined 5.4% from the 2007 September quarter, primarily a result of “the lag in timing of price increases to customers relative to base oil and additive cost increases received by Valvoline,” O’Brien said.

Valvoline's total lubricant volume was essentially even with the year-earlier quarter.

But as customers became more sensitive to the economic climate, demand from the Do-It-Yourself (DIY) sector increased, O’Brien said.

DIY volumes increased approximately 7% compared with a weak September quarter last year, and international volumes increased 9% primarily due to the commencement of a tolling contract in Europe.

The Do-It-For-Me installer channel lost approximately 8% in volume compared with the year-earlier quarter.

($1 = €0.80)

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By: Heather McGuire Doyle
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