Quaker State Posts Q2 Earnings
24 July 1998
Quaker State Earnings Exceed Market Expectations with Second Quarter Gain in Income from Continuing Operations
IRVING, Texas, July 23 -- Quaker State Corporation
today announced that income from continuing operations, before
restructuring, systems integration and merger charges, was $10,999,000, or
$0.30 per share, for the second quarter of 1998, a 45% increase over
$7,567,000, or $0.21 per share, for the same period last year. Results
exceeded analysts' consensus estimate of $0.28 per share. The company noted
that strong volume gains in branded motor oil and continued growth in its
consumer car care business led to double-digit increases in operating profit
for Quaker State's Lubricants and Lubricant Services and Consumer Products
segments for the period.
Sales for the quarter ended June 30, 1998 were $312,879,000, down 2% from
$319,274,000 in the prior year. The decrease reflected the elimination of
$19,600,000 in sales resulting from last year's divestiture of the company's
West Virginia refinery operations, partially offset by the inclusion of Axius
auto accessories and the Rain-X brand of window treatments (both of which were
acquired in the second half of 1997) as well as increased sales at Q Lube and
Quaker State's Canadian operations.
Including previously announced charges for integration of the company's
new SAP computer system and costs related to its pending merger with Pennzoil
Company's marketing, fast oil change and manufacturing operations
(Pennzoil Products Group), Quaker State's net income for the second quarter
was $1,775,000, or $0.05 per share, compared to $8,844,000, or $0.25 per
share, for the prior-year period. The computer integration and merger costs
amounted to $9,224,000, or $0.25 per share. Year-ago second quarter net
income also included $1,277,000, or $0.04 per share, from discontinued Truck-
Lite operations.
"The strong performance of Quaker State's continuing operations once again
confirms the soundness of our branded consumer products strategy," said
Herbert M. Baum, Quaker State's chairman and chief executive officer. "By
transforming Quaker State into a bumper-to-bumper consumer car care company,
we have opened up significant opportunities for sustained, higher-margin
growth. At the same time, we have stimulated our branded lubricants business
with innovative products and compelling advertising that have created great
consumer interest in our branded motor oil products. This two-pronged
approach is a formula for increasing shareowner value; it will drive us
forward as we restructure our operations and proceed with our merger with
Pennzoil Products Group."
Baum noted that the merger process remains "on track" for expected
completion by the fourth quarter of 1998.
Income Rises in First Half of 1998
For the six months ending June 30, 1998, Quaker State reported income from
continuing operations, before restructuring, systems integration and merger
charges, of $16,538,000, or $0.45 per share, a 24% increase over $13,338,000,
or $0.38 per share, for the prior-year period. Operating profit for the first
half of 1998 was $52,230,000, a 13% increase over the 1997 period. The
company attributed these results to the strong performance of its Lubricants
and Lubricant Services businesses in the second quarter and the inclusion of
Axius and Rain-X in its consumer car care portfolio.
Sales for the six-month period were $611,408,000, slightly below
$613,627,000 for the first half of 1997. Increased branded motor oil volume,
improved sales at Q Lube and Quaker State's Canadian businesses, plus the
inclusion of Axius and Rain-X, virtually offset the impact of lost refinery
sales from the company's divested West Virginia refining operations and lower
volumes of Slick 50 during the first half of this year.
Including after-tax charges of $13,145,000, or $0.36 per share, related to
the restructuring and computer systems integration program and costs
associated with the proposed merger with the Pennzoil Products Group, Quaker
State's year-to-date net income was $3,393,000, or $0.09 per share, compared
to $15,709,000, or $0.45 per share, for the first half of 1997. Year-ago net
income for the period also included $2,371,000, or $0.07 per share, from
discontinued Truck-Lite operations.
Higher Sales and Margin Growth in Branded Motor Oil
Quaker State's Lubricants and Lubricant Services segment recorded
operating profit for the second quarter of $16,130,000, up 28% from
$12,602,000 for the prior-year period. The company attributed this
improvement to a combination of higher branded motor oil sales and reduced
product costs. Branded motor oil volume rose 6% in the second quarter, as
Quaker State's year-to-date market share averaged 14.9%, the highest
annualized level in almost 10 years. Q Lube car counts for the second quarter
were 7% higher than the prior year period, and average ticket prices increased
4%.
"We are especially pleased by growing consumer demand for our new line of
Quaker State High Performance(TM) premium synthetic blend motor oils in clear
plastic bottles," Baum noted. "Year-to-date average market share for these
products sold through mass merchandisers is up more than 37%. This exciting
new line of synthetic blend products has helped boost our conventional motor
oil sales in these same outlets 11%. More than ever, consumers look to Quaker
State for Sensible Technology(TM) and innovative, high-performance lubricant
products and services."
Baum also pointed to substantial increases in market share for Quaker
State's pure synthetic motor oils sold through mass merchandisers. Quaker
State's Synchron Ultra Premium(TM) motor oil (a full-synthetic formula) saw
its year-to-date average market share jump 81%. "We offer consumers a clear
(bottle) choice, and they are responding with enthusiasm," Baum said.
Revenues for the segment were $220,004,000, down 10% from the second
quarter of 1997. The decrease was primarily due to the loss of refinery sales
from its divested West Virginia motor oil refining operations, offset by
increases in branded motor oil volume and Q Lube and Canadian sales.
Year-to-date operating profit for the Lubricants and Lubricant Services
segment increased 22%, to $25,888,000. Branded motor oil volume increased 8%
compared to the first six months of 1997. Q Lube car counts for the period
were 7% above 1997, and average ticket prices year-to-date rose 5%.
Revenues for the six-month period were $433,675,000 for the segment,
8% below revenues for the first half of 1997. The decrease was primarily due
to lost refinery sales, offset in part by increases in sales at Q Lube and
Quaker State in Canada.
Growth in Consumer Car Care Products
Second-quarter operating profit for the Consumer Products segment was
$14,933,000, up 18% from the same period last year. The company noted that
soft sales volume for Slick 50 products was offset by strong sales volume for
car appearance products and the inclusion of results from Axius and Rain-X.
Overall, Consumer Products sales for the second quarter jumped 23%, to
$95,379,000.
"The breadth and variety of our consumer products portfolio gives us an
expanded sales and profit base, which translates into greater opportunity for
higher-margin growth," Baum said.
For the six months ended June 30, 1998, operating profit at the company's
Consumer Products segment rose 6%, to $26,342,000. Lower Slick 50 profits as
a result of soft sales were offset by strong performance in automotive
appearance products and the inclusion of Axius and Rain-X.
Consumer Product revenues year-to-date were $182,347,000, up 22% from the
prior year period. Soft Slick 50 sales were offset by strong performance in
appearance products and the inclusion of results from Axius and Rain-X.
"We have built a powerful collection of consumer car care brands," said
Quaker State's CEO. "These brands have bolstered our sales and earnings power
significantly and we see them as an important element for continued growth as
part of the new consumer car care company we will form through our proposed
merger with the Pennzoil Products Group."
Quaker State Corporation is principally a manufacturer and distributor of
leading consumer aftermarket products and services, including motor oil and a
full range of high-quality automotive treatment, appearance, accessory and air
freshener products.
Quaker State Corporation and Subsidiaries
Consolidated Statement of Operations
(unaudited)
(in thousands, except per share data)
For the Quarter For the Six Months
Ended June 30 Ended June 30
1998 1997 1998 1997
Revenues
Sales and operating
revenues
Lubricants and
lubricant services $220,004 $244,744 $433,675 $469,283
Consumer products 95,379 77,795 182,347 149,270
Intersegment sales (2,504) (3,265) (4,614) (4,926)
Total operating
revenues 312,879 319,274 611,408 613,627
Other, net 951 1,362 2,580 3,419
Total revenues 313,830 320,636 613,988 617,046
Costs and Expenses
Costs of sales and
operating costs 184,629 203,841 368,496 395,601
Selling, general and
administrative 91,620 87,004 180,331 165,842
Depreciation and
amortization 11,427 10,212 22,780 19,953
Interest 7,555 6,737 14,514 13,062
Restructuring, systems
integration, merger and
other special charges 15,249 --- 21,674 ---
Total costs and
expenses 310,480 307,794 607,795 594,458
Pretax income from
continuing operations 3,350 12,842 6,193 22,588
Provision for income
taxes 1,575 5,275 2,800 9,250
Income from continuing
operations 1,775 7,567 3,393 13,338
Income from discontinued
operations --- 1,277 --- 2,371
Net income $1,775 $8,844 $3,393 $15,709
Per Share
(basic and diluted)
Income from continuing
operations $0.05 $0.21 $0.09 $0.38
Income from discontinued
operations --- 0.04 --- 0.07
Net income per share $0.05 $0.25 $0.09 $0.45
Weighted average
capital shares
outstanding - basic 36,421 35,104 36,361 34,992
Segment Operating Profit
Lubricants and
lubricant services $16,130 $12,602 $25,888 $21,270
Consumer products 14,933 12,694 26,342 24,885
Total operating profit 31,063 25,296 52,230 46,155
Corporate income 123 191 264 381
Interest expense (7,555) (6,737) (14,514) (13,062)
Corporate expenses (5,032) (5,908) (10,113) (10,886)
Restructuring, systems
integration, merger and
other special charges (15,249) --- (21,674) ---
Pretax income from
continuing operations $3,350 $12,842 $6,193 $22,588