Simeon Gutman - Morgan Stanley Dmitry Silversteyn - Longbow Research Jason English - Goldman Sachs Mike Harrison - Seaport Global Securities Olivia Tong - Bank of America Faiza Alwy - Deutsche Bank Carolina Jolly - Gabelli & Company Chris Shaw - Monness, Crespi Silke Kueck - JPMorgan.

Good afternoon. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Valvoline Inc. Third Quarter 2017 Conference Call and Webcast. [Operator Instructions] Thank you. Jason Thompson, Vice President and Treasurer, you may begin your conference..

Thank you, Tiffany. Good morning and welcome to Valvoline's Third Quarter Fiscal 2017 Conference Call and Webcast. Valvoline released results for the quarter ended June 30, 2017, at approximately 5:00 p.m. Eastern Time yesterday, August 1, and this presentation and remarks should be viewed in conjunction with that earnings release.

These results are preliminary until we file our Form 10-Q with the Securities and Exchange Commission. A copy of the news release has been furnished to the SEC in a Form 8-K. With me on the call today are Valvoline's Chief Executive Officer, Sam Mitchell; and Mary Meixelsperger, Chief Financial Officer.

As shown on slide 2, our remarks include forward-looking statements as such term is defined under U.S. securities law. We believe such statements are based on reasonable assumptions but cannot assure that such expectations will be achieved. In this presentation and in our remarks, we will be discussing our results on an adjusted basis.

Adjusted results exclude key items, which are unusual, nonoperational or restructuring in nature. We believe this approach enhances understanding of our ongoing business. As you can see on slide 3, Valvoline delivered reported EPS of $0.27. Reported operating income was $104 million, and net income was $56 million.

Let me briefly discuss some notes on reporting. A few items related to the separation are driving differences in our year-over-year comparisons. First is interest expense. This represents the cost of new debt associated with the creation of Valvoline's capital structure that was established in 2016.

We did not have interest expense in the prior year third quarter. Also related to our capital structure is recurring pension-related income, which is higher this year than it was in the prior year. The pension and other OPEB plans that we assumed from Ashland did not transfer to Valvoline until the - until September of 2016.

Prior to this, we were allocated a portion of the pension at OPEB income based on our participation in the plans. Key items, which are excluded in our adjusted results, totaled $13 million after tax due primarily to separation-related costs. In Q3 of fiscal 2016, there were no key items.

We'll also be discussing EBITDA from operating segments, which is simply the contribution to our total EBITDA from our three operating segments of Core North America, Quick Lubes and International.

We believe that both adjusted results and EBITDA from operating segments are meaningful to investors, so we'll be focusing on those for the remainder of the call. Now let me turn things over to Sam to cover more details of the results in our operating segments.

Sam?.

Thanks, Jason, and good morning, everyone. It was an important quarter for Valvoline. May 12, 2017 marked the final step in our separation from Ashland with the distribution of Valvoline shares to Ashland shareholders. The culmination of the work to separate Valvoline from Ashland is now complete.

We are focusing 100% of our efforts on driving profitable growth at Valvoline and creating long-term value for our investors. Valvoline delivered solid results in the third quarter. In fact, we performed better than our expectations. Core North America grew branded volume and premium mix.

We had strong same-store sales growth in Valvoline Instant Oil Change and another quarter of solid volume gains in International. I'd like to go further into each of the segments to discuss the details of these results. Let me start with Core North America. As you can see on slide 4, volume declined 3%.

As we discussed last quarter, the decrease in volume for this segment came from our lower margin non-branded business where we're seeing the impact of some lost business. In addition, volume was impacted by a shift in the promotional calendar for our private-label business. More importantly, branded volume increased 1% versus prior year.

A good portion of the branded increase came in the DIY space where we continue to see steady gains in share, reflecting the health of the brand.

These gains for Valvoline, along with a general trend in the industry toward more premium products drove the improvement in premium mix within our branded volume, a key element of unit margin expansion over time.

As we anticipated, profitability in Core North America was impacted primarily by the negative year-over-year price cost lag due to rising raw material costs. Base oil increases, the primary driver of rising raw material costs, were tied to rising crude earlier in the year.

Although crude prices have declined, base oil prices have remained unchanged due to temporary refining - refinery maintenance and other outages. We have passed the raw material cost increases through to the portion of our business with formula-based pricing, which is tied to a base oil index.

For the business with market-based pricing, we have taken actions to pass through these increases and have made good progress. We'll continue to take actions to protect our unit margins. We expect to see improvements during Q4 and the full benefit of our actions by the start of Q1 fiscal '18.

On slide 5, you can see that the Quick Lube segment delivered strong same-store sales growth in Valvoline Instant Oil Change, an impressive 7.9% increase system-wide in Q3. We saw strength across all regions with same-store sales growth in company-owned stores up 6.9% and franchise stores coming in up 8.3%.

Across the system, the strength of our retail model continues to generate results. Same-store sales growth was driven by an increased number of transactions and strong execution of our model at both company and franchised operations.

We are in a great position across our 1,100-plus stores to address the consumers' demand for convenience and trust in servicing their cars. The increase in transactions is also due to the performance and strengthening of our ongoing marketing platforms. Our targeted approach leveraging both traditional and digital media is working well.

This quarter, we added a new layer of marketing. In May, we launched our, Service you can see Experts you can Trust, advertising campaign. The campaign was rolled out in our company-owned markets, primarily using digital media.

The focus is on building the Valvoline brand by emphasizing our differentiated Quick Lube service offering and customer experience such as staying in your vehicle while it's being serviced. Efforts like these drive new customer acquisition, and we're excited by the results we've seen so far.

In Q3, we added 5 stores to our Valvoline Instant Oil Change network. And over the last 12 months, we've added 58 stores to the system. 28 new company stores came from the Time-It Lube acquisition. Time-It is still in the integration process. We're seeing a few more challenges in the first few months compared to the Oil Can Henry's integration.

But I'm encouraged by our progress, including that we've recently finished the store rebranding. I also continue to be very pleased with the sales and profit growth from the former Oil Can Henry's stores. Excluding product sales, our store level gross profit is up 12% versus Q3 last year.

We will continue our outreach interactions with quality regional operators to look for more acquisitions like these. Our International segment delivered another quarter of solid volume growth. Slide 6 shows that our reported volume in International was up 5% year-over-year and up 7% including our joint ventures.

While this is slightly lower than our long-term growth rate in the high single digits, we remain confident in our expectations. We continued our distributor top grading in China, improving the overall quality of the network and shifting more volume to our best performers.

And in Q3, we added a new distributor in Dubai as we built our presence in the Middle East and Africa market. Within the mature markets, we had another strong quarter in Europe due to success of our channel development efforts. We continued to improve our European distributor network and our ability to get the right products to the right markets.

Year-to-date, International volume is up 10% or 11% with the JVs included. So we're on track to deliver another year of strong volume growth. A few items are contributing to the year-over-year decline in EBITDA in International. Like the rest of the company, International also saw increases in raw material costs, generating a negative price cost lag.

We're working to pass these increases through and are focused on a few key markets, especially Asia where base oil increases were the most pronounced. Also, like the rest of the company, EBITDA in International was impacted by planned increases in SG&A. With that, let me pass it over to Mary for a detailed review of our financial results..

Thanks, Sam. Our adjusted results for fiscal Q3 are summarized on slide 7. Sales were up 7% on slightly higher volumes. EBITDA from the operating segments was $112 million, which, as Sam mentioned earlier, came in better than our expectations and above the high end of our guidance. Adjusted EPS for the quarter was $0.34.

EBITDA from operating segments was down $8 million versus prior year. The main drivers of the year-over-year decline can be seen on the table and bridge on slide 8. Volume mix added favorability to EBITDA but was offset by negative price cost lag due to rising raw material costs.

Last year's Q3 was still modestly benefiting from a favorable price cost lag as well. SG&A increased as planned due to new public company costs and, to a lesser extent, an increase in advertising in the quarter. We expect further investment in SG&A in Q4, primarily related to the timing of our digital investments.

Valvoline's total adjusted EBITDA in the quarter was $129 million, which includes the impact of non-service pension and OPEB income of roughly $17 million. Turning to corporate items on slide 9. Our effective tax rate in the quarter was 40.4%. The higher rate was driven primarily by tax impacts of the key items.

Our adjusted effective tax rate was 35.5%. Year-to-date, cash provided by operating activities was $157 million. As we discussed last quarter, the year-over-year decline in operating cash is driven by cash interest payments, pension and OPEB contributions and separation-related costs.

Year-to-date CapEx totaled $43 million, resulting in free cash flow of $114 million. We also utilized our share repurchase program to buy back roughly 2.2 million shares at a cost of $50 million during Q3.

Total share count outstanding was largely unchanged for the quarter as the reduction in shares from the repurchase was offset by the dilution from converting unvested employee equity awards from Ashland shares to Valvoline shares as part of the final separation from Ashland.

We ended the quarter with total debt of $733 million, giving us net debt of $601 million. Net pension and OPEB obligations ended the quarter at roughly $833 million. Based on the continuation of current market conditions, we expect a large favorable mark-to-market pension adjustment to be recorded in Q4, which we will treat as a key item.

As outlined on slide 10, we are announcing today our intention to make a nearly $400 million voluntary contribution to our U.S.-qualified pension plan, funded with new debt. The amount of our overall balance sheet obligations will not change as a result of this transaction.

We are taking advantage of a strategic opportunity to significantly reduce the unfunded pension obligation, reducing the future volatility of this liability that we assumed as part of the separation from Ashland.

Our decision to act now on this change to our capital structure by substituting a potentially volatile liability with a fixed and certain liability is based on significantly increased - increasing Pension Benefit Guaranty Corporation premiums, historically low interest rate spreads and the potential for future reductions to U.S. tax rates.

Benefits from the lower PBGC premiums alone will result in the significant NPV-positive transaction. The contribution will result in the plan being approximately 95% funded. Under the most likely scenario, we do not expect to have to make any new contributions to the plan until 2026. Turning to guidance.

You can see our updated expectations for fiscal '17 on slide 11. We are narrowing our adjusted EPS range to $1.37 to $1.40. This range includes the anticipated increase in interest expense related to borrowing to fund the pension of about $0.01. We're also narrowing EBITDA from operating segment guidance to $444 million to $450 million.

We are raising our full year free cash flow guidance to $160 million to $180 million, primarily driven by the tax-deductible pension contribution. Now let me turn things back to Sam to wrap up.

Sam?.

Thanks, Mary. In summary, it was an important quarter for Valvoline. With the final separation from Ashland now behind us, all of our energy is now focused on driving profitable growth. Quick Lubes' performance has been outstanding as we continue to discover new ways to improve operational execution.

And as we've discussed, we are bullish on the opportunity to grow the number of stores in the system. We are working closely with our franchisees on their development, and we will continue to pursue high-quality regional acquisitions to grow the number of company stores.

The International business continues to grow at a healthy rate as we develop our channels to market. Margin improvement is needed and expected, and price increases are underway. Core North America is also making good progress, working through pricing and margin improvement actions.

While we would like to see better top line growth, we continue to drive premium mix improvements, and our DIY share remains healthy. We're making steady progress on our digital infrastructure initiatives, and we return capital to shareholders through the share repurchase.

The decision to fund the pension announced today positions us to reduce risk and volatility of these liabilities assumed from Ashland while creating value with a significantly positive NPV transaction. As you can see, we're working hard to build the strong foundation we need for future growth.

And with that, I'll hand it over to Jason to open the line for Q&A..

Thanks, Sam. Okay, Tiffany, we can open the line now. [Operator Instructions].

[Operator Instructions] Your first question comes from the line of Simeon Gutman with Morgan Stanley..

So I have a one and a follow-up. My first one has two parts, just a warning. It's all in Core North America. The first part is the top line growth, the volume growth.

Can you give us a sense whether there's - is it just traditional secular pressure as far as the volume performance? Or are there some market share dynamics? Are you losing, gaining share within the context of how it performed? And then the second part of it is the trajectory of gross profit per gallon, specifically for that business.

You expressed optimism in the press release for the go forward. Curious if you can describe the progression that you expect. Is it going to be steady? Will there be a spike and then it will level off? Any color around how we should think about GP per gallon..

Sure. Yes, first of all, in terms of the overall demand environment in Core North America, when we look at the DIY sales channel, definitely have seen some softness in overall category demand. We get very good data at the store level that helps us understand that.

So after we had seen some pretty good health throughout 2015 into 2016, really, over the last six months or so, we've seen a bit of a slowdown where the category decline looks to be about in the 2% range.

Our volume has been really solid though in DIY, so that's where we've seen some pretty good share growth and some nice improvements in our premium mix. So I feel real good about our performance in DIY, the strength of the brand in DIY.

Factors that are causing the decline, things that we're looking into, we've seen some reports, for example, on Hispanic DIY spending being a bit off over this same period. So it's important to follow some of the drivers behind this. But I'm very confident that our volume will continue to stay very healthy in the DIY business.

Turning to the installer side of Core North America, we've also seen some softness there in overall demand. So we have a pretty good view of that, not quite with the same accuracy of DIY, but nonetheless, we can look at a lot of our direct accounts.

And we see that looks to be kind of in the same range of softness, probably market demand being off a couple of percentage points. So hoping that, that is more of a short-term impact. I think definitely some of the repair chains have seen softness this year as a result of a pretty mild winter, so just that impacting the number of repairs.

But overall, our business on the installer side remains solid, too. So I feel good about our performance in Core North America.

I'd obviously like to see branded volume grow at a faster rate than 1%, and so we're going to keep working on some important innovations that we can - that we think help further differentiate the Valvoline brand from our competitors.

With regard to the margin and how the costs are flowing through and also the price adjustments, the margin improvement actions that we're taking, certainly, in Q3, we felt most of the full impact of those cost increases in base oil that it is hitting our P&L. We'll continue to feel that into Q4.

But in Q4, we will see progress in Core North America, actually, in each one of our major segments. We'll see good progress in Q4 in our margins as our pricing actions and other margin improvement actions take hold. So expect to see progress in Q4.

And then as we start the new fiscal year, as I've said, I think we'll be in very good shape as those actions are in place, and we expect to see more stability in our cost structure.

Did that help?.

Yes. No, that's helpful. And then, my follow-up is on the VIOC business. The top line growth was strong, was solid. But EBITDA is growing at a slower rate. And I think that's been the case for a while, EBITDA growing slower than total sales.

Can you just tell us what are some of the swing factors where that gap could sort of narrow, where EBITDA growth is more in line with sales? Should that be the case? And what are the swing factors, things that you're spending on? And how does that play out over the next few quarters?.

Yes. A couple of impacts in the current quarter with that is that we've had the integration costs of Time-It. So you're - we're having the benefit of the revenue increase but not seeing the profit increase as we've had higher cost in making that transition.

There's higher - the higher pricing, higher cost of the raw material cost is also flowing through. And the pricing actions that we're taking at the store level, those will flow through in Q4 and also at the start of the fiscal year.

We also had a bit higher SG&A investment, too, as it relates to the marketing initiative, the advertising initiative that I spoke about. But obviously, we're seeing some very good results from that, and I think that's a very smart spend for us.

Long term then, I do expect the profit growth should typically be closer in line with the top line growth though..

Your next question comes from the line of Dmitry Silversteyn with Longbow Research..

I wanted to follow up on the International business. Grew a very respectable 5%, but obviously, you're talking about high single-digit growth there.

So what needs to happen? Or what are you looking for either from the market or from internal execution to get you into that high-single digits, if not in the fourth quarter, then at least as a run rate in fiscal 2018?.

Yes. As we saw in the first half, we had growth rates even north of 10%. So sometimes international markets, you see a little bit more choppiness in terms of consistent growth month-to-month. But we're doing all the things to drive that high single-digit top line growth with developing our channels to market.

A lot of our work is still, what I call, blocking and tackling, strengthening in our - our distributor network, adding new distributors in developing markets. That would include places like China and Southeast Asia. We are doing some work in developing our business in the Middle East, Africa region, too.

But even in mature markets, we talked about the strength that we've seen in Europe recently. Really, the team has worked hard there in adding new distributors, strengthening our network. I think we added about 10 distributors over the last 18 to 24 months. And then really improving our supply chain, too.

In other words, reducing the lead times it takes to get our products through our distributors and our customers there. So these channel-building efforts are taking place really across all of our key regions.

Latin America, particularly in Northern Latin America, is an important region for us to grow, and we think we're in a great position to continue to see that growth. One of the key factors in driving international growth is driving growth not just in passenger car but in our heavy-duty business, too.

A lot of good innovations taking place with our heavy duty product line, working very closely with Cummins.

That partnership has been very important to us, obviously, with our success in India, but also in China, too, as we develop lubricants that are specifically formulated for those Cummins engines that offer advantages to competitive products that really give Valvoline a point of differentiation to grow from.

So growth in the heavy-duty markets is really key for us, too, in driving international growth..

Okay. As a follow-up question, on the core side of the business, you've been sort of deemphasizing or getting out of the off-brand or non-branded business for a while now, and it's been a headwind to your volume growth.

Where are we in that initiative? I mean, I'm assuming you don't want to draw down to 0 because there will always be, I guess, price shoppers in the DIY channel.

So how long is it going to be before we kind of at or get to a more manageable year-over-year comp as far as the erosion of the non-branded business?.

Sam Mitchell:.

-:.

-:.

Your next question comes from the line of Jason English with Goldman Sachs..

Like others, I've got 2. And like others, there may be a couple of subpoints within..

No problem..

So first, on pension, the decision to prefund it makes plenty of sense.

Can you quantify what the annualized impact will be on both the pension income line as well as the interest expense line, pre- and post-tax for us? And how, if at all, does this impact the deferred tax assets you've had from prior pension contributions?.

Mary Meixelsperger:.

The absolute contribution will certainly increase the assets that we're earning returns on. But we do expect to move the total asset allocation more towards fixed income and away from risk assets, so that we're hedging a larger portion of our overall portfolio, which will have some offset to the pension income.

I will tell you, in general, I think pension income will likely be going down next year, but it's too early to provide specific guidance around those rates. Our actuaries have some work to do before we can do that, and we'll provide more detail in Q4.

The other part of your question, I think, could you repeat that again, on the pension? Was that all of it, Jason?.

The absolute contribution will certainly increase the assets that we're earning returns on. But we do expect to move the total asset allocation more towards fixed income and away from risk assets, so that we're hedging a larger portion of our overall portfolio, which will have some offset to the pension income.

I will tell you, in general, I think pension income will likely be going down next year, but it's too early to provide specific guidance around those rates. Our actuaries have some work to do before we can do that, and we'll provide more detail in Q4.

The other part of your question, I think, could you repeat that again, on the pension? Was that all of it, Jason?.

The absolute contribution will certainly increase the assets that we're earning returns on. But we do expect to move the total asset allocation more towards fixed income and away from risk assets, so that we're hedging a larger portion of our overall portfolio, which will have some offset to the pension income.

I will tell you, in general, I think pension income will likely be going down next year, but it's too early to provide specific guidance around those rates. Our actuaries have some work to do before we can do that, and we'll provide more detail in Q4.

The other part of your question, I think, could you repeat that again, on the pension? Was that all of it, Jason?.

Jason English:.

-:.

Mary Meixelsperger:.

-:.

-:.

-:.

[Indiscernible] The accounting change..

Oh, the accounting change. The accounting change, we will adopt early the new FASB guidance around accounting for pension income. And beginning next year, all of our pension income will be reclassified from above the operating income line to below the operating income line..

Your next question comes from the line of Mike Harrison with Seaport Global Securities..

Mike Harrison:.

-:.

Sure. First, starting with Oil Can Henry's, you shouldn't be surprised at the rebranding. The Valvoline brand is incredibly strong. And so while Oil Can Henry's was a strong brand and the team had done some research on that, we really found that the impact of the rebranding and putting the big V upfront helps us attract new customers to the stores.

And some of the practices that Oil Can Henry's had that we thought were real positive, we learned from and we built off of, and the results have been really impressive. So same-store sales has been very strong with Oil Can Henry's. The biggest impact that we've had to the business there is in car counts.

So the number of transactions, attracting new customers to the stores. And certainly, that has to do with branding. It has to do with our marketing programs. It also had to do with just our SuperPro Management System for how we manage the customer experience in the store to make sure that we're providing that convenient service for the customers.

So it's really great to see that the whole team out in the Pacific Northwest are doing a great job for us taking care of customers. Very optimistic that we'll see similar results in Time-It. It just that in the first few months, we've had a bit more work to do on staffing in the stores, store-level leadership.

We've had more turnover there, and making sure that we've got the right type of leader in the store that can help lead that team to deliver that outstanding execution. We're seeing some really good progress there. And now that the stores have been rebranded, I just think we're going to be on a nice growth rate there with the Time-It acquisition.

Time-It was a very strategic acquisition for us, and that moves us into that Louisiana-Texas region. We also had a small transaction, too, picking up a franchisee who is looking to retire in San Antonio but very strategic for us as we start to build presence in the important Texas region..

All right. And then, I was also hoping that you could discuss it. There's been some commentary in consumer circles about the impact of Amazon in the marketplace and how competition from Amazon could be having some effect on the auto retailers.

Can you talk a little bit about how you view your own e-commerce efforts in that context, and how you view Amazon in respect of a DIY channel? At the end of the day, do you really care whether it's being sold through an auto retailer or through an online retailer?.

Sam Mitchell:.

I think it's happening more slowly when I look at the impact on automotive relative to other categories. I think the adoption is more slowly among DIY-ers versus other segments. But I feel good about our work there. And when you consider the investments that our key retail accounts have in marketing the DIY-ers, we're an important partner to them.

There's still a relationship that stores have with that DIY-er that's really key in keeping DIY healthy, and we're going to continue to invest in that. Our relationships with the key retailers is strong and very important to both the health of our business and the health of their business..

Your next question comes from the line of Olivia Tong with Bank of America..

Olivia Tong:.

-:.

Yes, Olivia. Our negotiations with our key accounts, those are complete, and so we have actions in place. We'll start to see the benefit of those actions in Q4. And therefore, we do expect our unit margins to show improvement in Q4 across Core North America.

And as I mentioned earlier too, I also expect to see that in our Quick Lube business and the International business, too. The full benefit, we're expecting to see that by the start of the fiscal year..

Okay.

So gross profit per gallon, do you expect that to start actually going up year-over-year, not until next year?.

No. We expect it to be up in Q4, Olivia..

Progress in Q4, full benefit in Q1..

Olivia Tong:.

-:.

Sam Mitchell:.

-:.

Your next question comes from the line of Faiza Alwy with Deutsche Bank..

So I just had two questions. One is, can you discuss your outlook for base oil prices for the rest of the year? Do you expect them to be roughly flat? Or do you expect them to improve? And then, just secondly, just a longer-term question, and this is regarding electric cars.

Have you updated your outlook on adoption of electric cars? Or just your general view on how you view that for your business on a longer-term basis..

Sam Mitchell:.

And you look at the results of this past year where we have had significant base oil and cost increases, and yet, when you look at our unit margins and compare fiscal '17 to fiscal '16, I mean, they're going to be very close. So we've got a lot of tools at our disposal and the premiumization all helped to make sure our margins stay strong.

My best guess would be that we're not going to see significant raw material cost inflation over the next couple of quarters. And to me, that's good news for Valvoline and our margins. With regard to EVs, I mean, there's certainly been a lot of exciting developments in EVs or at least announcements that are being made.

And it's really important for Valvoline to be on top of that to study, to innovate. Important to note, too, that we sell both coolants and transmission gear oils for EVs..

And you look at the results of this past year where we have had significant base oil and cost increases, and yet, when you look at our unit margins and compare fiscal '17 to fiscal '16, I mean, they're going to be very close. So we've got a lot of tools at our disposal and the premiumization all helped to make sure our margins stay strong.

My best guess would be that we're not going to see significant raw material cost inflation over the next couple of quarters. And to me, that's good news for Valvoline and our margins. With regard to EVs, I mean, there's certainly been a lot of exciting developments in EVs or at least announcements that are being made.

And it's really important for Valvoline to be on top of that to study, to innovate. Important to note, too, that we sell both coolants and transmission gear oils for EVs..

And you look at the results of this past year where we have had significant base oil and cost increases, and yet, when you look at our unit margins and compare fiscal '17 to fiscal '16, I mean, they're going to be very close. So we've got a lot of tools at our disposal and the premiumization all helped to make sure our margins stay strong.

My best guess would be that we're not going to see significant raw material cost inflation over the next couple of quarters. And to me, that's good news for Valvoline and our margins. With regard to EVs, I mean, there's certainly been a lot of exciting developments in EVs or at least announcements that are being made.

And it's really important for Valvoline to be on top of that to study, to innovate. Important to note, too, that we sell both coolants and transmission gear oils for EVs..

-:.

-:.

Your next question comes from the line of Carolina Jolly with Gabelli & Company..

Carolina Jolly:.

-:.

-:.

Yes. Real quick, on the comment regarding pricing, that includes all aspects of our core North American business, so we're not in any price negotiations with any major accounts to speak of. And so we're in a good position there.

I think your first part of the question had to do with forecast on the base oil market? Is that right? Or any surprise?.

Yes, yes. And if there is anything that surprised you given your guidance for the quarter and for the year..

No. I mean, certainly, the one surprise that we had going into calendar year 2017 was the amount of the increases in the base oil market and the fact that there's been some of the supply disruptions that have kept the prices higher, so we didn't fully expect that.

But at the same time, we took the appropriate action to make sure we offset those higher costs with how we manage pricing and margins..

Your next question comes from the line of Chris Shaw with Monness, Crespi..

Chris Shaw:.

-:.

-:.

Sam Mitchell:.

-:.

-:.

-:.

-:.

Got it. And then on the share buyback.

Is that the kind of pace we can expect going forward? Or was that specifically to sort of offset some of the dilution that you talked about?.

Sam Mitchell:.

-:.

Your next question comes from the line of Silke Kueck with JPMorgan..

Silke Kueck:.

-:.

Mary Meixelsperger:.

-:.

-:.

Sam Mitchell:.

-:.

There are no further questions in queue at this time. This concludes today's conference call. You may now disconnect..

Thanks, everyone..

Thanks, everybody..

Thank you..