Ladies and gentleman, thank you for standing by, and welcome to Valvoline's Fourth Quarter 2019 Earnings Conference call. [Operator Instructions]. I would like to turn the call over today to Mr. Sean Cornett, Investor Relations. Mr. Cornett, please go ahead.

Thanks, Carol. Good morning, and welcome to Valvoline's Fourth Quarter 2019 Conference Call and Webcast. Valvoline released results for the quarter and fiscal year ended September 30, 2019, at approximately 5 p.m. Eastern Time yesterday, November 6, and this presentation and remarks should be viewed in conjunction with that earnings release, a copy of which is available on our investor relations website at investors.valvoline.com. These results are preliminary until we file our Form 10-K with the Securities and Exchange Commission. A copy of the news release has been furnished to the on a Form 8-K. With me on the call today, Valvoline's Chief Executive Officer, Sam Mitchell; and Mary Meixelsperger, Chief Financial Officer. As shown on Slide 2, any of our remarks today that are not statements of historical fact are forward-looking statements. These forward-looking statements are based on current assumptions as of the date of this presentation and are subject to certain risk and uncertainties that may cause actual results to differ materially from such statements. Valvoline assumes no obligation to update any forward-looking statements, unless required by law. In this presentation and in our remarks, we'll we discussing our results on an adjusted basis, unless otherwise noted. Adjusted results exclude key items, which are unusual, nonoperational or restructuring in nature. We believe this approach enhances the understanding of our ongoing business. A reconciliation of our adjusted results to amounts reported under GAAP and a discussion of management's use of non-GAAP measures was included in our earnings release. The non-GAAP information provided is used by our management and may not be comparable to similar measures used by other companies. As we turn to Slide 3, let's review our reported results for the quarter and the year. For the fiscal fourth quarter, Valvoline delivered reported operating income of $113 million…

Thanks, Sean. We are pleased with our overall growth in adjusted EBITDA and EPS in Q4. Our strategy is to focus on growth in Quick Lubes, work to maintain Core North America and to develop our opportunities in International. We continue to make progress against a broad set of initiatives to implement this strategy. Most of the growth this quarter was generated by Quick Lubes. System-wide same-store sales growth was 10% in the quarter, and we ended the year at 10.1%. These impressive results were driven by our best-in-class retail services model. We've built capabilities to expand our retail presence and were successful in 2019, adding 143 net new stores to the system. In Core North America, we again saw improved year-over-year performance in Q4. Market challenges in the DIY category continue to impact segment volume and sales as they have throughout the year. More-than-expected costs and expenses in the quarter contributed to modest growth in EBITDA. In International volume growth remains strong in Europe and parts of Asia. After a soft first three quarters, volume growth also picked up in Latin America. However, growth in these markets was offset by softness in China and the Middle East, Africa region. Including unconsolidated joint ventures, volume grew 2%. Foreign exchange continues to negatively impact sales and profitability leading to flat adjusted EBITDA. Let's take a closer look at the performance in Quick Lubes in next slide. Q4 same-store sales growth was 10% system-wide. Company stores grew 9.5% and franchise stores grew 10.4%. For the year, same-store sales grew 10.1%, a record for full year same-store sales growth, and representing our 13th consecutive year of increases. We continue to improve our industry-leading model through our investments in technology, marketing and our people, driving these best-in-class retail results. For the quarter and the…

Thanks, Sam. Our adjusted results were Q4 and full year 2019 are summarized on Slide 12. Reported sales increased 6% during the quarter and increased 5% for the year. Excluding revenue recognition and the impact of unfavorable foreign exchange, sales would've increased by 4% in both periods. Pricing and overall favorable volume mix were the primary drivers of these underlying sales increases. Favorable mix and lower costs in the quarter contributed to modest growth in our gross margin rate on and adjusted basis, despite a 110 basis points unfavorable impact from revenue recognition. For the year, the gross margin rate would've been roughly flat, excluding revenue recognition. Increased SG&A in Q4 was driven by higher incentive compensation versus last year and higher marketing and advertising expenses. For the year, investments in marketing and advertising as well as in our new store development teams, both within Quick Lubes, drove the increase in SG&A. Adjusted EBITDA increased 7% for the quarter and 3% for the year with the benefits of overall mix and margin improvements more than offsetting higher SG&A and unfavorable FX impacts. Let's move to Slide 13 to discuss corporate items. Our reported effective tax rate for the quarter was 3.6%. Adjusted for key items, our effective tax rate was 19.4%. During the quarter, both rates were reduced by a $4 million discrete tax benefit. This benefit also impacted our full year reported and adjusted tax rates, which were 21.5% and 23.5%, respectively. Full year cash flows from operating activities was $325 million. Capital expenditures were $108 million, increasing $15 million from last year, driven by new company store additions and investments in our plants in China. Free cash flow remains strong at $217 million. Let's review guidance on the next slide. In fiscal 2020, we expect low single-digit growth…

Thanks, Mary. We've managed through several challenges in 2019, a very slow start to the year, market headwinds in Core North America and top line growth and foreign exchange challenges in International. I'm encouraged by the way our teams reacted, including new promotional plans and implementation of our operating expense savings initiative, which helped us end the year on a high note. Importantly, we continued building the foundation for success in the future. Quick Lubes now represent 45% of our adjusted EBITDA, up from 30% in 2016. In 2020, we expect to make further progress on our strategic objectives. We already have great growth momentum in the Quick Lubes business. We have work to do, but we're making progress stabilizing the Core North American business, while investing for future growth in International. We also plan to accelerate our shift to a service-driven business model, aggressively allocating capital to high-return, high-growth projects and devoting resources to drive these service-based opportunities. The benefits of this strategy are significant. As our earnings mix shifts towards services, we are strengthening the future stability of earnings, enabling more consistent profit growth even as the DIY business addresses the current market dynamics. We're investing in our industry-leading business model to deliver more value to our customers, more stores and more convenience, driving faster profit growth in a business with very strong margins. As we continue to execute against our core priorities, we expect to drive growth for Valvoline and value for our shareholders. With that, I'll turn it over to Shawn to open the line for Q&A.

Thanks, Sam. [Operator Instructions]. Carol, please open the line for Q&A.

[Operator Instructions]. Our first question this morning comes from Simeon Gutman from Morgan Stanley.

This is Xian Siew on for Simeon. We were just wondering, on the Quick Lubes store guidance is a little bit lower than the guidance that was laid out in the Investor Day. Is there anything kind of there that we should be aware of? Or it's just kind of the timing?

So the guidance is actually consistent with Investor Day guidance for same-store sales growth. It is...

Yes. No, unit store growth. Yes.

I believe, on Investor Day, we also said that we would we adding about 100 stores a year in our guidance, and that is exactly what we expect in 2020.

Yes. I mean it was just a little bit narrower. I think you had like 35 to 45 versus 30 to 35. Okay, but relatively [indiscernible] just - okay. Fine.

I think what you're addressing then is the ground-up portion of our store guidance. So in total, we're expecting approximately 100 stores to add in 2020. The ground-ups is closer to the 35 range is what we expect and what we have in the pipeline.

Okay.

But with the combination of acquisitions and the franchise growth, we fully expect to, again, be at 100 stores plus.

On Investor Day, we had talked about that - the ground-up store construction growing to that higher range over that 3-year period that we talked about. So we're - we've seen the growth from 28 stores in the current fiscal year, 35 stores next year, and we expect it to grow, in fact, into that closer to 50 stores a year beyond 2020.

That's right, Mary.

Okay. Got it. That makes sense. And then within guidance for Core North America and gross profit per gallon, what's kind of the base oil assumption? And how are you thinking about that environment?

Yes. The base oil market has been pretty stable through the summer months and as we move into 2020. And so our expectation is relative stability. There is risk of the IMO impact of having some base oil inflation into 2020, but we haven't seen any indication of that just yet.

Our next question comes from Jason English from Goldman Sachs.

This is actually Cody on for Jason. Beginning in 1Q '19, you guys highlighted the increase pressure in the DIY segment, mostly driven by Private Label competition. At the time, you committed to spending behind your brand in the form of promotions and lower prices. Now that we're actually close to a year into that, how much more work do you think needs to be done? And are you currently happy with where you sit from a pricing standpoint relative to Private Label?

Yes. First of all, in terms of what took place in 2019. Going to - really back to the summer of 2018 is when we saw significant growth in Private Label as they first took share from the declining mid-tier brands. But as the retailers continue to emphasize their private-label side of the portfolio, that has had a negative impact on our business, particularly as it relates to our conventional volume in the portfolio. And that's had a similar impact to some of our other branded competitors. We addressed that with more aggressive merchandising plan in 2019. We saw some benefits of that in closing that gap versus Private Label, the [indiscernible] gap versus Private Label on a conventional front. As we move into 2020, however, there continue to be challenges there with certain counts continuing to emphasize Private Label, again, on the more price sensitive conventional side of the segment. So that is an area of focus for us as we continue to work with regulars on that. And with regard to the merchandising plans for 2020 with the retailers, there's a couple of key elements. One is your distribution, what the shelf set looks like, and then how the retailers promote the brand. From the shelf set standpoint, we're comfortable with where we stand for those commitments into 2020. And I would say, on the merchandising side, we still have opportunities for improvement. And so the guidance that we've given for Core North America reflects some of the challenges that we face in this DIY business. But I feel that we're - we've got a solid plan in place to address this, both with our - the consumer marketing plans and how we've been aggressive and how we're - how we pursued the cost savings programs that will allow us, I think, to navigate through some of these challenges in the DIY business.

Great. Thank you. And if I can sneak one follow-up in there. Your performance in Quick Lubes has been impressive, especially in context of peers and the broader retail landscape. However, you've now developed a track record of under promising and over delivering. Going into FY '19, your guidance was for 6% to 7% growth and you delivered 10%. You're now guiding for 6% to 8% same-store sales growth for FY '20. Why are you planning for such a deceleration? And do you think this is just you being conservative?

Sure. Yes. I mean first of all, 2019, the results were tremendous and they did exceed our expectations throughout the year. And to have same-store sales growth of 10% is just not something that we had planned for at all. But it does reflect the strength of our model and what we've been investing in and the effectiveness of our marketing promotions in attracting more customers to our stores and retaining those customers more successfully and also driving ticket. The one thing that everyone should acknowledge and understand is that a portion of our same-store sales improvement, approximately 3 points of the 10-point improvements, was driven by pricing actions that we took at the beginning of 2019. And as we begin 2020, we are not planning any major pricing moves at the store level. And so when you back that out, that puts us squarely in the middle of the guidance that we've given for same-store sales growth in 2020, which is still a very attractive growth rate. So this doesn't really reflect any type of deceleration when it comes to our performance at the stores when you consider driving new customer growth and driving stronger ticket penetration. So this is really a reflection of the confidence we have in the business to continue these very strong comps.

Our next question comes from Dmitry Silversteyn from Buckingham Research.

This is Wahid Amin on for Dmitry. Just wanted to talk a little bit about Core North America. Midway through the quarter, could you provide some color on what levers you're pulling to stabilize? And what kind of feedback you're receiving from the DIY channel rather than the installer channel?

Could you say that last part of your question one more time. I had trouble hearing it?

Sure. I was talking about the Core North America within the quarter. Could you speak about what levers are being pulled? And what kind of feedback are you receiving early on in DIY portion?

Okay. So speaking to the quarter and Q4 performance, the - one of the encouraging signs is when you look at total Core North America, we've seen greater stability when you look at the last few quarters after - and so the strengthening that we did see in Q4 had mainly to do with our cost structures that relates to both product cost structure, SG&A, and this reflects some of the progress that we've been making in our cost saving programs. So that certainly is contributing to the quarter. Specifically, as it relates to DIY, the answer that I gave earlier really reflects how we feel about the current DIY dynamics and that there continues to be pressure from the Private Label side of the business, particularly as it relates to the conventional High Mileage segment and less so on the synthetic side where we've been solid with our market share through 2019. So our guidance for 2020, as we enter the New Year, does reflect a view that we could still have some volume loss in the branded lubricant side, particularly in the retail DIY channel, that being partially offset by some of the progress that we're making on the installer side of the business. I noted in the presentation comments about the Recall referral program. This is one example of bringing more of a service-driven approach to the installer side of the business. The strength and progress that we're making with Cummins on the heavy-duty side should also add to the installer side of the business, too. So overall, when you look at the Core North American business for 2020, we are forecasting a smaller decline in both volume and profitability than what we had experienced in 2019. So we were making progress towards stabilization, we're just not all the way there yet. And yet that - so that will continue to be our focus in terms of our Core North America business and forecast.

Our next question comes from Olivia Tong from Bank of America Merrill Lynch.

My first question is just on free cash flow. If I exclude the incremental China spend. Is that a huge amount of lift despite the EBITDA increase? So Can you just talk about actions you're taking [indiscernible] free cash flow? And then just the cost environment, it seems like it's pretty stable? So just want to understand what's embedded in your guide? And how much flex you have in the guide should pricing on base oil get more volatile?

Yes. Olivia, probably the biggest drag on free cash flow in '20, excluding the China plant, is higher cash taxes. Year-over-year, we have benefited from tax reform, from accelerated bonus depreciation, from others - some other tax planning opportunities. And so we do expect our cash taxes to be higher in fiscal '20 than they were in fiscal '19. And then we continue to see modest investments in working capital in line with our sales growth that also impacts free cash flow. So those are probably the 2 biggest impacts that we're expecting outside of the higher CapEx.

And then the base oil cost environment?

Could you ask that question again, Olivia?

Sure. Sure. It was just that it seems like right now base oil is fairly stable and cost environment is fairly stable. So just trying to understand what's embedded in your guide? And if base oil does start to move, how much flex you have in your guide should things get more volatile?

I feel that even if we see some base oil increases, we're in a good position to execute pricing actions that will help us offset that. So at worst, you could have a negative impact in a quarter with a smaller lag effect, but overall, I feel like we're in a good position as we enter 2020.

Got it. Two last ones for me. Just Core North America, it sounds like DIY still needs a little bit of stabilization. Just curious about your - I think you called parts of business unsettled. So just a little bit of idea in terms of when you think you hit your stride? The efforts that take in already? And when you start to see some fruits of your labor there? And then on Quick Lubes, why do you think you can't push price more? What's your key competitor doing? And do you have a sense of what the market is growing at?

Sure. Yes, first with regard to DIY, we are - when we consider the current dynamics to be rather unsettled, it has to do with the retail auto parts and mass, looking at different strategies with regard to how to drive traffic and how they promote combination of branded products versus private label. And so because we're not seeing stabilization there yet in terms of their tactics, we're not ready to say that we've got it completely dialed in. That said, we're in conversation with each one of our accounts in terms of how we setup our promotions for calendar year 2020, and I consider those discussions to be productive. And we'll continue to report each quarter on what we're seeing and what kind of progress we're making. Those aspects where we have control over our actions and executions with regard to our consumer marketing programs, for example, I feel like we are making good progress there. And we see that in some of the resilience that we've seen in our synthetic side of the portfolio in DIY. And that the shift towards synthetic has been quite aggressive over the last couple of years in DIY. That's where the future of the category belongs, and that's where we're going to be focusing our consumer and our trade efforts. But I believe your second question had to do with pricing and - involving a small change and why we're not taking pricing this year. And this is really taking a long-term view of - over this business, where we're not going to - in other words, it really doesn't have anything to do with our competition because certainly we have a strong competitive advantage versus our competitors. And yet - we want to build this business consistently and attracting new customers to our stores and delivering better on some of the ticket growth opportunities that we have in services. And so we want to be a bit cautious not pushing pricing too aggressively or unnecessarily that could get in the way of the momentum that we have in attracting new customers and better penetrating some of these other services. So our - it's our decision that for now we're not going to take pricing, we don't need to, to improve our margins. And we've got such a great opportunity in front of us to continue the strong same-store sales growth. We want to do that while bringing more and more value to our customers. So that's I think a good explanation of our strategy as it relates to pricing. If we do see cost increases in 2020, again, we're in excellent position to take pricing because of the advantage that we have versus our competitors

Our next question comes from Stephanie Benjamin from SunTrust.

I wanted to first just follow up a little bit on Olivia's question and - related to the DIY segment of the market. Could you remind us your exposure participation in the Private Label segment of the market? And just kind of thinking high level, is there an opportunity just kind of maybe in that lower conventional High Mileage category to shift the focus on your end a little bit away from branded just to kind of capture where the market's going, and then to your point before, continuing to focus your investment dollars on that high synthetic side just for the long-term gain? Just kind of curious, this high level - some of the strategy conversations you've been having around those segments in the market to kind of help with this pressure in DIY. And then I just had a follow-up on International.

Yes. As a reminder, when we talk Private Label for Core North America, our Private Label business is geared towards the warehouse distributor business and a couple of long-standing accounts where we've provided private label and bring significant value to that Private Label platform with support that we provide in the field for these Private Label brands. And that continues to be a good strong stable part of our business. We don't participate in the DIY Private Label business, which carries very low margin and is also pretty volatile, meaning that the business is bid out frequently and the business shifts from one supplier to the next fairly frequently, too. So we don't think that's an attractive place for us to play. And so the focus of our DIY business strategy is to strengthen our brand. And with the shifts towards synthetic, that's where a lot of our efforts will lie moving forward is making sure that the Valvoline synthetic portfolio continues to be strong.

Great. And then just shifting gears to International. I just kind of - looking back at just the performance and the volume growth that you've achieved in fiscal '19 and even fiscal '18, it was kind of much lower than what you're looking for in fiscal '20. So I understand that there's going to be some investments just to build out the - your presence and grow your market share there. But kind of what gives you confidence that you should be able to see such a nice kind of step up from what's been a, at best, low single-digit grower over the last couple of years?

Yes. The International growth has been disappointing in 2019. It does reflect some of the challenges that we've seen in a number of different markets from - we noted slowdown in China, we have had challenges in Australia and even parts of Latin America, which has been the strongest growth part of the International business for a lot of years. We had some changes that we made in exiting Brazil and moving that to a license fee business. We had a large distributor in Mexico that went bankrupt that negatively impacted our business 2019. So our confidence, moving forward, has more to do with some of the underlying strengths that we've seen in the business as we improve our channels to market, our distribution and improve some of the capabilities in our team. So as we've built the plan for 2020 and work through each of the regions, we're seeing some excellent momentum in Europe, we're bullish on the opportunities that we have an Eastern Europe with the addition of the new plant that was made in the summer of 2019. We've had good momentum in Asia, and we expect to continue to see good progress in developing our channels to market in Asia. In China, where we've had more challenges, particularly on the heavy-duty side of business with the slowdown on the industrial side in 2019, those dynamics could continue into 2020. But we do feel that we still have share growth opportunities in our work with Cummins and also on the passenger car side of the business. So I believe we'll see improved results in China. And then coming back to Latin America, we did see a good strong pickup in Q4. And I do think with some of the marketing initiatives that we have in place that Latin America will return to strong growth in 2020. Overall, when you look at the International business then in 2020, we're projecting solid top line growth, but the profit growth is really projected to be flat. And that reflects, primarily, some of the SG&A investments that we're going to be making in 2020 that I think better positions Valvoline for long-term growth in International. And that is the strategy that we've laid out where we feel confident there is some great opportunities for us to grow our brand and leverage our capabilities in a number of these global markets. And as we've share in the past, each one of these regions is solidly profitable. And so it's really a matter of investing in our teams and our capabilities that allow us to grow at a faster rate. And so longer term, I expect that profit growth, and as we get to 2021, to also begin to deliver - that volume growth to deliver the profit growth that should go with it in 2021. But 2020 is really a year of investment and getting back on track for volume growth across our international regions.

Our next question comes from Jeff Zekauskas from JPMorgan.

Of the 800,000 gallon growth in Quick Lubes, how much of that was tied to same-store sales?

It will take us a minute to provide that for you, Jeff, so hang on. Jeff, any other questions?

I do. I have one more follow-up. And that is, the mix in Quick Lubes is plainly sharply improving. But what I was wondering is, are the prices for like a synthetic oil change or for a regular oil change coming down? And the mix improvement is offsetting some deterioration in the individual price points? Or are the individual price points staying the same? Or are they going up?

Yes. The pricing dynamics in Quick Lubes has really been positive for us. And so we have not seen any examples or any indications in any one of our markets where we've need to adjust prices downward. So we've been consistent in taking price increases over time, particularly when our costs are moving up. And so we're really benefiting then from the mix improvements with regard to more premium oil changes, more synthetic oil changes. So that trend continues to be very strong. In fact, our premium mix - relative to conventional oil changes, our premium mix is now well into mid-60% of all oil changes. So it's really positive because we're seeing continued growth in our customer count, stronger mix in the oil changes themselves and then real big opportunity for us to better penetrate other services and better execute those other services with our more loyal customer base. So that is really a very strong focus for us in 2020

And Jeff, as to your first question about 100,000 gallons of the increase was the Canadian acquisition that we did in Quick Lubes in the fourth quarter last year. That business had previously been served from the Core North America segment and that accounted for about 100,000 gallons of the increase in Q4. And then about 2/3 of the remaining increase, I estimate, coming from comp store sales versus noncomp stores.

Okay. Great. And if I can squeeze one more in here. Did your raw material costs sequentially move lower as that - since you experienced it in fourth quarter? And if they did, by how much roughly?

Yes. Actually, we were feeling the full effect of price increases in base oils that were executed that we accepted in Q3. We felt that full increase in Q4. So in terms of overall industry-wide cost increases, we saw that flow through. However, we did note that we're seeing some progress on our own raw material costs with some of the cost savings initiatives that we've been implementing that help us both at the gross margin and operating expense level.

So did your raw materials go up or down net for you in the fourth quarter sequentially?

Can you give us a moment on that?

Sure.

Yes. So from a price cost perspective in the quarter, we did see some benefits overall in - from the price cost perspective. Our unit margins in Core North America specifically went up to about $3.67, that was up about $0.01 from where we saw Q3. And volume mix drove a portion of that and then the remainder of it was really price cost. So we did see some finalization of pricing actions as well. But as Sam mentioned, we did also see some benefits from the - our cost reduction efforts as well.

Our next question comes from Laurence Alexander from Jefferies.

This is Dan Rizzo on for Lawrence. Given your plans and your expansion plans, can we assume that CapEx will be above $100 million for the next several years as opposed to going back where it was around 2017, 2018?

Yes. It certainly won't be at the levels that we're going to see in '20 because of the China plant investment that will really peak in 2020. The total China investment is in the $70 million range, and we expect $40 million to $50 million of that to be incurred in fiscal '20. So if you take that out, with the growth in our stores moving up from 35 or so new store investments to going over to 50 over the next couple of years, I think you can assume that our CapEx will be in excess of $100 million going forward as long as we're continuing to see really meaningful returns from that capital investment with the new store growth.

And then I'm sorry if I'm not clear on this. But so - I understand within Core North America and indeed yourself, what's happening with volumes, but has pricing stabilized more question and it's just more of a volume thing now? Or is that going to be under pressure as well in 2020?

No. It's - you're right, it's - the pressure is really all around volume and particularly at the low end of the market, on the conventional High Mileage segments, whereas pricing both with the cost environment and actions that we've taken, we expect our margins to be stable, much more stable.

Our next question comes from Christopher Bottiglieri from Wolfe Research.

First, I want to learn more about your service offering, anything new there that you're doing? I think you talked about kind of some recall services in the past, potentially bringing Quick Lubes internationally to some extent. But curious like, a, if anything is being done to Quick Lube level in terms of services? And then b, just maybe, holistically, if there's anything new that you're dealing with?

Yes. There is - yes, a couple of areas in this focus that we have on services, and one is better penetration of the existing services that we offer within Quick Lubes and also enhancing some of those services, too. And then the second part is, those services that can provide synergies across the business like the recall program will see more progress there in 2020, and we look forward to sharing our progress going forward. But specifically, in the Quick Lubes business, a couple of areas of focus that we'll be executing on. One has to do with light-duty diesel trucks, which make up a good percent of the portfolio, particularly in certain markets. But it's an area that we were lacking in terms of some of the service support that those diesel trucks needed and we closed that gap, and we now have marketing programs to inform customers that we are fully prepared to provide all the preventive maintenance services that are necessary. So with that, that's going to have a very positive impact on our ticket in those markets and can even add growth in the OCD, or oil changes per day, attracting new customers to our stores. Another area that we have a big opportunity in that we'll be focused on in 2020 and into 2021 is our battery program. So we also measure the performance of batteries, the life left in batteries and then provide and offer new batteries for our customers. But our consistency in our program hasn't been as strong as it needs to be in previous years. And so we're working with the new supplier in have a new plan in place that addresses both our ability to effectively tests consumers' batteries and also better supply those batteries to our system. And we believe this is a very significant opportunity for us moving forward. So we'll be rolling on this program throughout 2020. And then as we move into 2021, I think we'll be able to see a measurable impact in our results in that service offering, which we'll have broad benefits for us in our overall same-store sales and ticket.

Got you. That's helpful. And then quickly - the answer is just phenomenal, but I'm trying to figure out like potentially where the headwinds to North America bottom - or if they were do. Is there a way to think through Private Label penetration? Is there a saturation point where you could see that peaking? I know in the aftermarket category more brightly, it's actually about 50%, but your category a little bit more branded, more brand power. But is there any framework on - either via tangential categories where you've seen private label peak? Or any other kind of framework you can give us so we can figure out when this kind of like evens at, I guess?

Yes. We're continuing to do work in this area. And so I don't have a specific number to give you as to where Private Label begins to level out. However, when we look at dynamics between the synthetic segment and the oil price sensitive conventional second. As category shifts towards more synthetic, we think the brands like Valvoline have a stronger play, we have strong equity with our customers. The Private Label penetration of synthetics has been slower, and a lot of it comes back to how the retailers drive performance. And their focus is on margin and traffic. And so when they look at the branded synthetic players, brands like Valvoline, they're earning a higher margin on those synthetic products than they are with a synthetic Private Label offering. So that's one aspect, and the other aspect is the ability to drive traffic. And the branded players like Valvoline, and Valvoline continues to have a strong overall DIY consumer base. Valvoline has proven to drive traffic for these stores, too. And so I certainly don't think that we'll see Private Label grow exponentially in the years that. I think we've seen a big leap forward by replacing some of the mid-tier brands that have lost distribution, and we're progressing towards an equilibrium between branded and Private Label. It's just too early to say where exactly that lies. But as we do research and as we work with the retailers on what the right mix is, as they try to optimize driving traffic and margins, I think we'll progress towards that and know a lot more in this next year.

Our next question comes from Blake Keating from Seaport Global.

Blake Keating on for Mike Harrison here. So on the International part of the business, the International margin strength, could that be sustainable with a return to volume growth? Or how should we think about that?

So International in the fourth quarter really saw some pricing actions that really caught up with the price cost lag they saw in the earlier part of the year, and we saw some benefit from that. And we also see a fair amount of margin variability based on strength of various geographic regions. So I think in terms of how you think about International margins going forward is that they'll continue to be within a range that's similar to how they performed in 2019 based on the geographic mix of where we're seeing the highest growth and then the course, the product mix as well. Over the longer-term time frame, my expectation is, we'll have some opportunity to grow margins through premiumization, but that's over a much longer-term time horizon as developing countries continue to increase their demand for higher technology within their lubricants.

All Right. And then on the China plant investment, you've called out $45 million or so in 2020, can you just remind us about the cadence of the spending in '19, '20, '21? How should we think about the timing and magnitude of contribution from that facility?

Yes. The '19 spend was just under $20 million. So the bulk of the incremental spending will come in fiscal '20 with probably a little bit of fall over into 2021. The plant will actually begin the startup process in the fourth quarter of next year and go into full production in 2021. We will see a couple of million dollars of one-time plant startup costs in the current fiscal year - in fiscal '20, that's providing some headwinds on the International business.

This concludes today's question-and-answer session. We would like to thank everyone for attending today. This concludes today's event. And you may now disconnect.

All right. Thank you.