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Universal Corporation Reports First Quarter Earnings

August 4, 2011

RICHMOND, Va., Aug. 4, 2011 /PRNewswire/ — George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE:UVV), announced that net income for the first quarter of fiscal year 2012, which ended on June 30, 2011, was $15.9 million, or $0.52 per diluted share, compared to last year’s first quarter net income of $25.3 million, or $0.87 per diluted share. These results include $6.9 million before taxes, or $0.19 per diluted share, in restructuring charges primarily in North America and Europe as well as a $9.6 million pre-tax gain ($0.27 per diluted share) on insurance settlement proceeds to replace factory and equipment lost in a fire at a plant in Europe. Revenues for the first quarter of fiscal year 2012 of about $479 million were lower by about 11%, due to reduced sales to Philip Morris International in Brazil related to farmer contract assignments last year. The full impact of that change was reflected in this year’s first quarter.

Mr. Freeman stated, “So far this year is unfolding as we had anticipated when we disclosed it last year. We expected pressure on comparisons of this quarter against the strong results we achieved in the same period last year. We also expected a slow start to the season, which is typical in a cycle of oversupply as customers and farmers alike delay action to evaluate how the market develops, and we have seen that in some areas. We are managing that process well. We are also seeing the effects in Brazil of reduced sales of leaf due to the assignment of some of our farmer contracts to a subsidiary of Philip Morris International last year. We believe that the entire impact of those reduced sales has been reflected in our first quarter. We continue to sell leaf to Philip Morris International from Brazil. We have also agreed to process leaf for them there.

“Despite these challenges, we are pleased with our success to date in managing crop purchases and customer requirements and believe that we are well-positioned to avoid excessive uncommitted stock levels throughout the season. Although levels of uncommitted inventory are up in both absolute and relative terms, we are beginning to see them decline in some areas as the trading season develops in the second fiscal quarter. In fact, sales activity has increased through July and remains at a brisk pace, and we are having good results in strengthening relationships with customers – both new and old. We continue to make progress as well on our restructuring programs in several regions, to further reduce operating cost structures where necessary. Our folks are busy and motivated to efficiently serve our customers around the world, and we are optimistic about our prospects for managing well through the current cycle.”

FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:

Operating income for the Company’s flue-cured and burley tobacco operations decreased by 26%, to $26.5 million, while revenues for those operations declined by 10%, to $417 million compared to the same quarter last year. That performance includes results from the Company’s North America and Other Regions segments. While operating margins declined in most regions, the Other Regions segment results were significantly influenced by lower volumes in South America. The Company’s Brazilian operations were affected by reduced sales to Philip Morris International related to farmer contract assignments last year. The full impact of that change was reflected in this year’s first quarter, and was also responsible for the reduction in revenues for the Other Regions segment. Results in Africa were down as a result of lower margins on old crop sales and delayed shipments in some areas for the current crop. Asia experienced reduced operating profits from lower trading volumes, due in part to later shipments and to limited availability of preferred leaf styles. Selling, general, and administrative costs for the first quarter were flat for this segment compared with the prior year. Operating income for the North America segment improved by nearly $2 million compared to last year’s first quarter on reduced overhead costs which included savings from restructuring activity. Lower current crop volumes due to delayed shipments partially offset those benefits. Those reduced overhead costs also reduced selling, general, and administrative costs for this segment.

OTHER TOBACCO OPERATIONS:

The Other Tobacco Operations segment operating income for the first fiscal quarter was down by about $3.6 million as lower results from the oriental tobacco joint venture were partially offset by improved results in Dark tobacco on timing of old crop tobacco shipments. Results for the joint venture declined on lower margins and volumes as well as the negative comparison caused by currency gains in the first quarter last year. Revenues for this segment decreased by 16% to about $62 million primarily related to timing of shipments of oriental tobaccos through the United States and the transfer of some business from Special Services to the Other Regions segment. Revenues for the Dark business were up due to the old crop shipments during the quarter. Selling, general, and administrative costs for the segment were flat compared with the prior year.

OTHER ITEMS:

Cost of sales decreased by 12% to $385.1 million in the quarter on lower volumes, primarily in South America. Selling, general, and administrative costs increased slightly as larger provisions on farmer advances and other receivables were mostly offset by the partial reversal of a statutory severance accrual in Africa due to a change in the law and by favorable variances in currency remeasurement and exchange gains and losses compared with the previous year’s first quarter. Interest expense was up $0.4 million due to higher interest rates on average. The effective income tax rate for the quarter of 35.5% approximates U.S. statutory rates and was higher than the 33.5% effective rate for the same quarter last year.

During the first quarter, an insurance settlement was received for replacement cost recovery on the factory and equipment destroyed in a fire at the Company’s sheet tobacco operations in Europe in 2010. The settlement generated a gain of $9.6 million. The gain was reported as Other Income in the Company’s consolidated income statement.

Additional information

Amounts described as “net income” and “earnings per diluted share” that are included in the previous discussion are attributable to Universal Corporation and exclude earnings related to non-controlling interests in subsidiaries.

This information includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions readers that any statements contained herein regarding earnings and expectations for its performance are forward-looking statements based upon management’s current knowledge and assumptions about future events, including anticipated levels of demand for and supply of its products and services; costs incurred in providing these products and services; timing of shipments to customers; changes in market structure; government regulation; product taxation; industry consolidation and evolution; and general economic, political, market, and weather conditions. Actual results, therefore, could vary from those expected. A further list and description of these risks, uncertainties, and other factors can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2011, and in other documents the Company files with the Securities and Exchange Commission. This information should be read in conjunction with the Annual Report on Form 10-K for the year ended March 31, 2011.

At 5:00 p.m. (Eastern Time) on August 4, 2011, the Company will host a conference call to discuss these results. Those wishing to listen to the call may do so by visiting www.universalcorp.com at that time. A replay of the webcast will be available at that site through November 4, 2011. A taped replay of the call will be available through August 25, 2011, by dialing (855) 859-2056. The confirmation number to access the replay is 88792286.

Headquartered in Richmond, Virginia, Universal Corporation is the leading global leaf tobacco merchant and processor and conducts business in more than 30 countries. Its revenues for the fiscal year ended March 31, 2011, were $2.6 billion. For more information on Universal Corporation, visit its web site at www.universalcorp.com.

    UNIVERSAL CORPORATION AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
    (In thousands of dollars, except per share data)
                                                  Three Months Ended
                                                       June 30,
                                                       --------
                                                   2011                 2010
                                                   ----                 ----
                                                      (Unaudited)
    Sales and other operating revenues         $479,465             $538,916
    Costs and expenses
        Cost of goods sold                      385,107              436,679
        Selling, general and administrative
         expenses                                61,578               60,183
        Other income                             (9,592)                   -
        Restructuring costs                       6,859                  949
                                                  -----                  ---
    Operating income                             35,513               41,105
        Equity in pretax earnings (loss) of
         unconsolidated affiliates               (3,489)                 378
        Interest income                             357                  444
        Interest expense                          5,533                5,126
                                                  -----                -----
    Income before income taxes and other items   26,848               36,801
        Income taxes                              9,526               12,383
                                                  -----               ------
    Net income                                   17,322               24,418
    Less:  net (income) loss attributable to
     noncontrolling interests in subsidiaries    (1,434)                 902
                                                 ------                  ---
    Net income attributable to Universal
     Corporation                                 15,888               25,320
    Dividends on Universal Corporation
     convertible perpetual preferred stock       (3,712)              (3,712)
                                                 ------               ------
    Earnings available to Universal
     Corporation common shareholders            $12,176              $21,608
                                                =======              =======

    Earnings per share attributable to
     Universal Corporation common
     shareholders:
        Basic                                     $0.52                $0.89
                                                  =====                =====
        Diluted                                   $0.52                $0.87
                                                  =====                =====
    See accompanying notes.

    UNIVERSAL CORPORATION AND SUBSIDIARIES
    CONSOLIDATED BALANCE SHEETS
    (In thousands of dollars)
                                    June 30,     June 30,   March 31,
                                         2011         2010        2011
                                         ----         ----        ----
                                  (Unaudited)  (Unaudited)
                 ASSETS
    Current
        Cash and cash equivalents     $93,795      $61,781    $141,007
        Accounts receivable, net      322,690      221,053     335,575
        Advances to suppliers,
         net                          130,783      122,878     160,616
        Accounts receivable -
         unconsolidated
         affiliates                    47,111       42,403      10,433
        Inventories -at lower of
         cost or market:
            Tobacco                   987,379    1,152,427     742,422
            Other                      60,871       66,183      48,647
        Prepaid income taxes           20,493       14,062      18,661
        Deferred income taxes          54,479       46,058      47,009
        Other current assets           77,527       72,042      73,864
                                       ------       ------      ------
            Total current assets    1,795,128    1,798,887   1,578,234
    Property, plant and
     equipment
        Land                           14,186       15,740      14,851
        Buildings                     241,771      262,468     257,380
        Machinery and equipment       537,693      535,480     555,316
                                      -------      -------     -------
                                      793,650      813,688     827,547
            Less accumulated
             depreciation            (483,481)    (486,576)   (510,844)
                                     --------     --------    --------
                                      310,169      327,112     316,703
    Other assets
        Goodwill and other
         intangibles                   99,461      105,409      99,546
        Investments in
         unconsolidated
         affiliates                   113,745       95,494     115,478
        Deferred income taxes          12,957       28,627      18,177
        Other noncurrent assets        66,165      101,870      99,729
                                       ------      -------      ------
                                      292,328      331,400     332,930
                                      -------      -------     -------
            Total assets           $2,397,625   $2,457,399  $2,227,867
                                   ==========   ==========  ==========
    See accompanying notes.

    UNIVERSAL CORPORATION AND SUBSIDIARIES
    CONSOLIDATED BALANCE SHEETS
    (In thousands of dollars)
                                       June 30,     June 30,   March 31,
                                            2011         2010        2011
                                            ----         ----        ----
                                     (Unaudited)  (Unaudited)
                     LIABILITIES AND
                      SHAREHOLDERS'
                          EQUITY
    Current
        Notes payable and
         overdrafts                     $263,302     $298,899    $149,291
        Accounts payable and
         accrued expenses                217,225      239,451     213,014
        Accounts payable -
         unconsolidated
         affiliates                          322          977       4,154
        Customer advances
         and deposits                     65,588      144,477       8,426
        Accrued compensation              22,532       17,978      30,201
        Income taxes payable              10,942       13,958      12,265
        Current portion of
         long-term
         obligations                      95,000        5,000      95,000
                                          ------        -----      ------
               Total current
                liabilities              674,911      720,740     512,351
    Long-term
     obligations                         321,612      418,547     320,193
    Pensions and other
     postretirement
     benefits                            106,612       98,686     102,858
    Other long-term
     liabilities                          44,729       65,412      50,213
    Deferred income
     taxes                                45,036       38,627      42,847
                                          ------       ------      ------
               Total liabilities       1,192,900    1,342,012   1,028,462
    Shareholders' equity
      Universal
       Corporation:
        Preferred stock:
           Series A Junior
            Participating
            Preferred Stock, no
            par value,
           500,000 shares
            authorized, none
            issued or
            outstanding                        -            -           -
           Series B 6.75%
            Convertible
            Perpetual Preferred
            Stock, no par
            value,
           5,000,000 shares
            authorized, 219,999
            shares issued
           and outstanding
            (219,999 at June
            30, 2010, and March
            31, 2011)                    213,023      213,023     213,023
        Common stock, no par
         value, 100,000,000
         shares
           authorized,
            23,226,863 shares
            issued and
            outstanding
           (24,155,316 at June
            30, 2010, and
            23,240,503 at March
            31, 2011                     192,590      194,960     191,608
        Retained earnings                823,793      768,772     825,751
        Accumulated other
         comprehensive loss              (39,910)     (66,242)    (44,776)
                                         -------      -------     -------
               Total Universal
                Corporation
                shareholders'
                equity                 1,189,496    1,110,513   1,185,606
      Noncontrolling
       interests in
       subsidiaries                       15,229        4,874      13,799
                                          ------        -----      ------
               Total shareholders'
                equity                 1,204,725    1,115,387   1,199,405
                                       ---------    ---------   ---------
               Total liabilities
                and shareholders'
                equity                $2,397,625   $2,457,399  $2,227,867
                                      ==========   ==========  ==========
    See accompanying
     notes.

    UNIVERSAL CORPORATION AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (In thousands of dollars)
                                                  Three Months Ended
                                                       June 30,
                                                       --------
                                                   2011           2010
                                                   ----           ----
                                                      (Unaudited)
    CASH FLOWS FROM OPERATING
     ACTIVITIES:
       Net income                               $17,322        $24,418
       Adjustments to reconcile net income
        to net cash used by operating
        activities:
          Depreciation                           11,027         10,823
          Amortization                              400            412
          Provisions for losses on advances
           and guaranteed loans to suppliers      4,254          2,991
          Foreign currency remeasurement loss
           (gain), net                              178          1,876
          Gain on fire loss insurance
           settlement                            (9,592)             -
          Restructuring costs                     6,859            949
          Other, net                             10,371         (1,023)
          Changes in operating assets and
           liabilities, net                   (186,063)      (303,270)
                                               --------       --------
            Net cash used by operating
             activities                       (145,244)      (262,824)
                                               --------       --------
    CASH FLOWS FROM INVESTING
     ACTIVITIES:
        Purchase of property, plant and
         equipment                               (8,827)       (13,154)
        Proceeds from sale of property,
         plant and equipment, and other           5,817            945
        Proceeds from fire loss insurance
         settlement                               9,933              -
                                                  -----            ---
            Net cash provided (used) by
             investing activities                 6,923        (12,209)
                                                  -----        -------
    CASH FLOWS FROM FINANCING
     ACTIVITIES:
        Issuance (repayment) of short-term
         debt, net                              109,662        127,985
        Repayment of long-term obligations            -        (10,000)
        Issuance of common stock                    134              -
        Repurchase of common stock               (4,004)       (10,933)
        Dividends paid on convertible
         perpetual preferred stock               (3,712)        (3,712)
        Dividends paid on common stock          (11,195)       (11,427)
            Net cash provided by financing
             activities                          90,885         91,913
                                                 ------         ------
    Effect of exchange rate changes on
     cash                                           224         (1,052)
                                                    ---         ------
    Net decrease in cash and cash
     equivalents                                (47,212)     (184,172)
    Cash and cash equivalents at
     beginning of year                          141,007        245,953
                                                -------        -------
    Cash and cash equivalents at end of
     period                                     $93,795        $61,781
                                                =======        =======
    See accompanying notes.

NOTE 1. BASIS OF PRESENTATION

Universal Corporation, with its subsidiaries (“Universal” or the “Company”), is the leading global leaf tobacco merchant and processor. Because of the seasonal nature of the Company’s business, the results of operations for any fiscal quarter will not necessarily be indicative of results to be expected for other quarters or a full fiscal year. All adjustments necessary to state fairly the results for the period have been included and were of a normal recurring nature. Certain amounts in prior year statements have been reclassified to conform to the current year presentation. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2011.

NOTE 2. GUARANTEES AND OTHER CONTINGENT LIABILITIES

Guarantees of bank loans to growers for crop financing and construction of curing barns or other tobacco producing assets are industry practice in Brazil and support the farmers’ production of tobacco there. At June 30, 2011, the Company’s total exposure under guarantees issued by its operating subsidiary in Brazil for banking facilities of farmers in that country was approximately $25 million ($39 million face amount including unpaid accrued interest, less $14 million recorded for the fair value of the guarantees). About 76% of these guarantees expire within one year, and all of the remainder expire within five years. The subsidiary withholds payments due to the farmers on delivery of tobacco and forwards those payments to the third-party banks. Failure of farmers to deliver sufficient quantities of tobacco to the subsidiary to cover their obligations to the third-party banks could result in a liability for the subsidiary under the related guarantees; however, in that case, the subsidiary would have recourse against the farmers. The maximum potential amount of future payments that the Company’s subsidiary could be required to make at June 30, 2011, was the face amount, $39 million including unpaid accrued interest ($62 million as of June 30, 2010, and $73 million at March 31, 2011). The fair value of the guarantees was a liability of approximately $14 million at June 30, 2011 ($16 million at June 30, 2010, and $21 million at March 31, 2011). In addition to these guarantees, the Company has other contingent liabilities totaling approximately $56 million, primarily related to a bank guarantee that bonds an appeal of a 2006 fine in the European Union.

The Company is involved in other litigation and tax examinations incidental to its business activities. While the outcome of these matters cannot be predicted with certainty, management is vigorously defending these matters and does not currently expect that any of them will have a material adverse effect on the Company’s financial position. However, should one or more of these matters be resolved in a manner adverse to management’s current expectation, the effect on the Company’s results of operations for a particular fiscal reporting period could be material.

NOTE 3. EARNINGS PER SHARE

The following table sets forth the computation of earnings per share for the periods presented in the consolidated statements of income.


                                                   Three Months Ended
                                                         June 30,
                                                         --------
    (in thousands, except per share data)             2011               2010
    -------------------------------------             ----               ----
    Basic Earnings Per Share
    ------------------------
    Numerator for basic earnings per share
       Net income attributable to Universal
        Corporation                                $15,888            $25,320
       Less:  Dividends on convertible perpetual
        preferred stock                             (3,712)            (3,712)
                                                    ------             ------
       Earnings available to Universal
        Corporation common shareholders
          for calculation of basic earnings per
           share                                    12,176             21,608
                                                    ------             ------
     Denominator for basic earnings per share
        Weighted average shares outstanding         23,194             24,213
                                                    ------             ------
     Basic earnings per share                        $0.52              $0.89
                                                     =====              =====
    Diluted Earnings Per Share
    --------------------------
    Numerator for diluted earnings per share
       Earnings available to Universal
        Corporation common shareholders            $12,176            $21,608
       Add:  Dividends on convertible perpetual
        preferred stock (if
          conversion assumed)                            -              3,712
                                                       ---              -----
       Earnings available to Universal
        Corporation common shareholders
          for calculation of diluted earnings per
           share                                    12,176             25,320
                                                    ------             ------
    Denominator for diluted earnings per
     share:
        Weighted average shares outstanding         23,194             24,213
        Effect of dilutive securities (if
         conversion or exercise assumed)
           Convertible perpetual preferred stock         -              4,742
           Employee share-based awards                 319                260
                                                       ---                ---
        Denominator for diluted earnings per share  23,513             29,215
                                                    ------             ------
    Diluted earnings per share                       $0.52              $0.87
                                                     =====              =====

For the three months ended June 30, 2011, conversion of the Company’s outstanding Series B 6.75% Convertible Perpetual Preferred Stock was not assumed since the effect would have been antidilutive. For the three months ended June 30, 2011 and 2010, certain employee share-based awards were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. These awards included stock appreciation rights and stock options totaling 585,601 shares at a weighted-average exercise price of $51.43 for the quarter ended June 30, 2011, and 657,401 shares at a weighted-average exercise price of $52.65 for the quarter ended June 30, 2010.

NOTE 4. SEGMENT INFORMATION

The principal approach used by management to evaluate the Company’s performance is by geographic region, although some components of the business are evaluated on the basis of their worldwide operations. The Company evaluates the performance of its segments based on operating income after allocated overhead expenses (excluding significant non-recurring charges or credits), plus equity in pretax earnings of unconsolidated affiliates.

Operating results for the Company’s reportable segments for each period presented in the consolidated statements of income were as follows:


                                                      Three Months Ended
                                                           June 30,
                                                           --------
    (in thousands of dollars)                          2011             2010
    -------------------------                          ----             ----
    SALES AND OTHER OPERATING REVENUES
       Flue-cured and burley leaf tobacco
        operations:
                        North America               $58,629          $63,167
                      Other regions (1)             358,650          401,819
                                                    -------          -------
                             Subtotal               417,279          464,986
              Other tobacco operations (2)           62,186           73,930
                                                     ------           ------
         Consolidated sales and other operating
                         revenues                  $479,465         $538,916
                                                   ========         ========
    OPERATING INCOME
       Flue-cured and burley leaf tobacco
        operations:
                        North America                $5,577           $3,692
                      Other regions (1)              20,909           32,327
                                                     ------           ------
                             Subtotal                26,486           36,019
              Other tobacco operations (2)            2,805            6,413
                                                      -----            -----
                Segment operating income             29,291           42,432

       Deduct: Equity in pretax (earnings) loss of
              unconsolidated affiliates (3)           3,489             (378)
                       Restructuring costs (4)       (6,859)            (949)
                    Add: Other income                 9,592                -
              Consolidated operating income         $35,513          $41,105
                                                    =======          =======

(1) Includes South America, Africa, Europe, and Asia regions, as well as inter-region eliminations.

(2) Includes Dark Air-Cured, Special Services, and Oriental, as well as inter-company eliminations. Sales and other operating revenues for this reportable segment include limited amounts for Oriental because its financial results consist principally of equity in the pretax earnings of an unconsolidated affiliate.

(3) Item is included in segment operating income, but not included in consolidated operating income.

(4) Item is not included in segment operating income, but is included in consolidated operating income.

SOURCE Universal Corporation


Source: newswire



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