2014

Universal Corporation Reports First Quarter Earnings

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,
2011


June 30,
2010


March 31,
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,
2011


June 30,
2010


March 31,
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



RELATED LINKS
http://www.universalcorp.com

More by this Source


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.