Universal Corporation Reports Improved First Quarter Results

RICHMOND, Va., Aug. 7, 2012 /PRNewswire/ --

HIGHLIGHTS

Diluted earnings per share increased $0.29, to $0.81.
Net income up $7.2 million, to $23.1 million.
Operating income improved by 21%, to $42.8 million.
Revenues down 4%, to $461 million

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 2013, which ended on June 30, 2012, was $23.1 million, or $0.81 per diluted share.  Those results increased 46% compared to the same period last year, when net income was $15.9 million, or $0.52 per diluted share. Last year's results reflected the net effect of unusual items, including restructuring costs of $6.9 million before taxes ($0.19 per diluted share) and a $9.6 million pretax gain ($0.27 per diluted share) on insurance settlement proceeds to replace assets lost in a fire at a plant in Europe.  Revenues for the first quarter of fiscal year 2013 of about $461 million were down $18 million, or 4%. The decrease was primarily attributable to a modest reduction in overall volumes, as well as lower average prices on carryover shipments of African tobaccos.

Mr. Freeman stated, "I am pleased with our results for the first fiscal quarter as they signal a good start to the year ahead and a movement away from recent oversupplied conditions.  Some of the benefits we have seen in this period are related to variances in shipment timing, particularly carryover shipments from last year's large African crops.  We have managed our uncommitted inventory levels well throughout the past year, and we now carry those stocks at levels which are near the bottom of our historical norms.  As we have previously indicated, uncommitted inventories in the United States were substantially depleted during fiscal year 2012.

"As we move into fiscal year 2013, we believe that crop sizes have declined sufficiently to stabilize the markets.  Crop sizes are coming down in most of the key sourcing areas for flue-cured and burley tobacco, including Brazil, Tanzania, and Malawi.  In fact, in reaction to last year's very low burley prices, and as a result of poor weather conditions in some origins, burley crops grown for sale in fiscal year 2013, particularly in Malawi, are reduced to levels which are not likely to meet demand in the current year.  While the smaller crop sizes are reflective of a healthier market balance, they also limit the volumes we are expecting to handle during the year.  In addition, as green prices are moving upwards on a local currency basis in some origins, we are also seeing the counterbalancing effects on our earnings of the stronger U.S. dollar in recent months. "

FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:

Operating income for the Company's flue-cured and burley tobacco operations, which includes the North America and Other Regions segments, increased by about 35%, to $35.8 million for the quarter ended June 30, 2012, while revenues for those operations declined by about 5%, to $398 million, compared to the same quarter last year. In the Other Regions segment, operating income of $34.8 million was up $13.9 million with improved margins in nearly all regions. The segment's first quarter results were significantly influenced by higher volumes in Africa, mostly as a result of carryover shipments from last year's large crops in some origins, as well as benefits from currency remeasurement and exchange gains there. In South America, earnings were constrained by reduced volumes from this year's smaller crops, although the effect was mitigated by lower overhead costs in the period.  Results for the European operations reflected fewer shipments and the translation effects of weaker local currencies against the U.S. dollar in that region.  In Asia, results improved on some earlier shipment timing and better margins. Selling, general, and administrative costs for the first quarter were down about 23% for the segment compared with the prior year, due to lower provisions on receivables from suppliers, lower compensation expenses, and net currency remeasurement and exchange gains. Revenues for the Other Regions segment fell by about 6% as the increase in African volumes was more than offset by the effect of changes in the supply chain in Europe and smaller crops in South America.

Operating income for the North America segment decreased by $4.6 million compared to last year's first quarter.  The prior year's quarter included carryover old crop sales that were not repeated this year as uncommitted stocks have been depleted. The decline was also influenced by shipment delays from transportation difficulties in Central America and factory overhead allocations. Revenues for the segment increased by about 3% to $60.5 million as lower trading volumes were more than offset by a favorable product mix.

OTHER TOBACCO OPERATIONS:

The Other Tobacco Operations segment operating income for the first fiscal quarter of $8.4 million was $5.6 million higher than the same period last year, on improved performance in both the dark tobacco business and the oriental joint venture.  The dark tobacco earnings increase was driven mainly by recovery in the Indonesian operations after weather-related crop shortages there negatively impacted last year's results. The oriental joint venture benefited from higher volumes on earlier shipments completed in the first quarter of fiscal year 2013 and lower operating expenses from the stronger U.S. dollar.  Revenues for this segment increased by about 2% to $63.4 million as higher volumes related to timing of shipments of oriental tobaccos through the United States were partly offset by reduced volumes in dark tobacco.  Selling, general, and administrative costs for the segment were slightly higher compared with the prior year, on larger currency exchange losses in the dark tobacco operations.


OTHER ITEMS:

Cost of sales decreased by about 4% to $369.4 million in the quarter, which was comparable to the reduction in overall revenues. Selling, general, and administrative costs declined by $12.4 million compared with the same period last year, mainly due to reductions in compensation expenses and provisions on receivables from suppliers and benefits from currency remeasurement and exchange gains.

Interest expense was up $0.6 million reflecting higher overall effective interest rates on lower average debt balances, and the accrual of interest expense for the European Commission fine obligation recorded in September 2011 that is still under appeal. The effective income tax rate for the first fiscal quarter of 2013 was 33.9% compared to 35.5% last year.  While both rates approximate U.S. statutory rates, the fiscal 2013 rate was slightly lower due to the effect of changes in exchange rates on deferred income tax assets and liabilities of foreign subsidiaries.

During the first quarter of fiscal year 2012, 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, which was reported as Other Income in the Company's consolidated income statement.  In addition, the Company recorded restructuring costs, primarily in North America and Europe, of $6.9 million before taxes in the prior year quarter.


Additional information

Amounts 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, 2012, 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, 2012.

At 5:00 p.m. (Eastern Time) on August 7, 2012, 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 6, 2012.  A taped replay of the call will be available through August 21, 2012, by dialing (855) 859-2056.  The confirmation number to access the replay is 17216484.

Headquartered in Richmond, Virginia, Universal Corporation is the leading global leaf tobacco supplier and conducts business in more than 30 countries.  Its revenues for the fiscal year ended March 31, 2012, were $2.4 billion. For more information on Universal Corporation, visit its website at www.universalcorp.com.

 

UNIVERSAL CORPORATION AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF INCOME 




(In thousands of dollars, except per share data)






Three Months Ended
June 30,



2012


2011



(Unaudited)

Sales and other operating revenues


$                  461,391


$                  479,465

Costs and expenses





    Cost of goods sold


369,361


385,107

    Selling, general and administrative expenses


49,203


61,578

    Other income



(9,592)

    Restructuring costs



6,859

Operating income


42,827


35,513

    Equity in pretax earnings (loss) of unconsolidated affiliates


1,369


(3,489)

    Interest income


157


357

    Interest expense


6,170


5,533

Income before income taxes and other items


38,183


26,848

    Income taxes


12,950


9,526

Net income


25,233


17,322

Less:  net income attributable to noncontrolling interests in subsidiaries


(2,108)


(1,434)

Net income attributable to Universal Corporation


23,125


15,888

Dividends on Universal Corporation convertible perpetual preferred stock


(3,712)


(3,712)

Earnings available to Universal Corporation common shareholders


$                    19,413


$                    12,176






Earnings per share attributable to Universal Corporation common shareholders:





    Basic


$                        0.83


$                        0.52

    Diluted


$                        0.81


$                        0.52

See accompanying notes.










 

UNIVERSAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)



June 30,
2012


June 30,
2011


March 31,
2012



(Unaudited)


(Unaudited)



ASSETS







Current assets







    Cash and cash equivalents


$        207,393


$          93,795


$        261,699

    Accounts receivable, net


292,633


322,690


390,790

    Advances to suppliers, net


78,260


130,783


135,317

    Accounts receivable - unconsolidated affiliates


59,858


47,111


7,370

    Inventories - at lower of cost or market:







        Tobacco


962,347


987,379


682,095

        Other


61,162


60,871


53,197

    Prepaid income taxes


17,921


20,493


20,819

    Deferred income taxes


51,967


54,479


51,025

    Other current assets


65,610


77,527


88,317

        Total current assets


1,797,151


1,795,128


1,690,629

Property, plant and equipment







    Land


17,059


14,186


17,087

    Buildings


228,191


241,771


228,982

    Machinery and equipment


539,310


537,693


537,031



784,560


793,650


783,100

        Less accumulated depreciation


(486,925)


(483,481)


(479,908)



297,635


310,169


303,192

Other assets







    Goodwill and other intangibles


99,211


99,461


99,266

    Investments in unconsolidated affiliates


89,189


113,745


93,312

    Deferred income taxes


21,219


12,957


23,634

    Other noncurrent assets


50,097


66,165


56,886



259,716


292,328


273,098

        Total assets


$     2,354,502


$     2,397,625


$     2,266,919

See accompanying notes.







 

 

UNIVERSAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)



June 30,
2012


June 30,
2011


March 31,
2012



(Unaudited)


(Unaudited)



LIABILITIES AND SHAREHOLDERS' EQUITY







Current liabilities







    Notes payable and overdrafts


$      149,855


$       263,302


$       128,016

    Accounts payable and accrued expenses


207,526


217,225


187,790

    Accounts payable - unconsolidated affiliates


54


322


295

    Customer advances and deposits


69,371


65,588


16,832

    Accrued compensation


29,843


22,532


30,659

    Income taxes payable


17,459


10,942


12,866

    Current portion of long-term obligations


17,500


95,000


16,250

           Total current liabilities


491,608


674,911


392,708

Long-term obligations


390,000


321,612


392,500

Pensions and other postretirement benefits


140,820


105,377


140,529

Other long-term liabilities


85,454


44,729


90,609

Deferred income taxes


40,200


45,468


44,583

           Total liabilities


1,148,082


1,192,097


1,060,929

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,







         220,000 shares authorized, 219,999 shares issued







         and outstanding (219,999 at June 30, 2011, and March 31, 2012)


213,023


213,023


213,023

    Common stock, no par value, 100,000,000 shares  






       authorized, 23,356,713 shares issued and outstanding







       (23,226,863 at June 30, 2011, and 23,257,175 at March 31, 2012)


196,410


192,590


196,135

    Retained earnings


862,480


823,793


854,654

    Accumulated other comprehensive loss


(90,229)


(39,107)


(80,361)

           Total Universal Corporation shareholders' equity


1,181,684


1,190,299


1,183,451

  Noncontrolling interests in subsidiaries


24,736


15,229


22,539

           Total shareholders' equity


1,206,420


1,205,528


1,205,990

           Total liabilities and shareholders' equity


$    2,354,502


$    2,397,625


$    2,266,919

See accompanying notes. 







 

 

UNIVERSAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of dollars)



Three Months Ended
June 30,



2012


2011



(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:





   Net income


$      25,233


$      17,322

   Adjustments to reconcile net income to net cash used by operating activities:





      Depreciation


10,803


11,027

      Amortization


434


400

      Provisions for losses on advances and guaranteed loans to suppliers


1,459


4,254

      Foreign currency remeasurement loss (gain), net


(8,790)


178

      Gain on fire loss insurance settlement



(9,592)

      Restructuring costs



6,859

      Other, net


(3,495)


10,371

      Changes in operating assets and liabilities, net


(83,580)


(186,063)

        Net cash used by operating activities


(57,936)


(145,244)

CASH FLOWS FROM INVESTING ACTIVITIES:





    Purchase of property, plant and equipment


(8,726)


(8,827)

    Proceeds from sale of property, plant and equipment


1,965


5,817

    Proceeds from fire loss insurance settlement



9,933

        Net cash provided (used) by investing activities


(6,761)


6,923

CASH FLOWS FROM FINANCING ACTIVITIES: 





    Issuance (repayment) of short-term debt, net


26,958


109,662

    Repayment of long-term obligations


(1,250)


    Issuance of common stock



134

    Repurchase of common stock



(4,004)

    Dividends paid on convertible perpetual preferred stock


(3,712)


(3,712)

    Dividends paid on common stock


(11,396)


(11,195)

        Net cash provided by financing activities


10,600


90,885

Effect of exchange rate changes on cash


(209)


224

Net decrease in cash and cash equivalents


(54,306)


(47,212)

Cash and cash equivalents at beginning of year


261,699


141,007

Cash and cash equivalents at end of period


$    207,393


$      93,795

See accompanying notes.










 

 

NOTE 1. BASIS OF PRESENTATION

Universal Corporation, with its subsidiaries ("Universal" or the "Company"), is the leading global leaf tobacco supplier. 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, 2012.

NOTE 2. 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)


2012


2011

Basic Earnings Per Share





Numerator for basic earnings per share





  Net income attributable to Universal Corporation


$ 23,125


$ 15,888

  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


19,413


12,176

Denominator for basic earnings per share





  Weighted average shares outstanding


23,297


23,194

Basic earnings per share


$ 0.83


$ 0.52

Diluted Earnings Per Share





Numerator for diluted earnings per share





  Earnings available to Universal Corporation common shareholders


$ 19,413


$ 12,176

  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


23,125


12,176

Denominator for diluted earnings per share





  Weighted average shares outstanding


23,297


23,194

  Effect of dilutive securities (if conversion or exercise assumed)





    Convertible perpetual preferred stock


4,788


    Employee share-based awards


306


319

  Denominator for diluted earnings per share


28,391


23,513

Diluted earnings per share


$ 0.81


$ 0.52







NOTE 3. SEGMENT INFORMATION

The principal approach used by management to evaluate the Company's performance is by geographic region, although the dark-air cured and oriental tobacco businesses are each 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)


2012


2011

SALES AND OTHER OPERATING REVENUES





 Flue-cured and burley leaf tobacco operations:





    North America


$ 60,486


$ 58,629

    Other regions (1)


337,533


358,650

      Subtotal


398,019


417,279

 Other tobacco operations (2)


63,372


62,186

 Consolidated sales and other operating revenues


$ 461,391


$ 479,465

OPERATING INCOME





 Flue-cured and burley leaf tobacco operations:





    North America


$ 978


$ 5,577

    Other regions (1)


34,841


20,909

      Subtotal


35,819


26,486

 Other tobacco operations (2)


8,377


2,805

 Segment operating income


44,196


29,291






 Deduct: Equity in pretax (earnings) loss of unconsolidated affiliates (3)


(1,369)


3,489

        Restructuring costs (4)



(6,859)

 Add: Other income



9,592

 Consolidated operating income


$ 42,827


$ 35,513






(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



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