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August 7, 2018 at 4:15 PM EDT

Universal Corporation Reports Strong First Quarter Results

RICHMOND, Va., Aug. 7, 2018 /PRNewswire/ -- George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), reported net income of $13.2 million, or $0.52 per diluted share, for the first quarter of fiscal year 2019, which ended on June 30, 2018. Those results were up $9.6 million compared with net income of $3.6 million, or $0.14 per diluted share, for the first quarter of fiscal year 2018. The first quarter of fiscal year 2019 included a non-recurring tax benefit from the reversal of a previously recorded foreign dividend withholding tax liability that reduced income taxes and increased net income by $6.9 million, or $0.27 per diluted share. Operating income of $8.4 million for the quarter ended June 30, 2018, improved $2.0 million, or 31%, compared to operating income of $6.4 million for the quarter ended June 30, 2017. Similarly, segment operating income was $8.9 million for the first quarter of fiscal year 2019, up $3.0 million compared to the same period last fiscal year, mainly as a result of earnings improvements in the North America and Other Tobacco Operations segments, partially offset by earnings declines in the Other Regions segment. Revenues of $379.7 million for the quarter ended June 30, 2018, increased by $95.1 million, or 33%, on higher total volumes and processing revenues and a more favorable product mix.

Mr. Freeman stated, "We are off to a strong start to what we believe will be a good year. Our first quarter results benefited from higher carryover crop sales in several origins, particularly in our North America segment where sales volumes in the fourth quarter of fiscal year 2018 were hampered by shipping delays from reduced transportation availability in the United States. We are also continuing to see robust demand for both wrapper style tobaccos and related value-added processing services. We have increased our offerings to meet demand for natural wrappers in both the United States and Europe and continue to be a leading wrapper tobacco supplier.

"Crop purchases are progressing as anticipated with purchasing effectively complete in Brazil and well underway in Africa. We are not seeing any significant supply disruptions thus far this year. Burley production volumes have recovered in Africa, and crop sizes there for both flue-cured and burley tobaccos are coming in somewhat higher than previous estimates.

"Although it is still early in our fiscal year, we are pleased with our results to date and continue to expect that our volumes will be above those achieved last fiscal year. We are also focused on our enhanced capital allocation strategy that reflects the strength of our balance sheet and demonstrates our commitment to sustainable shareholder value creation. As announced in conjunction with our 36% dividend increase in May 2018, our strategy has four key priorities: strengthening and investing for growth in our core tobacco business; increasing our strong dividend; exploring growth opportunities in adjacent industries that would utilize our assets and capabilities; and returning excess capital to our shareholders. In line with this strategy, we are positioning our Company for ongoing success as we continue to identify areas where we can provide additional value and expand the services we provide customers in our core tobacco business."

FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:

OTHER REGIONS:

The Other Regions segment operating loss of $2.0 million for the quarter ended June 30, 2018, was down $5.9 million compared with the prior year's first fiscal quarter operating income of $3.9 million. In the first quarter of fiscal year 2019, the segment benefited from higher carryover crop sales, mainly in Africa, and higher processing volumes in both Europe and South America. Despite these volume improvements and higher gross margins, results for the segment were down on higher selling, general and administrative costs, largely from lower currency remeasurement gains and higher currency exchange losses and higher customer claim costs, compared to the same period in the prior fiscal year. In South America, volumes were flat, but the product mix was more favorable for the first fiscal quarter of 2019 compared to the prior year, as higher carryover crop sales offset lower current crop shipments. Results for Asia were negatively impacted by lower sales volumes and higher currency remeasurement losses. Revenues for the Other Regions segment of $207.9 million for the quarter ended June 30, 2018, were up about 13% compared to the same period last year, on higher volumes largely from carryover sales, processing revenues, and a better product mix.

NORTH AMERICA:

Operating income for the North America segment for the quarter ended June 30, 2018, was $9.0 million, up $6.6 million from the comparable prior year period, mainly on higher carryover crop sales volumes. The increased volumes included some shipments delayed from earlier in the calendar year due to reduced transportation availability. In addition, current crop tobaccos in Mexico shipped earlier this fiscal year compared to the prior fiscal year. Selling, general, and administrative costs for the North America segment were relatively flat, compared to the prior year's first fiscal quarter. Revenues for this segment increased by $62.2 million to $115.6 million for the quarter ended June 30, 2018, compared to the same period in the prior fiscal year, on the higher sales volumes and a more favorable product mix.

OTHER TOBACCO OPERATIONS:

The Other Tobacco Operations segment operating income of $2.0 million for the first quarter of fiscal year 2019 reflected an increase of about $2.3 million, compared with an operating loss of $0.3 million for this segment in the same period last year. Results for the dark tobacco operations were up for the quarter ended June 30, 2018, bouyed by higher sales from strong wrapper tobacco demand. Despite slightly lower sales volumes, results for the oriental joint venture were up for its seasonally weak first fiscal quarter ended June 30, 2018, compared to the prior fiscal year. The increase was due to a favorable currency remeasurement variance caused by the devaluation of the Turkish Lira during the first fiscal quarter. Revenues for this segment in the quarter ended June 30, 2018, increased by $9.3 million to $56.2 million on the higher wrapper tobacco sales. Selling, general, and administrative costs for the segment were flat compared with the prior year's first fiscal quarter.

OTHER ITEMS:

Cost of goods sold in the quarter ended June 30, 2018, of $307.5 million was up by about 33% compared with the same period last year, consistent with the similar percentage increase in revenues for the current period. Selling, general, and administrative costs for the first quarter of fiscal year 2019 increased by $16.4 million to $63.9 million, mainly driven by negative foreign currency remeasurement and exchange variances of about $10 million, primarily in Mozambique and Brazil, higher customer claim costs, and higher compensation and incentive benefit accruals in the quarter ended June 30, 2018, compared with the same period in the prior year.

For the three months ended June 30, 2018, the Company reported a net tax benefit on pretax earnings due to a $6.9 million benefit from reversing a portion of a liability previously recorded for dividend withholding taxes on the cumulative retained earnings of a foreign subsidiary.  The reversal followed the resolution of uncertainties with local taxing authorities with respect to the inclusion of the tax under a tax holiday applicable to a subsidiary and was attributable to the portion of cumulative retained earnings that the Company expects to distribute prior to the expiration of the holiday.  Without the dividend withholding tax reversal, income taxes for the quarter would have been expense of approximately $1.5 million, or a consolidated effective tax rate of approximately 27%. 

Income taxes for the quarter ended June 30, 2017, were favorably impacted by a lower effective tax rate on dividend income from unconsolidated operations and by excess tax deductions related to stock-based compensation awards that vested during the quarter. Under the tax law in effect at that time, both of these items were accounted for as discrete tax benefits during the quarter, resulting in a net tax benefit on pretax earnings for the period. Without the benefit from the discrete items, income taxes for the quarter would have been expense of approximately $1 million, or a consolidated effective tax rate of about 34%.

Additional information

Amounts included in the previous discussion are attributable to Universal Corporation and exclude earnings related to non-controlling interests in subsidiaries. In addition, the total for segment operating income (loss) referred to in this discussion is a non-GAAP measure. This measure is not a financial measure calculated in accordance with GAAP and should not be considered as a substitute for net income (loss), operating income (loss), cash from operating activities or any other operating performance measure calculated in accordance with GAAP, and it may not be comparable to similarly titled measures reported by other companies. A reconciliation of the total for segment operating income (loss) to consolidated operating income (loss) is provided in Note 3. Segment Information, included in this earnings release. The Company evaluates its segment performance excluding certain significant charges or credits. The Company believes this measure, which excludes items that it believes are not indicative of its core operating results, provides investors with important information that is useful in understanding its business results and trends.

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, including the impact of regulations on tobacco products; product taxation; changes in the U.S. federal income tax rates and legislation; industry consolidation and evolution; changes in global supply and demand positions for tobacco products; 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, 2018, 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 fiscal year ended March 31, 2018.

At 5:00 p.m. (Eastern Time) on August 7, 2018, 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 7, 2018. A taped replay of the call will be available through August 21, 2018, by dialing (855) 859-2056. The confirmation number to access the replay is 1249369.

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, 2018, were $2.0 billion. For more information on Universal Corporation, visit its website at www.universalcorp.com.

 

UNIVERSAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in thousands of dollars, except per share data)














Three Months
Ended June 30,



2018


2017



(Unaudited)

Sales and other operating revenues


$

379,719



$

284,622


Costs and expenses





Cost of goods sold


307,498



230,765


Selling, general and administrative expenses


63,852



47,480


Operating income


8,369



6,377


Equity in pretax earnings (loss) of unconsolidated affiliates


539



(435)


Other non-operating income (expense)


190



178


Interest income


512



670


Interest expense


3,949



3,932


Income before income taxes and other items


5,661



2,858


Income taxes


(5,399)



(463)


Net income


11,060



3,321


Less: net loss attributable to noncontrolling interests in subsidiaries


2,119



256


Net income attributable to Universal Corporation


13,179



3,577







Earnings per share:





 Basic


$

0.53



$

0.14


 Diluted


$

0.52



$

0.14



See accompanying notes.

 

 

UNIVERSAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands of dollars)


















June 30,


June 30,


March 31,



2018


2017


2018



(Unaudited)


(Unaudited)



ASSETS







Current assets







Cash and cash equivalents


$

66,008



$

128,605



$

234,128


Accounts receivable, net


247,812



209,321



377,119


Advances to suppliers, net


70,731



58,218



122,786


Accounts receivable—unconsolidated affiliates


101,483



62,239



2,040


Inventories—at lower of cost or net realizable value:







Tobacco


947,520



917,945



679,428


Other


73,358



74,628



69,301


Prepaid income taxes


20,242



16,523



16,032


Other current assets


71,511



71,823



88,209


Total current assets


1,598,665



1,539,302



1,589,043









Property, plant and equipment







Land


23,041



22,787



23,180


Buildings


268,789



267,740



271,757


Machinery and equipment


636,425



606,473



634,660




928,255



897,000



929,597


Less accumulated depreciation


(604,765)



(580,927)



(605,803)




323,490



316,073



323,794


Other assets







Goodwill and other intangibles


98,892



99,023



98,927


Investments in unconsolidated affiliates


83,327



82,645



89,302


Deferred income taxes


19,162



25,451



17,118


Other noncurrent assets


45,632



42,494



50,448




247,013



249,613



255,795









Total assets


$

2,169,168



$

2,104,988



$

2,168,632



See accompanying notes.

 

 

UNIVERSAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands of dollars)

















June 30,


June 30,


March 31,



2018


2017


2018



(Unaudited)


(Unaudited)



LIABILITIES AND SHAREHOLDERS' EQUITY







Current liabilities







Notes payable and overdrafts


$

73,291



$

45,064



$

45,421


Accounts payable and accrued expenses


199,214



189,676



163,763


Accounts payable—unconsolidated affiliates




869



16,072


Customer advances and deposits


3,414



1,841



7,021


Accrued compensation


20,969



19,404



27,886


Income taxes payable


6,813



2,132



7,557


Current portion of long-term debt







Total current liabilities


303,701



258,986



267,720









Long-term debt


369,174



368,821



369,086


Pensions and other postretirement benefits


60,360



77,312



64,843


Other long-term liabilities


45,628



31,189



45,955


Deferred income taxes


28,033



46,836



35,726


Total liabilities


806,896



783,144



783,330









Shareholders' equity







Universal Corporation:







Preferred stock:







Series A Junior Participating Preferred Stock, no par value, 500,000 shares
  authorized, none issued or outstanding







Common stock, no par value, 100,000,000 shares authorized 24,957,418
  shares issued and outstanding (25,325,595 at June 30, 2017, and
  24,930,725 at March 31, 2018)


322,889



321,215



321,559


Retained earnings


1,072,230



1,024,567



1,080,934


Accumulated other comprehensive loss


(73,442)



(63,723)



(60,064)


Total Universal Corporation shareholders' equity


1,321,677



1,282,059



1,342,429


Noncontrolling interests in subsidiaries


40,595



39,785



42,873


Total shareholders' equity


1,362,272



1,321,844



1,385,302









Total liabilities and shareholders' equity


$

2,169,168



$

2,104,988



$

2,168,632



See accompanying notes.



 

 

UNIVERSAL CORPORATION     

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)














Three Months Ended June 30,



2018


2017



(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:





Net income


$

11,060



$

3,321


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





Depreciation


8,645



8,818


Net provision for losses (recoveries) on advances and guaranteed loans to suppliers


(797)



1,290


Foreign currency remeasurement (gain) loss, net


(943)



(5,917)


Other, net


(6,928)



(1,944)


Changes in operating assets and liabilities, net


(179,366)



(122,647)


Net cash used by operating activities


(168,329)



(117,079)







CASH FLOWS FROM INVESTING ACTIVITIES:





Purchase of property, plant and equipment


(11,018)



(6,356)


Proceeds from sale of property, plant and equipment


589



206


Net cash used by investing activities


(10,429)



(6,150)







CASH FLOWS FROM FINANCING ACTIVITIES:





Issuance (repayment) of short-term debt, net


28,978



(16,058)


Repurchase of common stock


(1,443)




Dividends paid on common stock


(13,712)



(13,649)


Other


(2,656)



(2,827)


Net cash provided (used) by financing activities


11,167



(32,534)







Effect of exchange rate changes on cash


(529)



375


Net decrease in cash and cash equivalents


(168,120)



(155,388)


Cash and cash equivalents at beginning of year


234,128



283,993







Cash and cash equivalents at end of period


$

66,008



$

128,605



See accompanying notes.

 

NOTE 1. BASIS OF PRESENTATION

Universal Corporation, which together with its subsidiaries is referred to herein as "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. This Form 10-Q 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, 2018.

NOTE 2.   EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:













Three Months Ended June 30,

(in thousands, except share and per share data)


2018


2017






Basic Earnings Per Share





Numerator for basic earnings per share





Net income attributable to Universal Corporation


$

13,179



$

3,577







Denominator for basic earnings per share





Weighted average shares outstanding


25,064,420



25,407,293







Basic earnings per share


$

0.53



$

0.14







Diluted Earnings Per Share





Numerator for diluted earnings per share





Net income attributable to Universal Corporation


13,179



3,577







Denominator for diluted earnings per share:





Weighted average shares outstanding


25,064,420



25,407,293


Effect of dilutive securities





Employee share-based awards


220,280



224,864


Denominator for diluted earnings per share


25,284,700



25,632,157







Diluted earnings per share


$

0.52



$

0.14


 

NOTE 4. 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 (loss) after allocated overhead expenses (excluding significant non-recurring charges or credits), plus equity in the pretax earnings (loss) of unconsolidated affiliates.

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













Three Months Ended June 30,

(in thousands of dollars)


2018


2017






SALES AND OTHER OPERATING REVENUES





Flue-Cured and Burley Leaf Tobacco Operations:





   North America


$

115,556



$

53,324


   Other Regions (1)


207,932



184,412


      Subtotal


323,488



237,736


Other Tobacco Operations (2)


56,231



46,886


Consolidated sales and other operating revenue


$

379,719



$

284,622







OPERATING INCOME (LOSS)





Flue-Cured and Burley Leaf Tobacco Operations:





   North America


$

8,952



$

2,330


   Other Regions (1)


(2,017)



3,944


      Subtotal


6,935



6,274


Other Tobacco Operations (2)


1,973



(332)


Segment operating income


8,908



5,942


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


(539)



435


Consolidated operating income


$

8,369



$

6,377




(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 the business is accounted for on the equity method and its financial results consist principally of equity in the pretax earnings (loss) of an unconsolidated affiliate.



(3) 

Equity in pretax earnings (loss) of unconsolidated affiliates is included in segment operating income (Other Tobacco Operations segment), but is reported below consolidated operating income and excluded from that total in the consolidated statements of income and comprehensive income.

 

 

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SOURCE Universal Corporation

Candace C. Formacek, Phone: (804) 359-9311, Fax: (804) 254-3584, Email: investor@universalleaf.com