Universal Corporation
Feb 7, 2017

Universal Corporation Reports Improved Nine Month and Third Quarter Results

RICHMOND, Va., Feb. 7, 2017 /PRNewswire/ -- George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), reported that net income for the nine months ended December 31, 2016, was $73.4 million, or $2.63 per diluted share, compared with $61.1 million, or $2.18 per diluted share for the same period last year.  Operating income for the nine months ended December 31, 2016, of $118.5 million increased by $17.3 million compared to the nine months ended December 31, 2015.  For the third fiscal quarter ended December 31, 2016, net income was $53.6 million, or $1.92 per diluted share, compared with net income for the prior year's third quarter of $44.5 million, or $1.60 per diluted share. Operating income for the quarter ended December 31, 2016, increased by $14.0 million to $83.2 million compared to the three months ended December 31, 2015. Segment operating income for the nine months ended December 31, 2016, was $128.0 million, an increase of $25.3 million, and for the quarter ended December 31, 2016, was $87.9 million, an increase of $19.7 million, both compared to the same periods last fiscal year.  Those increases resulted from earnings improvements in all segments in the nine months ended December 31, 2016, and in the Other Regions and the Other Tobacco Operations segments, offset in part by a decline in the North America segment, in the three months ended December 31, 2016. Consolidated revenues increased by $104.8 million to $1.4 billion for the nine months ended December 31, 2016, and by $84.2 million to $668.8 million for the three months ended December 31, 2016, compared to the same periods in the prior year, mostly as a result of higher volumes.

Mr. Freeman stated, "We are pleased with the performance of our operations thus far this fiscal year, particularly in light of difficult supply conditions, including the weather-related crop reduction in Brazil. Despite these headwinds, we have been able to secure some additional sales which have helped to increase our volumes handled so far this fiscal year. In addition, our third fiscal quarter this year benefited from higher volumes mainly due to earlier shipping patterns than those of the prior year. We expect our volumes for the fourth quarter of fiscal year 2017 to be lower than those achieved in the fourth quarter of the prior year, given our reduced buying program in Brazil this fiscal year, and some earlier shipments from other origins. Last fiscal year's fourth quarter volumes were exceptionally strong for us and included significant volumes from Brazil. However, we now believe our total lamina volumes for fiscal year 2017 will be only modestly lower than those volumes in fiscal year 2016.

"Our cash flows from operations were strong for the nine months ended December 31, 2016, largely due to our reduced working capital requirements this fiscal year on fewer purchases in Brazil and earlier shipment timing in some origins. As a result, our cash balances have increased, and our seasonal borrowing requirements have decreased this fiscal year. In addition, our uncommitted inventory levels at December 31, 2016, remain within our target range and are approximately $8 million below our December 31, 2015 levels.

"We continue to work to deliver value to our shareholders and maintain our strong capital structure, which had included 6.75% convertible preferred stock requiring dividend payments of about $15 million per annum. In December 2016, we received voluntary conversion requests for about half of the outstanding shares of preferred stock. We settled those requests by issuing approximately 2.5 million shares of common stock, which will be eligible for common dividends, for those shares of preferred stock. Subsequently, in our fourth fiscal quarter, we elected to exercise a mandatory conversion of the remaining outstanding shares of our preferred stock. This mandatory conversion was settled in cash rather than shares of common stock at a cost of approximately $178 million on January 31, 2017. By using cash on hand for the mandatory conversion instead of issuing shares of common stock, we believe that we increased the value of common shareholders' investment in our Company while maintaining the strength of our balance sheet."

FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:

OTHER REGIONS:

The Other Regions segment operating income increased by $8.7 million to $96.4 million for the nine months, and by $19.8 million to $81.1 million for the quarter ended December 31, 2016, compared to the same periods in the prior fiscal year.  Both periods benefited from strong third quarter results, including higher sales volumes, lower selling, general, and administrative expenses, and the receipt of distributions from unconsolidated subsidiaries received during the second fiscal quarter in the prior year. The third quarter volume increases were mainly driven by the Africa region, with higher shipments due in part to earlier shipment timing this year. Those volume improvements were partly offset by declines in South America, on lower volumes and higher factory unit costs as a result of the reduced buying program and fewer third-party processing volumes there this year. Asia results were down for the nine months on lower current crop sales despite stronger third quarter volumes. Selling, general, and administrative costs for the nine months ended December 31, 2016, were significantly lower, primarily from the reversal of value-added tax reserves, and favorable comparison to costs incurred in fiscal year 2016 to settle third party challenges to the property rights and valuation of land. Selling, general, and administrative expenses decreased slightly for the third fiscal quarter compared to the prior year from recoveries on customer receivables, partially offset by higher currency remeasurement and exchange losses. Revenues for the Other Regions segment for the nine months ended December 31, 2016, were down by $16.6 million to $992.6 million compared to the same period last year, as slightly higher volumes were more than offset by lower green prices and reduced processing revenue. For the third quarter of fiscal year 2017, revenues increased by $35.3 million to $496.0 million driven by the higher sales volumes, offset in part by lower overall green leaf prices, as well as the receipt of distributions from unconsolidated subsidiaries.

NORTH AMERICA:

North America segment operating income of $21.4 million for the nine months ended December 31, 2016, increased by $8.5 million, compared with the same period in the previous year, reflecting higher volumes. Segment operating income of $1.0 million for the third fiscal quarter of 2017 declined by $4.7 million compared with the prior year. Despite higher volumes, results for the quarter were hampered by reduced factory yields and inventory writedowns from weather-affected U.S. crops, a less favorable product mix, as well as negative comparisons from the timing of export sales in Guatemala and Mexico, which fell into the second fiscal quarter this year. Selling, general and administrative costs were relatively flat for both the three- and nine-month comparative periods. Segment revenues increased by $67.2 million to $246.7 million for the nine months and by $11.7 million to $93.2 million for the third quarter of fiscal year 2017, compared with the same periods in fiscal year 2016, on those higher volumes, partly offset by lower average green leaf prices and a less favorable product mix.

OTHER TOBACCO OPERATIONS:

The Other Tobacco Operations segment's operating income increased by $8.1 million to $10.2 million for the nine months and by $4.7 million to $5.8 million for the third fiscal quarter ended December 31, 2016, compared with the same periods last fiscal year. In both periods, earnings improved for the dark tobacco operations on higher volumes, due in part to recovery in Indonesia where certain crops had been damaged by volcanic ash last year. Earnings for the oriental joint venture increased on a better sales mix for the nine months and higher volumes from some earlier shipment timing for the third fiscal quarter, as well as favorable comparisons to tax accruals in the prior year for both periods. For the nine months ended December 31, 2016, the special services group saw higher losses primarily for the new food ingredients business, compared with the prior year. Selling, general, and administrative costs for the segment were relatively flat for both the nine months and third fiscal quarter of the current year compared with the previous year. Revenues for the Other Tobacco Operations segment were up by $54.2 million to $181.9 million for the nine months, and by $37.2 million to $79.6 million for the third fiscal quarter ended December 31, 2016, mostly due to increased volumes and the timing of shipments of oriental tobaccos into the United States, as well as the higher volumes for the dark tobacco operations, compared to the same periods in the prior year.

OTHER ITEMS:

Cost of goods sold increased by about 9% to $1.1 billion for the nine months ended December 31, 2016, and by about 15% to $533.3 million for the third quarter of fiscal year 2017 compared with the same periods in fiscal year 2016. For both periods, the increase reflected higher leaf sales volumes. Selling, general, and administrative costs declined by $13.1 million in the nine months ended December 31, 2016, and by $2.0 million for the third fiscal quarter compared with the same periods in the prior fiscal year. In the nine months ended December 31, 2016, benefits were achieved from a combination of items, including a favorable comparison to costs incurred in the second quarter of fiscal year 2016 to settle third party challenges to the property rights and valuation of a large tract of forestry land, and the reversal in the second quarter of fiscal year 2017 of value-added tax reserves. In the third fiscal quarter of 2017, selling, general, and administrative expenses decreased on recoveries on customer receivables and lower compensation costs, partially offset by higher currency remeasurement and exchange losses, mainly in Africa and Europe.

The consolidated effective income tax rates were approximately 32% and 33% for the quarter and nine months ended December 31, 2016, respectively, and for the quarter and nine-month periods ended December 31, 2015, were approximately 32% and 29%, respectively.   Income taxes for those periods in both fiscal years were lower than the 35% federal statutory rate on a combination of lower net effective tax rates on income from certain foreign subsidiaries, and effects of changes in local currency exchange rates on deferred income tax balances.

Results for the nine months and third fiscal quarter ended December 31, 2016 included restructuring and impairment costs of $3.9 million ($0.09 per diluted share) and  $0.2 million ($0.00 per diluted share), respectively. Results for the nine months ended December 31, 2015, included restructuring and impairment costs of $2.4 million ($0.07 per diluted share) and a gain of $3.4 million on remeasuring the Company's interest in a tobacco processing joint venture to fair value upon acquiring our partner's 50% ownership in the third fiscal quarter ($0.10 for the nine months and $0.08 for the quarter per diluted share).

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; 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, 2016, 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, 2016.

At 5:00 p.m. (Eastern Time) on February 7, 2017, 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 May 6, 2017. A taped replay of the call will be available through February 21, 2017, by dialing (855) 859-2056. The confirmation number to access the replay is 63971570.

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, 2016, were $2.1 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
December 31,


Nine Months Ended
December 31,



2016


2015


2016


2015



(Unaudited)


(Unaudited)

Sales and other operating revenues

$

668,771


$

584,592


$

1,421,188


$

1,316,393

Costs and expenses








Cost of goods sold

533,318


464,686


1,145,694


1,050,004

Selling, general and administrative expenses

52,068


54,081


153,101


166,187

Other income



(3,390)



(3,390)

Restructuring and impairment costs

178



3,860


2,389

Operating income


83,207


69,215


118,533


101,203

Equity in pretax earnings of unconsolidated affiliates

4,495


2,326


5,625


2,556

Interest income


482


452


1,116


896

Interest expense

4,051


3,937


12,440


11,733

Income before income taxes

84,133


68,056


112,834


92,922

Income tax expense

27,071


21,441


36,778


27,368

Net income


57,062


46,615


76,056


65,554

Less: net income attributable to noncontrolling interests in subsidiaries

(3,415)


(2,081)


(2,621)


(4,502)

Net income attributable to Universal Corporation

53,647


44,534


73,435


61,052

Dividends on Universal Corporation convertible perpetual preferred stock

(3,687)


(3,687)


(11,061)


(11,061)

Earnings available to Universal Corporation common shareholders

$

49,960


$

40,847


$

62,374


$

49,991













Earnings per share attributable to Universal Corporation common shareholders:








  Basic


$

2.17


$

1.80


$

2.73


$

2.20

  Diluted


$

1.92


$

1.60


$

2.63


$

2.18

 

See accompanying notes.

 


UNIVERSAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands of dollars)














December 31,


December 31,


March 31,



2016


2015


2016



(Unaudited)


(Unaudited)



ASSETS







Current assets







Cash and cash equivalents


$

411,507


$

167,625


$

319,447

Accounts receivable, net


280,978


267,632


428,659

Advances to suppliers, net


93,175


84,905


101,890

Accounts receivable—unconsolidated affiliates

2,073


762


2,316

Inventories—at lower of cost or market:






Tobacco


736,368


965,917


637,132

Other


67,638


65,123


60,888

Prepaid income taxes


11,419


16,359


17,814

Other current assets


61,856


67,456


70,400

Total current assets


1,665,014


1,635,779


1,638,546








Property, plant and equipment







Land


22,760


22,870


22,987

Buildings


264,485


256,970


264,838

Machinery and equipment


603,860


591,292


591,327



891,105


871,132


879,152

Less: accumulated depreciation

(569,697)


(545,518)


(553,265)



321,408


325,614


325,887

Other assets







Goodwill and other intangibles


98,869


99,035


99,071

Investments in unconsolidated affiliates

75,574


75,351


82,441

Deferred income taxes


24,266


38,750


23,853

Other noncurrent assets


41,798


52,245


61,379



240,507


265,381


266,744








Total assets


$

2,226,929


$

2,226,774


$

2,231,177

 

See accompanying notes.

 


UNIVERSAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands of dollars)



















December 31,


December 31,


March 31,


2016


2015


2016


(Unaudited)


(Unaudited)



LIABILITIES AND SHAREHOLDERS' EQUITY






Current liabilities






Notes payable and overdrafts

$

52,052


$

65,894


$

66,179

Accounts payable and accrued expenses

131,925


132,572


120,527

Accounts payable—unconsolidated affiliates

10,522


21,768


8,343

Customer advances and deposits

14,201


41,209


16,438

Accrued compensation

22,800


20,681


27,593

Income taxes payable

7,239


5,893


7,190

Current portion of long-term debt



Total current liabilities

238,739


288,017


246,270







Long-term debt

368,645


368,292


368,380

Pensions and other postretirement benefits

78,930


90,643


92,177

Other long-term liabilities

30,038


33,179


41,794

Deferred income taxes

29,075


27,447


29,494

Total liabilities

745,427


807,578


778,115







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, 107,418 shares issued and outstanding
  (218,490 at December 31, 2015 and March 31, 2016)

104,012


211,562


211,562

  Common stock, no par value, 100,000,000 shares authorized, 25,270,976
    shares issued and outstanding (22,717,448 at December 31, 2015, and
    22,717,735 at March 31, 2016)

319,509


206,941


208,946

Retained earnings

1,090,148


1,033,986


1,066,064

Accumulated other comprehensive loss

(71,723)


(70,439)


(72,350)

Total Universal Corporation shareholders' equity

1,441,946


1,382,050


1,414,222

Noncontrolling interests in subsidiaries

39,556


37,146


38,840

Total shareholders' equity

1,481,502


1,419,196


1,453,062








Total liabilities and shareholders' equity

$

2,226,929


$

2,226,774


$

2,231,177

 

See accompanying notes.

 


UNIVERSAL CORPORATION     

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)













Nine Months Ended
December 31,


2016


2015


(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:






Net income

$

76,056


$

65,554

Adjustments to reconcile net loss to net cash provided by operating activities:




  Depreciation

26,107


27,221

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

414


(1,026)

  Foreign currency remeasurement loss (gain), net

12,493


21,492

  Fair value gain upon acquisition of partner's interest in joint venture


(3,390)

  Restructuring and impairment costs

3,860


2,389

Other, net

7,290


18,004

Changes in operating assets and liabilities, net

56,533


(120,045)

    Net cash provided by operating activities

182,753


10,199





CASH FLOWS FROM INVESTING ACTIVITIES:




Purchase of property, plant and equipment

(28,544)


(38,504)

Purchase of partner's interest in joint venture, net of cash held by the business


(5,964)

Proceeds from sale of property, plant and equipment

665


1,380

Other


(398)

Net cash used by investing activities

(27,879)


(43,486)





CASH FLOWS FROM FINANCING ACTIVITIES:




Issuance (repayment) of short-term debt, net

(11,299)


4,168

Dividends paid to noncontrolling interests

(1,260)


(1,260)

Dividends paid on convertible perpetual preferred stock

(11,061)


(11,061)

Dividends paid on common stock

(36,181)


(35,349)

Other

(2,256)


(3,736)

Net cash used by financing activities

(62,057)


(47,238)





Effect of exchange rate changes on cash

(757)


(633)

Net increase (decrease) in cash and cash equivalents

92,060


(81,158)

Cash and cash equivalents at beginning of year

319,447


248,783





Cash and cash equivalents at end of period

$

411,507


$

167,625

 

Non-cash Financing Transaction - The consolidated financial statements for the nine months ended December 31, 2016 include a non-cash reclassification of $107.6 million from preferred stock to common stock to reflect the conversion of 111,072 shares of the Company's outstanding Series B 6.75% Convertible Perpetual Preferred Stock into common stock.

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, 2016.

NOTE 2.   EARNINGS PER SHARE

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





















Three Months Ended
December 31,


Nine Months Ended
December 31,

(in thousands, except share and per share data)


2016


2015


2016


2015










Basic Earnings Per Share








Numerator for basic earnings per share








Net income attributable to Universal Corporation

$

53,647


$

44,534


$

73,435


$

61,052

Less: Dividends on convertible perpetual preferred stock

(3,687)


(3,687)


(11,061)


(11,061)

Earnings available to Universal Corporation common shareholders
  for calculation of basic earnings per share

49,960


40,847


62,374


49,991










Denominator for basic earnings per share








Weighted average shares outstanding

22,982,473


22,717,043


22,831,717


22,671,943










Basic earnings per share

$

2.17


$

1.80


$

2.73


$

2.20










Diluted Earnings Per Share








Numerator for diluted earnings per share








Earnings available to Universal Corporation common shareholders

$

49,960


$

40,847


$

62,374


$

49,991

Add: Dividends on convertible perpetual preferred stock (if conversion
  assumed)

3,687


3,687


11,061


Earnings available to Universal Corporation common shareholders for
  calculation of diluted earnings per share

53,647


44,534


73,435


49,991










Denominator for diluted earnings per share








Weighted average shares outstanding

22,982,473


22,717,043


22,831,717


22,671,943

Effect of dilutive securities (if conversion or exercise assumed)








Convertible perpetual preferred stock

4,693,155


4,857,262


4,816,904


Employee share-based awards

320,955


280,603


318,594


285,107

Denominator for diluted earnings per share

27,996,583


27,854,908


27,967,215


22,957,050










Diluted earnings per share

$

1.92


$

1.60


$

2.63


$

2.18

 

In December 2016, 111,072 shares of the Company's Series B 6.75% Convertible Perpetual Preferred Stock were converted into approximately 2.5 million of the Company's common stock. The effect from the conversion on the computation of basic and diluted earnings per share for the three and nine months ended December 31, 2016, is included in the table above.

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 the 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
December 31,


Nine Months Ended
December 31,

(in thousands of dollars)


2016


2015


2016


2015










SALES AND OTHER OPERATING REVENUES








Flue-Cured and Burley Leaf Tobacco Operations:








  North America

$

93,198


$

81,463


$

246,669


$

179,456

  Other Regions (1)

495,982


460,729


992,574


1,009,162

    Subtotal


589,180


542,192


1,239,243


1,188,618

Other Tobacco Operations (2)

79,591


42,400


181,945


127,775

Consolidated sales and other operating revenues

$

668,771


$

584,592


$

1,421,188


$

1,316,393










OPERATING INCOME








Flue-Cured and Burley Leaf Tobacco Operations:








  North America


$

1,025


$

5,750


$

21,404


$

12,949

  Other Regions (1)

81,074


61,318


96,399


87,673

    Subtotal


82,099


67,068


117,803


100,622

Other Tobacco Operations (2)

5,781


1,083


10,215


2,136

Segment operating income

87,880


68,151


128,018


102,758

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

(4,495)


(2,326)


(5,625)


(2,556)

Restructuring and impairment costs (4)

(178)



(3,860)


(2,389)

Add: Other income (5)


3,390



3,390

Consolidated operating income

$

83,207


$

69,215


$

118,533


$

101,203

 



(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) 

Equity in pretax earnings 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.



(4) 

Restructuring and impairment costs are excluded from segment operating income, but are included in consolidated operating income in the consolidated statements of income and comprehensive income.



(5) 

Other income represents a gain from remeasuring to fair value the Company's original 50% ownership interest in Procesadora Unitab, S.A., a tobacco processing joint venture in Guatemala, upon acquiring the 50% interest held by the Company's joint venture partner. This item is excluded from segment operating income, but is included in consolidated operating income in the consolidated statements of income and comprehensive income.

 

 

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SOURCE Universal Corporation

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