Universal Corporation
Nov 8, 2016

Universal Corporation Reports Improved Six-Month Results

RICHMOND, Va., Nov. 8, 2016 /PRNewswire/ -- George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), reported that net income for the first half of fiscal year 2017, which ended on September 30, 2016, was $19.8 million, or $0.54 per diluted share, compared with $16.5 million, or $0.40 per diluted share for the same period last year.  Operating income for the six months ended September 30, 2016, of $35.3 million increased by $3.3 million compared to the first half of the prior year.  For the second fiscal quarter ended September 30, 2016, net income was $25.3 million, or $0.90 per diluted share, compared with net income for the prior year's second quarter of $22.5 million, or $0.81 per diluted share. Operating income for the quarter ended September 30, 2016, increased by $6.0 million to $43.3 million from $37.3 million for the three months ended September 30, 2015. Segment operating income for the first half of fiscal year 2017 was $40.1 million, an increase of $5.5 million, and for the quarter ended September 30, 2016, was $48.3 million, an increase of $10.1 million, both compared to the same periods last fiscal year.  Those increases resulted primarily from earnings improvements in the North America and the Other Tobacco Operations segments, offset in part by declines in the Other Regions segment. Consolidated revenues increased by $20.6 million to $752.4 million for the first half of fiscal year 2017, and by $0.6 million to $456.9 million for the three months ended September 30, 2016, compared to the same periods in the prior year, mostly as a result of modestly higher volumes, partly offset by lower revenues on the timing of receipt of dividend income from unconsolidated subsidiaries.

Mr. Freeman stated, "Our results for the six months ended September 30, 2016, were in line with our expectations and reflected modestly higher total sales volumes and lower selling, general, and administrative costs. The previously announced changes in our leaf supply arrangements in both the United States and Mexico positively impacted our results in the first half of our fiscal year. 

"After consecutive years of leaf tobacco supply and demand imbalance, global demand remains soft and may contribute to delays in some customer purchase and shipment timing decisions. Consequently, our shipments are still expected to be weighted to the second half of the year, and we anticipate that total lamina sales volumes in fiscal year 2017 will be lower than those of last year. Reduced crop purchases in Brazil in the current fiscal year, as well as challenging market conditions in Tanzania, will negatively impact our sales volumes for this fiscal year. We expect the most significant drop in volumes to occur in the fourth quarter of our current fiscal year as Brazil shipped heavily in the fourth fiscal quarter of 2016, and we do not expect to attain a similar level of shipments there this fiscal year.     

"At the same time, the lower current crop levels have reduced our working capital needs this year, decreasing our seasonal borrowing requirements and increasing our cash reserves.  Our uncommitted inventories have been well-managed and remained within our target range at 14% for the end of the second fiscal quarter.  As a result, we have continued to maintain our very strong balance sheet and are pleased to reward our shareholders with an annual dividend increase for the 46th consecutive year, as announced earlier today."

FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:

OTHER REGIONS:

Operating income for the Other Regions segment decreased by $11.0 million to $15.3 million for the first half of fiscal year 2017, compared to the first half of the prior fiscal year. Operating income for the segment for the quarter ended September 30, 2016, declined by $1.9 million to $32.3 million compared with the second quarter of fiscal year 2016. The declines were largely attributable to lower sales volumes and other revenues, partly mitigated by lower selling, general, and administrative expenses. In Africa, comparisons were heavily influenced by timing factors as volumes for the first half of the fiscal year declined on slower purchasing and later shipment timing this year, as well as negative comparisons to the prior year's large carryover crop volumes. Asia results were also down on lower current crop sales and delayed shipment timing. In South America, benefits from increased sales volumes on higher carryover crops and earlier shipment timing of current year crops were offset by lower margins from higher factory unit costs as a result of lower total volumes handled in Brazil. Selling, general, and administrative costs for the segment declined significantly, mainly from the reversal in the second quarter of fiscal year 2017 of value-added tax reserves, 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 land, and lower currency remeasurement and exchange losses in the second fiscal quarter of 2017 in South America, Africa and Asia. Revenues for the Other Regions segment for the six months and quarter ended September 30, 2016, were down by $51.8 million to $496.6 million and by $52.5 million to $318.6 million, respectively, compared with the same periods in the prior year, reflecting the lower volumes, as well as a decline in revenue resulting from last year's earlier receipt of dividend income from unconsolidated subsidiaries.

NORTH AMERICA:

North America segment operating income of $20.4 million for the six months and $13.5 million for the three months ended September 30, 2016, increased by $13.2 million and $9.7 million, respectively, compared with the same periods in the previous year. The improvement in both periods reflected higher volumes in every origin. Selling, general and administrative costs, although higher in both periods, declined as a percentage of sales on the additional volumes. Similarly, segment revenues increased by $55.5 million to $153.5 million for the first half, and by $31.4 million to $80.8 million for the second 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.

OTHER TOBACCO OPERATIONS:

The Other Tobacco Operations segment's operating income increased by $3.4 million to $4.4 million for the six months and by $2.3 million to $2.4 million for the second fiscal quarter ended September 30, 2016, compared with the same periods last fiscal year. In both periods, earnings improved for the dark tobacco operations on higher volumes and favorable comparisons to the prior year's currency remeasurement and exchange losses in Indonesia. Earnings for the oriental joint venture were up slightly, primarily from a more favorable sales mix and lower currency remeasurement losses from devaluation of the Turkish lira. Those improvements were partly offset by losses in the special services group, primarily on larger factory startup and selling, general and administrative costs 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 first half and second fiscal quarter of the current year compared with the previous year. Revenues for the Other Tobacco Operations segment increased by $17.0 million to $102.4 million for the first half, and by $21.6 million to $57.6 million for the second quarter of fiscal year 2017, mainly due to higher sales volumes from the timing of shipments of oriental tobaccos into the United States, compared to the same periods in the prior year, as well as the stronger second quarter volumes for the dark tobacco operations.

OTHER ITEMS:

Cost of goods sold increased by about 5% to $612.4 million for the first half, and by about 3% to $369.1 million for the second quarter of fiscal year 2017. For both periods, the increase reflected modestly higher leaf sales volumes and higher overall average green leaf prices. Selling, general, and administrative costs decreased by $11.1 million in the first half of fiscal year 2017 and by $20.0 million for the second fiscal quarter compared with the same periods in the prior fiscal year. In both periods, 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 addition, expenses declined in the second fiscal quarter of 2017 from lower currency remeasurement and exchange losses, mainly in South America, Africa and Asia.

The consolidated effective income tax rates were approximately 35% and 34% for the quarter and six months ended September 30, 2016, respectively, which approximates the U.S. statutory rate. The consolidated effective tax rates for the quarter and six-month periods ended September 30, 2015, were approximately 27% and 24%, respectively. Income taxes for the first half of fiscal year 2016 were lower than the 35% federal statutory rate because of lower net effective tax rates on income from certain foreign subsidiaries, as well as effects of changes in local currency exchange rates on deferred income tax balances.

Results for the second fiscal quarter and six months ended September 30, 2016 included restructuring and impairment costs of $3.7 million ($0.09 per diluted share for the quarter or $0.10 for the six months). Results for the six months ended September 30, 2015 included restructuring and impairment costs of $2.4 million ($0.07 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 November 8, 2016, 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 February 6, 2017. A taped replay of the call will be available through November 21, 2016, by dialing (855) 859-2056. The confirmation number to access the replay is 10056222.

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
September 30,



Six Months Ended
September 30,




2016


2015



2016



2015




(Unaudited)



(Unaudited)


Sales and other operating revenues


$

456,942



$

456,382



$

752,417



$

731,801


Costs and expenses

















Cost of goods sold


369,098



358,288



612,376



585,318


Selling, general and administrative expenses


40,834



60,810



101,033



112,106


Restructuring and impairment costs


3,682



--



3,682



2,389


Operating income


43,328



37,284



35,326



31,988


Equity in pretax earnings of unconsolidated affiliates


1,260



846



1,130



230


Interest income


271



205



634



444


Interest expense


4,335



3,912



8,389



7,796


Income before income taxes


40,524



34,423



28,701



24,866


Income tax expense


14,026



9,359



9,707



5,927


Net income


26,498



25,064



18,994



18,939


Less: net (income) loss attributable to noncontrolling interests in subsidiaries


(1,234)



(2,599)



794



(2,421)


Net income attributable to Universal Corporation


25,264



22,465



19,788



16,518


Dividends on Universal Corporation convertible perpetual preferred stock


(3,687)



(3,687)



(7,374)



(7,374)


Earnings available to Universal Corporation common shareholders


$

21,577



$

18,778



$

12,414



$

9,144













Earnings per share attributable to Universal Corporation common shareholders:

















Basic


$

0.95



$

0.83



$

0.55



$

0.40


Diluted


$

0.90



$

0.81



$

0.54



$

0.40



See accompanying notes.

 


UNIVERSAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
















September 30,



September 30,



March 31,




2016



2015



2016




(Unaudited)



(Unaudited)




ASSETS







Current assets







Cash and cash equivalents


$

294,894



$

68,970



$

319,447


Accounts receivable, net


251,805



303,963



428,659


Advances to suppliers, net


47,841



40,627



101,890


Accounts receivable--unconsolidated affiliates


51,558



59,370



2,316


Inventories--at lower of cost or market:







Tobacco


827,936



999,312



637,132


Other


86,472



85,222



60,888


Prepaid income taxes


24,448



19,779



17,814


Other current assets


56,026



75,122



70,400


Total current assets


1,640,980



1,652,365



1,638,546









Property, plant and equipment







Land


22,914



16,583



22,987


Buildings


266,107



252,153



264,838


Machinery and equipment


599,897



585,466



591,327




888,918



854,202



879,152


Less: accumulated depreciation


(566,686)



(539,749)



(553,265)




322,232



314,453



325,887


Other assets







Goodwill and other intangibles


99,033



99,049



99,071


Investments in unconsolidated affiliates


81,441



79,995



82,441


Deferred income taxes


25,720



46,633



23,853


Other noncurrent assets


49,107



54,179



61,379




255,301



279,856



266,744









Total assets


$

2,218,513



$

2,246,674



$

2,231,177



See accompanying notes.

 

 



UNIVERSAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
















September 30,



September 30,



March 31,




2016



2015



2016




(Unaudited)



(Unaudited)





LIABILITIES AND SHAREHOLDERS' EQUITY










Current liabilities










Notes payable and overdrafts


$

71,002



$

86,095



$

66,179


Accounts payable and accrued expenses


133,133



155,824



120,527


Accounts payable--unconsolidated affiliates


--



98



8,343


Customer advances and deposits


37,334



67,100



16,438


Accrued compensation


18,885



18,423



27,593


Income taxes payable


1,240



6,126



7,190


Current portion of long-term debt


--



--



--


Total current liabilities


261,594



333,666



246,270









Long-term debt


368,556



368,203



368,380


Pensions and other postretirement benefits


80,005



93,588



92,177


Other long-term liabilities


41,413



37,472



41,794


Deferred income taxes


28,047



26,034



29,494


Total liabilities


779,615



858,963



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, 218,490 shares issued and outstanding (218,490 at September 30, 2015 and March 31, 2016)


211,562



211,562



211,562


Common stock, no par value, 100,000,000 shares authorized, 22,783,633 shares issued and outstanding (22,680,233 at September 30, 2015, and 22,717,735 at March 31, 2016)


210,569



207,349



208,946


Retained earnings


1,054,004



1,005,353



1,066,064


Accumulated other comprehensive loss


(73,579)



(71,657)



(72,350)


Total Universal Corporation shareholders' equity


1,402,556



1,352,607



1,414,222


Noncontrolling interests in subsidiaries


36,342



35,104



38,840


Total shareholders' equity


1,438,898



1,387,711



1,453,062









Total liabilities and shareholders' equity


$

2,218,513



$

2,246,674



$

2,231,177



See accompanying notes.

 


UNIVERSAL CORPORATION     
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)












Six Months Ended September 30,




2016


2015




(Unaudited)


CASH FLOWS FROM OPERATING ACTIVITIES:





Net income


$

18,994



$

18,939


Adjustments to reconcile net loss to net cash provided (used) by operating activities:





Depreciation


17,324



18,362


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


(2,038)



(4,354)


Foreign currency remeasurement loss (gain), net


11,119



21,981


Restructuring and impairment costs


3,682



2,389


Other, net


(1,108)



927


Changes in operating assets and liabilities, net


(25,548)



(200,010)


Net cash provided (used) by operating activities


22,425



(141,766)







CASH FLOWS FROM INVESTING ACTIVITIES:





Purchase of property, plant and equipment


(17,567)



(28,457)


Proceeds from sale of property, plant and equipment


447



1,155


Net cash used by investing activities


(17,120)



(27,302)







CASH FLOWS FROM FINANCING ACTIVITIES:





Issuance (repayment) of short-term debt, net


5,210



23,827


Dividends paid to noncontrolling interests


(1,260)



(1,260)


Dividends paid on convertible perpetual preferred stock


(7,374)



(7,374)


Dividends paid on common stock


(24,106)



(23,536)


Other


(2,245)



(2,037)


Net cash used by financing activities


(29,775)



(10,380)







Effect of exchange rate changes on cash


(83)



(365)


Net decrease in cash and cash equivalents


(24,553)



(179,813)


Cash and cash equivalents at beginning of year


319,447



248,783







Cash and cash equivalents at end of period


$

294,894



$

68,970




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
September 30,



Six Months Ended
September 30,


(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


$

25,264



$

22,465



$

19,788



$

16,518


Less: Dividends on convertible perpetual preferred stock


(3,687)



(3,687)



(7,374)



(7,374)


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


21,577



18,778



12,414



9,144











Denominator for basic earnings per share









Weighted average shares outstanding


22,777,394



22,675,323



22,755,927



22,649,270











Basic earnings per share


$

0.95



$

0.83



$

0.55



$

0.40











Diluted Earnings Per Share









Numerator for diluted earnings per share









Earnings available to Universal Corporation common shareholders


$

21,577



$

18,778



$

12,414



$

9,144


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


3,687



3,687



--



--


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


25,264



22,465



12,414



9,144











Denominator for diluted earnings per share









Weighted average shares outstanding


22,777,394



22,675,323



22,755,927



22,649,270


Effect of dilutive securities (if conversion or exercise assumed)









Convertible perpetual preferred stock


4,883,372



4,848,766



--



--


Employee share-based awards


307,390



326,539



317,414



287,361


Denominator for diluted earnings per share


27,968,156



27,850,628



23,073,341



22,936,631











Diluted earnings per share


$

0.90



$

0.81



$

0.54



$

0.40


 

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
September 30,



Six Months Ended
September 30,


(in thousands of dollars)


2016



2015



2016



2015











SALES AND OTHER OPERATING REVENUES









Flue-Cured and Burley Leaf Tobacco Operations:









North America


$

80,789



$

49,421



$

153,471



$

97,993


Other Regions (1)


318,576



371,032



496,592



548,433


Subtotal


399,365



420,453



650,063



646,426


Other Tobacco Operations (2)


57,577



35,929



102,354



85,375


Consolidated sales and other operating revenues


$

456,942



$

456,382



$

752,417



$

731,801











OPERATING INCOME









Flue-Cured and Burley Leaf Tobacco Operations:









North America


$

13,531



$

3,783



$

20,379



$

7,199


Other Regions (1)


32,342



34,202



15,325



26,355


Subtotal


45,873



37,985



35,704



33,554


Other Tobacco Operations (2)


2,397



145



4,434



1,053


Segment operating income


48,270



38,130



40,138



34,607


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


(1,260)



(846)



(1,130)



(230)


Restructuring and impairment costs (4)


(3,682)



--



(3,682)



(2,389)


Consolidated operating income


$

43,328



$

37,284



$

35,326



$

31,988


 



(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.

 

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