Universal Corporation
Nov 7, 2017

Universal Corporation Reports Improved Six-Month Results

RICHMOND, Va., Nov. 7, 2017 /PRNewswire/ -- George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), reported that net income for the six months ended September 30, 2017, was $29.7 million, or $1.16 per diluted share, compared with $19.8 million, or $0.54 per diluted share for the same period of the prior fiscal year.  Operating income for the six months ended September 30, 2017, of $51.5 million, increased by $16.2 million compared to the first half of the prior fiscal year.  For the second fiscal quarter ended September 30, 2017, net income was $26.2 million, or $1.02 per diluted share, compared with net income for the prior year's second quarter of $25.3 million, or $0.90 per diluted share. Operating income for the second quarter of fiscal year 2018 increased to $45.0 million from $43.3 million for the three months ended September 30, 2016. Segment operating income, which excludes the restructuring and impairment costs mentioned in Other Items below, was $51.8 million for the first half of fiscal year 2018, an increase of $11.6 million, and for the quarter ended September 30, 2017, was $45.6 million, a decrease of $2.6 million, both compared to the same periods last fiscal year.  Results in both periods reflected earnings improvements in the Other Regions segment coupled with declines in the North America and the Other Tobacco Operations segments. Consolidated revenues increased by $20.5 million to $772.9 million for the first half of fiscal year 2018, and by $31.3 million to $488.2 million for the three months ended September 30, 2017, compared to the same periods in the prior year. Those increases were primarily a result of slightly higher sales volumes, as well as higher processing and other revenues. Revenues for the six months ended September 30, 2017, also included benefits from the timing of receipt of dividend income from unconsolidated subsidiaries in the first fiscal quarter of 2018.

Mr. Freeman stated, "Our results for the six months ended September 30, 2017, were in line with our expectations and reflected slightly higher total sales volumes and lower selling, general, and administrative costs. In our second fiscal quarter, we continued to see the benefits of higher current crop sales and processing volumes and lower factory unit costs from the recovery in leaf production volumes this year in Brazil.

"As expected, the recovery of Brazilian crop levels and some earlier shipment timing in certain regions increased our working capital needs in the first half of this fiscal year, modestly increasing our seasonal borrowing requirements. This shift, as well as the funds utilized in the fourth fiscal quarter of 2017 to redeem the remaining shares of our preferred stock, reduced our cash reserves to our more typical mid-year seasonal levels.  Despite those requirements, we have continued to maintain our strong balance sheet as evidenced by a credit ratings upgrade announced in October 2017 by S&P Global Ratings. Our uncommitted inventories have been prudently managed, remaining within our target range at 14% for the end of the second fiscal quarter.

"Looking to the second half of our current fiscal year, the reduced burley leaf production volumes in Africa will impact our total volumes sold for that region, which mainly ship in the third and fourth fiscal quarters. Less African burley leaf was grown this fiscal year due to excess production and low grower prices in fiscal year 2017 and unfavorable weather conditions this fiscal year. Although we still expect our total shipments to be weighted to the second half of the fiscal year, we currently anticipate modestly lower total lamina sales volumes for fiscal year 2018. We are estimating that this fiscal year's global burley production declines will recover in next year's crop.

"Despite supply constraints in certain important origins over the last two fiscal years, we have been pleased with additional business opportunities that we have gained from our customers. We believe that we have increased our market share and that we continue to bring efficiencies to the leaf tobacco supply chain while meeting our customers' current and evolving product needs.

"We also remain focused on providing value to our shareholders. During the first half of fiscal 2018 we have returned nearly $40.0 million to our shareholders in dividends and common stock repurchases and are pleased today to have announced an annual dividend increase for the 47th consecutive year."

FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:

OTHER REGIONS:

Operating income for the Other Regions segment improved by $26.3 million to $41.6 million for the first half of fiscal year 2018, compared to the first half of the prior fiscal year. The improvements were driven by a combination of higher sales volumes, processing and other revenues, and lower selling, general, and administrative expenses. In South America, total volumes declined slightly given larger sales volumes of carryover crops in fiscal year 2017's first six months, but earnings were lifted by increased sales and processing volumes and better factory unit costs on higher current year crop volumes. In Africa, volumes for the first half of the fiscal year were slightly higher on earlier shipment timing in some origins. Europe region results improved on stronger sales, due in part to earlier shipment timing, and a gain on the sale of a former processing facility in Hungary, while Asia results benefited from an increase in trading volumes in some origins. Selling, general, and administrative costs for the segment were lower for the six-month period, largely from net foreign currency remeasurement gains in the first quarter of fiscal year 2018, compared with losses in the first quarter of the prior year, mainly in Africa. That benefit was partially offset by unfavorable comparisons to the reversal of value-added tax reserves in the second quarter of fiscal year 2017.

Segment operating income for the Other Regions segment for the quarter ended September 30, 2017, increased by $5.2 million to $37.5 million, compared with the second quarter of fiscal year 2017. Although segment sales volumes were higher for the quarter, results were hampered by higher selling, general, and administrative costs. Revenues for the Other Regions segment for the six months and quarter ended September 30, 2017, were up by $69.0 million to $565.6 million and by $62.6 million to $381.2 million, respectively, compared with the same periods in the prior year. Those results reflected higher sales volumes at slightly higher overall green leaf prices, as well as increased processing and other revenues.

NORTH AMERICA:

North America segment operating income of $10.3 million for the six months, and $7.9 million for the quarter ended September 30, 2017, was down by $10.1 million and $5.6 million, respectively, compared with the same periods in the previous year. The declines in both periods were driven by lower sales volumes shipped during the first half of fiscal year 2018. Volume comparisons in the United States were primarily impacted by large prior crop carryover sales last year, while offshore origin results were affected by lower volumes from later shipment timing in the current fiscal year and less favorable margins. Those declines were partly mitigated by reduced selling, general and administrative costs, mainly from lower incentive compensation accruals. Segment revenues were also down, by $41.5 million to $112.0 million for the first half, and by $22.1 million to $58.7 million for the second quarter of fiscal year 2018, compared with the same periods in the prior fiscal year, on those lower volumes at lower average green leaf prices.

OTHER TOBACCO OPERATIONS:

The Other Tobacco Operations segment operating loss of $0.1 million for the six months and segment operating income of $0.2 million for the three months ended September 30, 2017, declined by $4.5 million and $2.2 million, respectively, compared with the same periods last fiscal year. In both periods, earnings were lower for the dark tobacco operations largely due to negative currency remeasurement variances, a value-added tax charge, and an unfavorable product mix in Indonesia due to a lack of wrapper tobacco availability. Earnings improvements for the oriental joint venture in the quarter and six months ended September 30, 2017, on increased volumes, were more than offset by declines due to delays in the delivery of shipments of oriental tobaccos into the United States. Operating results for the Special Services group were up slightly for both the first half and second fiscal quarter of fiscal year 2018 compared with fiscal year 2017. Selling, general, and administrative costs for the segment were higher for both the first half and second fiscal quarter of fiscal year 2018 compared with fiscal year 2017 principally on negative currency remeasurement variances and a value-added tax charge. Revenues for the Other Tobacco Operations segment decreased by $7.1 million to $95.3 million for the first half, and by $9.2 million to $48.4 million for the second quarter of fiscal year 2018, mainly due to lower sales volumes from the timing of shipments of oriental tobaccos into the United States, compared to the same periods in the prior year.

OTHER ITEMS:

Cost of goods sold increased by about 2% to $625.9 million for the first half, and by about 7% to $395.2 million for the second quarter of fiscal year 2018 compared with the same periods in fiscal year 2017. For both periods, the increase reflected modestly higher leaf sales volumes. Selling, general, and administrative costs decreased by $5.6 million in the six months ended September 30, 2017, compared to the six months ended September 30, 2016. The decrease was largely driven by net foreign currency remeasurement and exchange gains in the current fiscal period compared with losses incurred in the prior fiscal year comparable period, mainly in Africa and the Philippines, partially offset by the absence of the reversal in the second quarter of fiscal year 2017 of value-added tax reserves. Selling, general, and administrative costs were up $7.3 million in the three months ended September 30, 2017, compared to the prior year on the absence of the reversal of value-added tax reserves.

The consolidated effective tax rates for the quarter and six-month periods ended September 30, 2017, were approximately 33% and 30%, respectively. Income taxes for the first half of fiscal year 2018 were lower than the 35% federal statutory rate because of the effect of exchange rate changes on deferred tax assets and liabilities of foreign subsidiaries, as well as additional non-recurring discrete tax adjustments for both the quarter and six months that reduced consolidated tax expense by about $2.0 million for the six-month period. Without these items, the effective tax rates for the second quarter and first six months of fiscal 2018 would be comparable to those of the prior year. The consolidated effective income tax rates were approximately 35% and 34% for the quarter and six months ended September 30, 2016, respectively, which approximate the U.S. statutory rate.

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).

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, 2017, 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, 2017.

At 5:00 p.m. (Eastern Time) on November 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 February 5, 2018. A taped replay of the call will be available through November 20, 2017, by dialing (855) 859-2056. The confirmation number to access the replay is 5697004.

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, 2017, 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,



2017


2016


2017


2016



(Unaudited)


(Unaudited)

Sales and other operating revenues

$

488,248


$

456,942


$

772,870


$

752,417

Costs and expenses








Cost of goods sold


395,172


369,098


625,937


612,376

Selling, general and administrative expenses

48,101


40,834


95,403


101,033

Restructuring and impairment costs


3,682



3,682

Operating income


44,975


43,328


51,530


35,326

Equity in pretax earnings of unconsolidated affiliates

667


1,260


232


1,130

Interest income


526


271


1,196


634

Interest expense


3,964


4,335


7,896


8,389

Income before income taxes and other items

42,204


40,524


45,062


28,701

Income taxes


13,898


14,026


13,435


9,707

Net income


28,306


26,498


31,627


18,994

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

(2,139)


(1,234)


(1,883)


794

Net income attributable to Universal Corporation

26,167


25,264


29,744


19,788

Dividends on Universal Corporation convertible perpetual preferred stock


(3,687)



(7,374)

Earnings available to Universal Corporation common shareholders

$

26,167


$

21,577


$

29,744


$

12,414










Earnings per share attributable to Universal Corporation common shareholders:








Basic


$

1.03


$

0.95


$

1.17


$

0.55

Diluted


$

1.02


$

0.90


$

1.16


$

0.54














See accompanying notes.











 

 

UNIVERSAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands of dollars)











September 30,


September 30,


March 31,


2017


2016


2017


(Unaudited)


(Unaudited)



ASSETS







Current assets




Cash and cash equivalents

$

41,203


$

294,894


$

283,993

Accounts receivable, net

338,700


251,805


439,288

Advances to suppliers, net

66,580


47,841


103,750

Accounts receivable—unconsolidated affiliates

50,533


51,558


2,373

Inventories—at lower of cost or net realizable value:




Tobacco

869,325


827,936


565,943

Other

90,108


86,472


68,087

Prepaid income taxes

21,110


24,448


16,713

Other current assets

94,294


56,026


81,252

Total current assets

1,571,853


1,640,980


1,561,399





Property, plant and equipment




Land

22,822


22,914


22,852

Buildings

268,702


266,107


266,802

Machinery and equipment

612,722


599,897


597,213


904,246


888,918


886,867

Less accumulated depreciation

(587,465)


(566,686)


(569,527)


316,781


322,232


317,340

Other assets




Goodwill and other intangibles

99,059


99,033


98,888

Investments in unconsolidated affiliates

86,247


81,441


78,457

Deferred income taxes

23,136


25,720


25,422

Other noncurrent assets

42,434


49,107


41,899


250,876


255,301


244,666





Total assets

$

2,139,510


$

2,218,513


$

2,123,405










See accompanying notes.









 

 

UNIVERSAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands of dollars)



















September 30,


September 30,


March 31,


2017


2016


2017


(Unaudited)


(Unaudited)



LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities




Notes payable and overdrafts

$

98,268


$

71,002


$

59,133

Accounts payable and accrued expenses

142,337


133,133


153,515

Accounts payable—unconsolidated affiliates

56



7,231

Customer advances and deposits

16,807


37,334


11,007

Accrued compensation

19,509


18,885


32,007

Income taxes payable

3,935


1,240


5,103

Current portion of long-term debt



Total current liabilities

280,912


261,594


267,996





Long-term debt

368,909


368,556


368,733

Pensions and other postretirement benefits

74,636


80,005


80,689

Other long-term liabilities

31,338


41,413


31,424

Deferred income taxes

54,733


28,047


47,985

Total liabilities

810,528


779,615


796,827





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, no shares outstanding (218,490 at September
  30, 2016, and none at March 31, 2017)


211,562


Common stock, no par value, 100,000,000 shares authorized 25,114,349
  shares issued and outstanding (22,783,633 at September 30, 2016, and
  25,274,506 at March 31, 2017)

320,121


210,569


321,207

Retained earnings

1,027,147


1,054,004


1,034,841

Accumulated other comprehensive loss

(58,887)


(73,579)


(69,559)

Total Universal Corporation shareholders' equity

1,288,381


1,402,556


1,286,489

Noncontrolling interests in subsidiaries

40,601


36,342


40,089

Total shareholders' equity

1,328,982


1,438,898


1,326,578





Total liabilities and shareholders' equity

$

2,139,510


$

2,218,513


$

2,123,405










See accompanying notes.









 

 

UNIVERSAL CORPORATION     

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)















Six Months Ended September 30,


2017


2016


(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:




Net income

$

31,627


$

18,994

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




Depreciation

17,485


17,324

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

937


(2,038)

Foreign currency remeasurement (gain) loss, net

(3,944)


11,119

Restructuring and impairment costs


3,682

Other, net

8,610


(1,108)

Changes in operating assets and liabilities, net

(278,560)


(25,548)

Net cash provided (used) by operating activities

(223,845)


22,425





CASH FLOWS FROM INVESTING ACTIVITIES:




Purchase of property, plant and equipment

(14,769)


(17,567)

Proceeds from sale of property, plant and equipment

3,273


447

Net cash used by investing activities

(11,496)


(17,120)





CASH FLOWS FROM FINANCING ACTIVITIES:




Issuance (repayment) of short-term debt, net

36,085


5,210

Dividends paid to noncontrolling interests

(1,260)


(1,260)

Repurchase of common stock

(12,639)


Dividends paid on convertible perpetual preferred stock


(7,374)

Dividends paid on common stock

(27,324)


(24,106)

Other

(2,828)


(2,245)

Net cash used by financing activities

(7,966)


(29,775)





Effect of exchange rate changes on cash

517


(83)

Net decrease in cash and cash equivalents

(242,790)


(24,553)

Cash and cash equivalents at beginning of year

283,993


319,447





Cash and cash equivalents at end of period

$

41,203


$

294,894







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, 2017.

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)



2017


2016


2017


2016










Basic Earnings Per Share








Numerator for basic earnings per share








Net income attributable to Universal Corporation

$

26,167


$

25,264


$

29,744


$

19,788

Less: Dividends on convertible perpetual preferred stock


(3,687)



(7,374)

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

26,167


21,577


29,744


12,414










Denominator for basic earnings per share








Weighted average shares outstanding

25,334,661


22,777,394


25,370,783


22,755,927










Basic earnings per share

$

1.03


$

0.95


$

1.17


$

0.55










Diluted Earnings Per Share








Numerator for diluted earnings per share








Earnings available to Universal Corporation common shareholders

$

26,167


$

21,577


$

29,744


$

12,414

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


3,687



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

26,167


25,264


29,744


12,414










Denominator for diluted earnings per share:








Weighted average shares outstanding

25,334,661


22,777,394


25,370,783


22,755,927

Effect of dilutive securities (if conversion or exercise assumed)








Convertible perpetual preferred stock


4,883,372



Employee share-based awards

211,885


307,390


218,375


317,414

Denominator for diluted earnings per share

25,546,546


27,968,156


25,589,158


23,073,341










Diluted earnings per share

$

1.02


$

0.90


$

1.16


$

0.54

 

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 (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
September 30,


Six Months Ended
September 30,

(in thousands of dollars)


2017


2016


2017


2016










SALES AND OTHER OPERATING REVENUES












Flue-Cured and Burley Leaf Tobacco Operations:








   North America

$

58,668


$

80,789


$

111,992


$

153,471

   Other Regions (1)

381,164


318,576


565,576


496,592

      Subtotal

439,832


399,365


677,568


650,063

Other Tobacco Operations (2)

48,416


57,577


95,302


102,354

Consolidated sales and other operating revenue

$

488,248


$

456,942


$

772,870


$

752,417










OPERATING INCOME (LOSS)








Flue-Cured and Burley Leaf Tobacco Operations:








   North America


$

7,899


$

13,531


$

10,264


$

20,379

   Other Regions (1)

37,516


32,342


41,593


15,325

      Subtotal


45,415


45,873


51,857


35,704

Other Tobacco Operations (2)

227


2,397


(95)


4,434

Segment operating income

45,642


48,270


51,762


40,138

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

(667)


(1,260)


(232)


(1,130)

   Restructuring and impairment costs (4)


(3,682)



(3,682)

Consolidated operating income

$

44,975


$

43,328


$

51,530


$

35,326

 

(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 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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