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Universal Corporation Reports First Quarter Earnings
RICHMOND, Va., Aug 03, 2010 /PRNewswire via COMTEX/ --
HIGHLIGHTS
Later shipping timing reduces quarter results.
Diluted earnings per share decreased to $0.87 versus $1.47 last year.
Operating income at $41 million nears historical first quarter levels.
George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), announced that net income for the first quarter of fiscal year 2011, which ended on June 30, 2010, was $25.3 million, or $0.87 per diluted share. Those results reflected a 42% decline compared to the same period last year, when income was $43.7 million, or $1.47 per diluted share. Last year's first quarter results were exceptionally strong, primarily due to the effect of earlier shipments of Brazilian and European tobacco in that quarter. Revenues for the first quarter of fiscal year 2011 of about $539 million were lower by about 13%.
Mr. Freeman stated, "Our fiscal year 2011 first quarter results faced difficult comparisons to last year's very strong initial quarter, but were in line with historical trends for the first quarter. Although we expect shipment timing differences to correct during the remainder of the fiscal year, we face some challenges due to a smaller Brazilian crop, margin pressures in some areas as the cost of leaf increases, decreased customer demand due to softer cigarette sales, and changes in manufacturer sourcing methods.
"In June, Philip Morris International announced that, with the help of its two largest leaf suppliers, it will source a portion of its leaf requirements directly from farmers in Brazil, beginning with the crop that will be marketed in our fiscal year 2012. We have not yet completed the transaction with them yet but expect it to be finalized in the fall. Last year, Japan Tobacco Inc. announced its intention to source a portion of its leaf directly in the United States, Brazil, and Malawi, and we expect to see some volume reductions this year related to this initiative. However, we are aggressively working to replace those volumes and have had some success in Brazil and Africa. We have effectively managed change in our business in the past and believe that we are well positioned to respond to it now. We support all of our customers in their strategic endeavors, and we continue to believe that the dealer industry performs a critical function and brings value to the manufacturers. We expect fiscal year 2011 to be challenging, and at this time we remain cautiously optimistic that we will achieve our objectives in reducing costs, replacing volumes, and remaining competitive as we meet the changing needs of our customers. We have made a first step in cost reduction this quarter with a restructuring charge related to a personnel reduction in our U.S. operations. We will continue a strong focus on operating improvements and cost reductions as the year progresses.
"We estimate that worldwide dealer inventories of flue-cured and burley leaf are about 105 million kilos, compared to 70 million last year. Levels remain well below the long-term average, but we believe there is potential for oversupply in flue-cured tobacco. For this season, lower flue-cured crops in Brazil and the United States are being offset by projected increases in Tanzania and Zimbabwe. The level of manufacturers' inventory durations and future supply forecasts also affect market balance."
FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:
Operating income for our flue-cured and burley tobacco operations decreased by 44% to $36 million. Similarly, revenues for those operations declined by 17% to $465 million. That performance includes results from our North America and Other Regions segments. Comparisons for the Other Regions segment results were significantly impacted by early shipments in the first quarter last year in South America and Europe. South America volumes this year were also reduced somewhat by the smaller Brazilian crop caused by excess rain. The effect of these changes in South America was mitigated by lower selling, general, and administrative costs in the region on currency benefits and an accrual in the prior year related to our Foreign Corrupt Practices Act ("FCPA") matter. Results for Europe were also reduced on lower margins this year coupled with the translation effect of the weaker euro. Revenues for the Other Regions segment fell by 23%, primarily reflecting the shipment timing factors. Compared to last year's first quarter, both revenues and operating income for the North America segment improved in its seasonally low period, driven by increased sales of carryover stocks.
OTHER TOBACCO OPERATIONS:
The Other Tobacco Operations segment operating income declined by about $3 million due primarily to lower results from the oriental tobacco joint venture. Reduced volumes and lower margins combined with lower currency gains this year depressed results for this business. Dark tobacco results improved slightly as overhead cost savings offset reduced margins and lower volumes in some areas. Revenues for this segment increased by 26% to $74 million primarily related to the timing of customer deliveries by our just-in-time services group and the timing of oriental tobacco shipments into the United States, neither of which had a commensurate effect on segment operating income.
OTHER ITEMS:
Cost of sales decreased by 8% to $437 million in the quarter on lower volumes shipped, partly offset by higher overall leaf purchasing costs. Selling, general, and administrative costs decreased by 14% due to lower currency remeasurement and exchange losses in the current year, and prior year accruals for costs associated with the FCPA matter. Interest expense was down in part because of interest costs accrued in last year's quarter related to the FCPA matter. In addition, we benefited from additional fixed to floating rate interest rate swaps entered after last year's first quarter. The effective income tax rate for the quarter of approximately 34% was comparable to the effective rate for the same quarter last year and lower than the 35% U.S. federal statutory rate.
Additional information
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; 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, 20010, and in other documents the Company files with the Securities and Exchange Commission. This information should be read in conjunction with the Annual Report on Form 10-K for the year ended March 31, 2010.
At 5:00 p.m. (Eastern Time) on August 3, 2010, 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 for three months. A taped replay of the call will also be available until August 24, 2010, by dialing (800) 642-1687. The confirmation number to access the replay is 92015856.
Headquartered in Richmond, Virginia, Universal Corporation is the world's leading tobacco merchant and processor and conducts business in more than 30 countries. Its revenues for the fiscal year ended March 31, 2010, were $2.5 billion. For more information on Universal Corporation, visit its web site at www.universalcorp.com.
UNIVERSAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share data)
Three Months
Ended
June 30,
--------
2010 2009
---- ----
(Unaudited)
Sales and other operating revenues $538,916 $616,112
Costs and expenses
Cost of goods sold 436,679 476,748
Selling, general and administrative expenses 60,183 69,592
Restructuring costs 949 -
--- ---
Operating income 41,105 69,772
Equity in pretax earnings of unconsolidated
affiliates 378 3,641
Interest income 444 565
Interest expense 5,126 8,155
----- -----
Income before income taxes and other items 36,801 65,823
Income taxes 12,383 22,019
------ ------
Net income 24,418 43,804
Less: net (income) loss attributable to
noncontrolling interests in subsidiaries 902 (59)
--- ---
Net income attributable to Universal Corporation 25,320 43,745
Dividends on Universal Corporation convertible
perpetual
preferred stock (3,712) (3,712)
------ ------
Earnings available to Universal Corporation
common shareholders $21,608 $40,033
======= =======
Earnings per share attributable to Universal
Corporation common shareholders:
Basic $0.89 $1.60
===== =====
Diluted $0.87 $1.47
===== =====
See accompanying notes.
UNIVERSAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
June 30, June 30, March 31,
2010 2009 2010
---- ---- ----
(Unaudited) (Unaudited)
ASSETS
Current
Cash and cash equivalents $61,781 $131,167 $245,953
Accounts receivable, net 221,053 229,764 266,960
Advances to suppliers,
net 122,878 141,383 167,400
Accounts receivable -
unconsolidated
affiliates 42,403 15,654 11,670
Inventories -at lower of
cost or market:
Tobacco 1,152,427 886,232 812,186
Other 66,183 66,851 52,952
Prepaid income taxes 14,062 14,238 13,514
Deferred income taxes 46,058 43,385 47,074
Other current assets 72,042 80,031 75,367
------ ------ ------
Total current assets 1,798,887 1,608,705 1,693,076
Property, plant and
equipment
Land 15,740 16,002 16,036
Buildings 262,468 254,846 266,350
Machinery and equipment 535,480 507,681 532,824
------- ------- -------
813,688 778,529 815,210
Less accumulated
depreciation (486,576) (462,266) (485,723)
-------- -------- --------
327,112 316,263 329,487
Other assets
Goodwill and other
intangibles 105,409 106,030 105,561
Investments in
unconsolidated
affiliates 95,494 112,781 106,336
Deferred income taxes 28,627 20,393 30,073
Other noncurrent assets 101,870 91,297 106,507
------- ------ -------
331,400 330,501 348,477
------- ------- -------
Total assets $2,457,399 $2,255,469 $2,371,040
========== ========== ==========
See accompanying notes.
UNIVERSAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
June 30, June 30, March 31,
2010 2009 2010
---- ---- ----
(Unaudited) (Unaudited)
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current
Notes payable and
overdrafts $298,899 $171,125 $177,013
Accounts payable and
accrued expenses 239,451 281,336 259,576
Accounts payable -
unconsolidated
affiliates 977 100 6,464
Customer advances and
deposits 144,477 57,288 107,858
Accrued compensation 17,978 20,818 30,097
Income taxes payable 13,958 8,839 18,991
Current portion of
long-term
obligations 5,000 79,500 15,000
----- ------ ------
Total current
liabilities 720,740 619,006 614,999
Long-term obligations 418,547 329,596 414,764
Pensions and other
postretirement
benefits 98,686 94,219 96,888
Other long-term
liabilities 65,412 81,639 69,886
Deferred income taxes 38,627 51,226 46,128
------ ------ ------
Total liabilities 1,342,012 1,175,686 1,242,665
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,
5,000,000 shares
authorized, 219,999
shares issued and
outstanding (219,999
at
June 30, 2009, and
March 31, 2010) 213,023 213,023 213,023
Common stock, no par
value, 100,000,000
shares
authorized, 24,155,316
shares issued and
outstanding
(24,901,506 at June
30, 2009, and
24,325,228
at March 31, 2010) 194,960 195,437 195,001
Retained earnings 768,772 712,684 767,213
Accumulated other
comprehensive loss (66,242) (45,207) (52,667)
------- ------- -------
Total Universal
Corporation
shareholders' equity 1,110,513 1,075,937 1,122,570
Noncontrolling
interests in
subsidiaries 4,874 3,846 5,805
----- ----- -----
Total shareholders'
equity 1,115,387 1,079,783 1,128,375
--------- --------- ---------
Total liabilities and
shareholders' equity $2,457,399 $2,255,469 $2,371,040
========== ========== ==========
See accompanying notes.
UNIVERSAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
Three Months Ended
June 30,
--------
2010 2009
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $24,418 $43,804
Adjustments to reconcile net income to
net cash used by operating
activities:
Depreciation 10,823 9,902
Amortization 412 504
Provisions for losses on advances and
guaranteed loans to suppliers 2,991 583
Foreign currency remeasurement loss,
net 1,876 6,261
Restructuring costs 949 -
Other, net (1,023) 13,825
Changes in operating assets and
liabilities, net (303,270) (126,603)
-------- --------
Net cash used by operating activities (262,824) (51,724)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment (13,154) (11,158)
Proceeds from sale of property, plant
and equipment, and other 945 1,813
--- -----
Net cash used by investing activities (12,209) (9,345)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (repayment) of short-term
debt, net 127,985 (3,124)
Repayment of long-term obligations (10,000) -
Repurchase of common stock (10,933) (2,981)
Dividends paid on convertible
perpetual preferred stock (3,712) (3,712)
Dividends paid on common stock (11,427) (11,461)
Net cash provided (used) by financing
activities 91,913 (21,278)
------ -------
Effect of exchange rate changes on
cash (1,052) 888
------ ---
Net decrease in cash and cash
equivalents (184,172) (81,459)
Cash and cash equivalents at beginning
of year 245,953 212,626
------- -------
Cash and cash equivalents at end of
period $61,781 $131,167
======= ========
See accompanying notes.
NOTE 1. BASIS OF PRESENTATION
Universal Corporation, with its subsidiaries ("Universal" or the "Company"), is the world's leading leaf tobacco merchant and processor. 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 press release 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, 2010.
NOTE 2. GUARANTEES AND OTHER CONTINGENT LIABILITIES
Guarantees of bank loans to growers for crop financing and construction of curing barns or other tobacco producing assets are industry practice in Brazil and support the farmers' production of tobacco there. At June 30, 2010, the Company's total exposure under guarantees issued by its operating subsidiary in Brazil for banking facilities of farmers in that country was approximately $46 million ($62 million face amount including unpaid interest, less $16 million recorded for the fair value of the guarantees). About 60% of these guarantees expire within one year, and all of the remainder expire within five years. The subsidiary withholds payments due to the farmers on delivery of tobacco and forwards those payments to third-party banks. Failure of farmers to deliver sufficient quantities of tobacco to the subsidiary to cover their obligations to the third-party banks could result in a liability for the subsidiary under the related guarantees; however, in that case, the subsidiary would have recourse against the farmers. The maximum potential amount of future payments that the Company's subsidiary could be required to make at June 30, 2010, was the face amount ($62 million) including unpaid accrued interest ($82 million as of June 30, 2009, and $112 million at March 31, 2010). The fair value of the guarantees was a liability of approximately $16 million at June 30, 2010 ($36 million at June 30, 2009, and $26 million at March 31, 2010). In addition to these guarantees, the Company has other contingent liabilities totaling approximately $47 million, primarily related to a bank guarantee that bonds an appeal of a 2006 fine in the European Union.
Various subsidiaries of the Company are involved in other litigation and tax examinations incidental to their business activities. While the outcome of these matters cannot be predicted with certainty, management is vigorously defending the claims and does not currently expect that any of them will have a material adverse effect on the Company's financial position. However, should one or more of these matters be resolved in a manner adverse to management's current expectation, the effect on the Company's results of operations for a particular fiscal reporting period could be material.
NOTE 3. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share for the periods presented in the consolidated statements of income.
Three Months
Ended
June 30,
--------
(in thousands, except per share data) 2010 2009
------------------------------------- ---- ----
Basic Earnings Per Share
------------------------
Numerator for basic earnings per share
Net income attributable to Universal
Corporation $25,320 $43,745
Less: Dividends on convertible perpetual
preferred stock (3,712) (3,712)
------ ------
Earnings available to Universal Corporation
common shareholders
for calculation of basic earnings per share 21,608 40,033
------ ------
Denominator for basic earnings per share
Weighted average shares outstanding 24,213 24,985
------ ------
Basic earnings per share $0.89 $1.60
===== =====
Diluted Earnings Per Share
--------------------------
Numerator for diluted earnings per share
Earnings available to Universal Corporation
common shareholders $21,608 $40,033
Add: Dividends on convertible perpetual
preferred stock (if
conversion assumed) 3,712 3,712
----- -----
Earnings available to Universal Corporation
common shareholders
for calculation of diluted earnings per share 25,320 43,745
------ ------
Denominator for diluted earnings per share:
Weighted average shares outstanding 24,213 24,985
Effect of dilutive securities (if conversion or
exercise assumed)
Convertible perpetual preferred stock 4,742 4,728
Employee share-based awards 260 131
--- ---
Denominator for diluted earnings per share 29,215 29,844
------ ------
Diluted earnings per share $0.87 $1.47
===== =====
For the three months ended June 30, 2010 and 2009, certain employee share-based awards were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. These awards included stock appreciation rights and stock options totaling 657,401 shares at a weighted average exercise price of $52.65 for the quarter ended June 30, 2010, and 959,439 shares at a weighted average exercise price of $46.79 for the quarter ended June 30, 2009.
NOTE 4. SEGMENT INFORMATION
The principal approach used by management to evaluate the Company's performance is by geographic region, although some components of the business are evaluated on the basis of their worldwide operations. The Company evaluates the performance of its segments based on operating income after allocated overhead expenses (excluding significant non-recurring charges or credits), plus equity in pretax earnings of unconsolidated affiliates.
Operating results for the Company's reportable segments for each period presented in the consolidated statements of income were as follows:
Three Months Ended
June 30,
--------
(in thousands of dollars) 2010 2009
------------------------- ---- ----
SALES AND OTHER OPERATING REVENUES
Flue-cured and burley leaf tobacco
operations:
North America $63,167 $36,132
Other regions (1) 401,819 521,172
------- -------
Subtotal 464,986 557,304
Other tobacco operations (2) 73,930 58,808
------ ------
Consolidated sales and other operating
revenues $538,916 $616,112
======== ========
OPERATING INCOME
Flue-cured and burley leaf tobacco
operations:
North America $3,692 $306
Other regions (1) 32,327 63,909
------ ------
Subtotal 36,019 64,215
Other tobacco operations (2) 6,413 9,198
----- -----
Segment operating income 42,432 73,413
Less: Equity in pretax earnings of
unconsolidated affiliates (3) 378 3,641
Restructuring costs (4) 949 -
--- ---
Consolidated operating income $41,105 $69,772
======= =======
(1) Includes South America, Africa, Europe, and Asia regions, as
well as inter-region eliminations.
(2) Includes Dark Air-Cured, Special Services, and Oriental, as
well as inter-company eliminations. Sales and other operating
revenues for this reportable segment include limited amounts for
Oriental because its financial results consist principally of equity
in the pretax earnings of an unconsolidated affiliate.
(3) Item is included in segment operating income, but not included
in consolidated operating income.
(4) Item is not included in segment operating income, but is
included in consolidated operating income.
SOURCE Universal Corporation