Universal Corp. Reports Operating Results (10-Q)
Universal Corp. has a market cap of $1.01 billion; its shares were traded at around $43.31 with a P/E ratio of 8.4 and P/S ratio of 0.4. The dividend yield of Universal Corp. stocks is 4.5%. Universal Corp. had an annual average earning growth of 17.8% over the past 10 years.
Highlight of Business Operations:Advances to suppliers were $75 million at September 30, 2011, a reduction of $85 million from March 31, 2011, as crops were delivered in payment of those balances. Compared to the same period last year, advances to suppliers were lower, reflecting lower requirements for advances in South America and Asia. Accounts receivable increased by $43 million compared to March 31, 2011, reflecting seasonal increases. Accounts receivable were $63 million above September 30, 2010 levels, due to additional African sales of carryover crop and earlier sales in some origins. Accounts receivable from unconsolidated affiliates increased by $37 million in the six months, reflecting seasonal increases. Net cash flows from operations for the six months ended September 30, 2011, included approximately $22 million in dividends received from unconsolidated affiliates.
Net income for the first six months of fiscal year 2012, which ended on September 30, 2011, was $7.8 million, or $0.02 per diluted share, net of the charge for the European Commission fine, which reduced diluted earnings per share by $1.90. These amounts were down compared with last year s net income of $77.2 million, or $2.65 per diluted share. The comparison of the current and prior year periods is affected significantly by several unusual items, which are described below and amount to an aggregate pretax charge of $49.3 million ($1.90 per diluted share) in fiscal year 2012, and an aggregate benefit of $4.5 million ($0.10 per share) in the same period last year. Similarly, the second fiscal quarter s net loss of $8.0 million, or $0.51 per diluted share, included charges totaling $52.1 million ($1.93 per share) compared with net income for the prior year s second quarter of $51.8 million, or $1.78 per diluted share, which included a net benefit from similar items of $5.4 million ($0.12 per share).
Segment operating income, which excludes the effect of those unusual items, was also lower in both the three- and six-month periods ended September 30, 2011, on reduced margins in most regions, consistent with the current cyclical market oversupply situation. In addition, results for the first half of fiscal year 2012 reflect the first quarter impact of last year s assignment of farmer contracts to Philip Morris International in Brazil. Segment operating income for the second fiscal quarter also declined on lower processing volumes in North America and reduced leaf volumes and margins in the Other Tobacco operations segment. Operating results in both periods also reflected $6.1 million in dividend income from unconsolidated subsidiaries. Revenues fell by 7% to $1.1 billion for the six months, and by 3% to $641 million for the three months ended September 30, 2011, in part due to reductions in leaf prices related to oversupply conditions, which produced a very competitive environment. In addition, revenues were lower because toll processing volumes replaced a portion of leaf sales to Philip Morris International as a result of the assignment of farmer contracts in Brazil last year.
In the second quarter of fiscal year 2012, operating income for flue-cured and burley operations declined by $9.1 million, to $61.5 million, compared to the same period last year. Revenues for the group at $602.9 million were down about 2%, on a combination of lower sales volumes in South America, higher volumes related to shipment timing in Asia, and the effects of local currency strengthening in Europe on U.S. dollar translated sales. Operating income for the North America segment decreased by about $7 million, as increased shipments of old crop tobacco partially replaced the lower income from reduced processing volumes. The old crop sales also increased revenues for this segment. Results for the Other Regions segment were down by about 4% from last year, to $56.4 million, on lower volumes in South America and reduced margins. Revenues for the segment decreased by 4% to $535 million on slightly higher overall volumes and the lower cost of green leaf.
The consolidated effective income tax rates on pretax earnings were approximately 275% and 70% for the quarter and six months ended September 30, 2011. Those rates were significantly higher than normal because we did not record an income tax benefit on the non-deductible fine portion of the charge recorded during the quarter for the European Commission fine and interest in Italy (approximately $40 million of the total $49.1 million charge). Without that item, the effective income tax rates would have been approximately 29% and 31% for the quarter and six months, respectively. Those rates were lower than the 35% federal statutory rate chiefly due to the effect of exchange rate changes on deferred income taxes of certain foreign subsidiaries. The effective income tax rates for the quarter and six months ended September 30, 2010, were approximately 30% and 31%, respectively. Those rates were lower than the 35% U.S. federal statutory rate principally due to the recognition of foreign tax credits.
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