Universal Corp. has a market cap of $1.09 billion; its shares were traded at around $46.88 with a P/E ratio of 9.8 and P/S ratio of 0.4. The dividend yield of Universal Corp. stocks is 4.2%. Universal Corp. had an annual average earning growth of 17.8% over the past 10 years.
Highlight of Business Operations:Our operating activities provided $60 million in net cash flows during the nine months ended December 31, 2011, reflecting lower working capital needs in some regions this fiscal year. During the first nine months of the last fiscal year, we used $89 million in net cash flows to fund our operations. Tobacco inventory increased by $121 million from March 31, 2011 levels on seasonal leaf purchases and ended the period at $863 million. However, tobacco inventory was $77 million lower than at December 31, 2010, primarily due to smaller crop purchases and lower prices combined with sales of old crop tobacco in the United States and earlier shipment this year in the Philippines. Inventory is usually financed with a mix of cash, notes payable, and customer deposits, depending on our borrowing capabilities, interest rates, and exchange rates, as well as those of our customers.
Segment operating income declined by $21.8 million for the nine-month period ended December 31, 2011, compared with the prior year. Those results included the first quarter impact from last year’s assignment of Brazilian farmer contracts to Philip Morris International (“PMI”) and a portion of the decline in processing volumes in our North America segment, as well as reduced volumes and margins in the Other Tobacco operations segment. Operating results in this period included $12 million in dividend income from unconsolidated subsidiaries. Consolidated revenues fell by 5% to $1.8 billion for the nine months ended December 31, 2011, in part due to lower leaf prices on higher shipments, and in part because toll processing volumes replaced a portion of leaf sales to PMI as a result of the contract assignments last year.
Operating income for the flue-cured and burley tobacco operations was $170.6 million for the nine months ended December 31, 2011, compared to $180.9 million for the same period in the prior year. Revenues of $1.7 billion were relatively flat compared with last year. Earnings for the Other Regions segment for the nine months increased about 6% to $146.7 million, compared to the same period last year. In the South America region, the effect of reduced leaf sales to PMI related to last year’s assignment of farmer contracts was mitigated by increased processing volumes and cost savings efforts. Africa region operations reflected lower margins in most origins, in part related to business mix and lower prices, balanced by higher shipments in some origins and lower green leaf costs. Results for the Asia region declined on a combination of lower margins on trading volumes and an unfavorable comparison on currency remeasurement in the Philippines. In Europe, lower volumes and higher leaf costs were offset by insurance recoveries. Selling, general, and administrative expenses for the segment were down, due primarily to lower costs related to a smaller farmer base in South America. In addition, results for the Other Regions segment included $12 million in dividend income from unconsolidated subsidiaries. Revenues for the Other Regions segment of $1.4 billion were down about 3%, reflecting lower leaf volumes in South America, higher volumes in Africa, and lower prices generally, as our customers received benefits of lower leaf prices at the farm level. North America’s results fell by 44% to $23.9 million on the change in processing volumes, although leaf sales were up for the period. In addition, cost savings from restructuring efforts moderated the negative impact of the closure of the Company’s Canadian operations. These factors also caused revenue to fall by about 12%.
The Other Tobacco Operations segment operating income declined by $2.6 million for the quarter and $11.4 million for the nine months, compared with the same periods in the previous fiscal year. The declines in both periods were driven mainly by lower results in the dark tobacco operations on reduced volumes and margins, reflecting weaker domestic retail markets, as well as the effects of last year’s severe weather-related crop damage in Indonesia. Results from the oriental tobacco joint venture improved for the quarter on the absence of one-time charges for business realignment taken in the same period last year. However, joint venture results were down for the nine months, partly due to reduced volumes from shipments delayed into the fourth quarter, as well as lower margins, which were also affected by inventory writedowns. Revenues for this segment decreased for the quarter by $24.4 million, or 42%, as a result of the transfer of some business from the just-in-time Special Services group to the Other Regions segment, the timing of shipments of oriental tobaccos to the United States, and lower dark tobacco volumes. Similar factors influenced a $45.5 million drop in revenues for the nine-month period.
The consolidated effective income tax rates on pretax earnings were approximately 30% and 41% for the quarter and nine months ended December 31, 2011. The rate for the nine-month period was significantly higher than normal because we did not record an income tax benefit on the non-deductible fine portion of the charge recorded in September 2011 for the European Commission fine and interest in Italy. Without that item, the effective income tax rate would have been approximately 29% for the nine months. That rate and the effective rate for the quarter were lower than the 35% federal statutory rate primarily due to the effect of exchange rate changes on deferred income taxes of certain foreign subsidiaries and to recoveries of prior year state income taxes. The effective income tax rates for the quarter and nine months ended December 31, 2010, were approximately 29% and 30%, respectively. Those rates were lower than the 35% U.S. federal statutory rate primarily due to the recognition of foreign tax credits.
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