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Universal Corporation Reports Strong First Quarter Earnings

August 04, 2009 | About:

Press Release: Universal Corporation Reports Strong First Quarter Earnings

RICHMOND, Va., Aug. 4 /PRNewswire-FirstCall/ -- HIGHLIGHTSDiluted earnings per share increased to $1.47 versus $0.64 last year.Revenues up 22% to $616 million on higher volumes from earlier shipments and better product mix.Operating income up 83% to $70 million. George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), announced that net income attributable to Universal Corporation for the first quarter of fiscal year 2010, which ended on June 30, 2009, was $43.7 million, or $1.47 per diluted share. Those results more than doubled last year\'s income of $21.1 million, or $0.64 per diluted share, mostly because of earlier shipments of tobacco this year and a more favorable product mix. The same factors caused a 22% revenue increase compared to the same quarter last year. Revenues for the quarter were about $616 million. Mr. Freeman stated, "We are very pleased with our performance during the first quarter. Each of our operations performed as we had expected or better. Earlier shipments of Brazilian and European tobacco boosted our results, and leaf costs were lower due to the stronger U.S. dollar. Looking at the current worldwide situation, we see the U.S. dollar beginning to weaken again, which could increase costs as we enter the next purchasing season. We will be monitoring these factors as the year progresses, and we will be working to control our costs. "We do not foresee any oversupply of flue-cured tobacco in the coming year. Global burley availability improved after the shortage of filler style crops two years ago, and there is a large crop again this year. So it is likely that we will see some oversupply of burley. Worldwide dealer inventories for flue-cured and burley tobacco are about 70 million kilos compared to about 80 million kilos last year. "Japan Tobacco Inc., one of our largest customers, recently announced steps to enhance their direct leaf procurement capabilities by acquiring and entering joint ventures with smaller leaf merchants. They enumerated several factors that prompted their moves, including the desire to enhance internal expertise in leaf procurement, actively manage the leaf supply chain, and work more directly with tobacco growers. Over time, these steps are likely to reduce our volumes with them in the United States, and may affect other regions as well. However, the overall impact and timing cannot yet be determined. We are continuing our dialogue with Japan Tobacco and believe that we will continue our long-term relationship. "Two Board members are retiring after long service to the Company: Joseph C. Farrell and Walter A. Stosch. Both are veteran Board members who have provided us with the benefit of their long and successful experience in business and finance. We wish them well and thank them for their insightful guidance. In addition, Robert C. Sledd has been elected to the Board today. He is Managing Partner of Pinnacle Ventures, LLC, a venture capital company, and Sledd Properties, LLC, an investment company. He served as the Chairman of Performance Food Group until June 2008, and currently serves as a Director of Owens & Minor, Inc. and SCP Pool Corporation." FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:Operating income for our flue-cured and burley tobacco operations increased by 85% to $64 million. That performance includes results from our North America and Other Regions segments. Operating income for the North America segment reflected its normal seasonal low period, but its performance was also affected by lower sales volumes of old crop U.S. leaf this quarter and lower Canadian volumes from the reduced crop there. The volume decline significantly reduced that segment\'s revenues. In contrast, operating income for the Other Regions segment includes the seasonally strong Brazilian operations, which were characterized this year by substantially higher volumes due to earlier shipments. Average leaf sales prices were lower this year, reflecting lower leaf costs. Leaf costs were lower in U.S. dollar terms because of the weaker Brazilian currency during the leaf purchasing season; however, a significant portion of that cost of producing the crop was incurred in the form of inputs advanced to farmers before the local currency weakened and was included in last year\'s remeasurement losses. Earlier shipments of tobacco from Europe and increased volumes in Asia also benefited the quarter\'s results, while lower shipments of old crop tobacco from Africa reduced that region\'s results during its seasonal low period. Revenues for the Other Regions segment increased by nearly 30%, primarily due to the earlier shipments from Brazil and Europe, and the increased Asian trading volumes, which were partly offset by the lower sales of old crop tobacco from Africa. In addition to increased volumes, revenues increased on higher proportions of lamina in shipments during the quarter and higher prices for certain Asian trading volumes. OTHER TOBACCO OPERATIONS:The Other Tobacco Operations segment performed well as the oriental tobacco joint venture results improved, mainly due to a more favorable sales mix as well as to certain cost containment measures. Dark tobacco results also improved on better product mix although volumes declined. During the last quarter of fiscal year 2009, customers had purchased leaf earlier than usual in anticipation of the enactment of U.S. excise tax increases, and thus volumes were lower this year. Despite the lower volumes, dark tobacco revenues, which are the predominant factor in segment revenues, increased due to higher prices caused by increased leaf costs during last year\'s purchasing season and a more favorable product mix. OTHER ITEMS:Cost of sales increased by 18% to $476 million in the quarter on the increased volumes shipped, offset by lower costs as the U.S. dollar strengthened against the currencies of many origins during the leaf purchasing season. Selling, general, and administrative costs increased by 7%, reflecting additional currency remeasurement losses of about $6 million. Interest expense was comparable to that of fiscal year 2009, and the effective income tax rate was similar to last year\'s rate. Additional informationThis 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, 2009, 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, 2009. At 5:00 p.m. (Eastern Time) on August 4, 2009, 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 25, 2009, by dialing (800) 642-1687. The confirmation number to access the replay is 22877191. 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, 2009, were $2.6 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,                                                      2009          2008                                                   (Unaudited)    Sales and other operating revenues              $616,112       $506,287    Costs and expenses        Cost of goods sold                           476,748        403,253        Selling, general and administrative         expenses                                     69,592         64,847    Operating income                                  69,772         38,187        Equity in pretax earnings (loss) of         unconsolidated affiliates                     3,641            (50)        Interest income                                  565            950        Interest expense                               8,155          7,666    Income before income taxes and other items        65,823         31,421        Income taxes                                  22,019         10,281    Net income                                        43,804         21,140    Less:  net income attributable to     noncontrolling interests in subsidiaries            (59)           (29)    Net income attributable to Universal Corporation  43,745         21,111    Dividends on Universal Corporation convertible     perpetual preferred stock                        (3,712)        (3,712)    Earnings available to Universal Corporation     common shareholders                             $40,033        $17,399    Earnings per share attributable to Universal    Corporation common shareholders:        Basic                                          $1.60          $0.65        Diluted                                        $1.47          $0.64    See accompanying notes.


UNIVERSAL CORPORATION AND SUBSIDIARIES    CONSOLIDATED BALANCE SHEETS    (In thousands of dollars)                                              June 30,    June 30,   March 31,                                                2009        2008       2009                                            (Unaudited) (Unaudited)           ASSETS    Current        Cash and cash equivalents             $131,167   $141,805    $212,626        Short-term investments                      -      28,939           -        Accounts receivable, net               229,764    224,854     263,383        Advances to suppliers, net             141,383    207,743     214,282        Accounts receivable - unconsolidated         affiliates                             15,654     16,183      20,371        Inventories - at lower of cost or         market:            Tobacco                            886,232    965,244     586,136            Other                               66,851     63,766      60,712        Prepaid income taxes                    14,238     13,005      13,181        Deferred income taxes                   43,385     24,281      68,264        Other current assets                    80,031     93,216      64,964            Total current assets             1,608,705  1,779,036   1,503,919    Property, plant and equipment        Land                                    16,002     16,516      15,773        Buildings                              254,846    256,470     251,875        Machinery and equipment                507,681    517,272     492,214                                               778,529    790,258     759,862            Less accumulated depreciation     (462,266)  (463,345)   (447,575)                                               316,263    326,913     312,287    Other assets        Goodwill and other intangibles         106,030    106,413     106,097        Investments in unconsolidated         affiliates                            112,781    115,744     103,987        Deferred income taxes                   20,393     50,164      17,376        Other noncurrent assets                 91,297     92,922      94,510                                               330,501    365,243     321,970            Total assets                    $2,255,469 $2,471,192  $2,138,176    See accompanying notes.


UNIVERSAL CORPORATION AND SUBSIDIARIES    CONSOLIDATED BALANCE SHEETS    (In thousands of dollars)                                             June 30,   June 30,   March 31,                                               2009       2008        2009                                           (Unaudited) (Unaudited)    LIABILITIES AND SHAREHOLDERS\' EQUITY    Current        Notes payable and overdrafts       $171,125    $260,590     $168,608        Accounts payable and accrued         expenses                           281,336     310,971      236,837        Accounts payable - unconsolidated          affiliates                            100         119       19,191        Customer advances and deposits       57,288     165,945       14,162        Accrued compensation                 20,818      19,128       24,710        Income taxes payable                  8,839       7,133        6,867        Current portion of long-term         Obligations                         79,500           -       79,500            Total current liabilities       619,006     763,886      549,875    Long-term obligations                   329,596     399,496      331,808    Pensions and other postretirement     benefits                                94,219      91,776       91,248    Other long-term liabilities              81,639      95,839       79,159    Deferred income taxes                    51,226      44,072       52,842            Total liabilities             1,175,686   1,395,069    1,104,932    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, 2008, and           March 31, 2009)                  213,023     213,023      213,023         Common stock, no par value,          100,000,000 shares authorized,          24,901,506 shares issued and          outstanding (26,095,635 at June          30, 2008, and 24,999,127          at March 31, 2009)                195,437     200,763      194,037         Retained earnings                  712,684     671,322      686,960         Accumulated other comprehensive          loss                              (45,207)    (12,156)     (64,547)               Total Universal Corporation                shareholders\' equity      1,075,937   1,072,952    1,029,473     Noncontrolling interests in      subsidiaries                            3,846       3,171        3,771               Total shareholders\' equity 1,079,783   1,076,123    1,033,244               Total liabilities and                shareholders\' equity     $2,255,469  $2,471,192   $2,138,176    See accompanying notes.


UNIVERSAL CORPORATION AND SUBSIDIARIES    CONSOLIDATED STATEMENTS OF CASH FLOWS    (In thousands of dollars)                                                     Three Months Ended                                                          June 30,                                                     2009          2008                                                  (Unaudited)    CASH FLOWS FROM OPERATING ACTIVITIES:       Net income                                  $43,804        $21,140       Adjustments to reconcile net income        to net cash used by        operating activities:          Depreciation                               9,902         10,292          Amortization                                 504            249          Provisions for losses on advances           and guaranteed loans to suppliers           583          3,766          Remeasurement loss (gain), net             6,261           (306)          Other, net                                13,825         10,280          Changes in operating assets and           liabilities, net                       (126,603)      (182,739)            Net cash used by operating             activities                            (51,724)      (137,318)    CASH FLOWS FROM INVESTING ACTIVITIES:        Purchase of property, plant and equipment  (11,158)        (6,126)        Purchases of short-term investments              -         (9,658)        Maturities and sales of short-term         investments                                     -         39,608        Proceeds from sale of property, plant         and equipment, and other                    1,813          3,866            Net cash provided (used) by             investing activities                   (9,345)        27,690    CASH FLOWS FROM FINANCING ACTIVITIES:        Issuance (repayment) of short-term debt,         net                                        (3,124)       127,318        Issuance of common stock                         -             37        Repurchase of common stock                  (2,981)       (47,229)        Dividends paid on convertible perpetual         preferred stock                            (3,712)        (3,712)        Dividends paid on common stock             (11,461)       (11,729)            Net cash provided (used) by             financing activities                  (21,278)        64,685    Effect of exchange rate changes on cash            888            678    Net decrease in cash and cash equivalents      (81,459)       (44,265)    Cash and cash equivalents at beginning of year 212,626        186,070    Cash and cash equivalents at end of period    $131,167       $141,805    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, 2009. NOTE 2. ACCOUNTING PRONOUNCEMENTSEffective April 1, 2009, Universal adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51" ("SFAS 160"). SFAS 160 requires that noncontrolling interests in subsidiaries that are included in a company\'s consolidated financial statements, commonly referred to as "minority interests," be reported as a component of shareholders\' equity in the balance sheet. It also requires that a company\'s consolidated net income include the amounts attributable to both the company\'s interest and the noncontrolling interest in the subsidiary, identified separately in the financial statements. The new guidance requires certain disclosures about noncontrolling interests in the consolidated financial statements. Adoption of SFAS 160 did not have a material impact on the Company\'s financial statements. NOTE 3. GUARANTEES AND OTHER CONTINGENT LIABILITIESGuarantees 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, 2009, the Company\'s total exposure under guarantees issued by its operating subsidiary in Brazil for banking facilities of farmers in that country was approximately $82 million, net of the accrual recorded for the fair value of the guarantees. About 44% 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 the 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, 2009, was the face amount ($82 million) including unpaid accrued interest ($110 million as of June 30, 2008, and $104 million at March 31, 2009). The fair value of the guarantees was a liability of approximately $36 million at June 30, 2009 ($37 million at June 30, 2008, and $35 million at March 31, 2009). In addition to these guarantees, the Company has other contingent liabilities totaling approximately $53 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 4. EARNINGS PER SHAREThe 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)                   2009       2008    Basic Earnings Per Share    Numerator for basic earnings per share       Net income attributable to Universal Corporation  $43,745      $21,111       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                                             40,033       17,399     Denominator for basic earnings per share        Weighted average shares outstanding               24,985       26,897     Basic earnings per share                              $1.60        $0.65    Diluted Earnings Per Share    Numerator for diluted earnings per share       Earnings available to Universal Corporation       common shareholders                               $40,033      $17,399       Add:  Dividends on convertible perpetual preferred        stock (if conversion assumed)                      3,712            --       Earnings available to Universal Corporation common        shareholders for calculation of diluted earnings        per share                                         43,745       17,399    Denominator for diluted earnings per share:        Weighted average shares outstanding               24,985       26,897        Effect of dilutive securities (if conversion         or exercise assumed)           Convertible perpetual preferred stock           4,728            --           Employee share-based awards                       131          218        Denominator for diluted earnings per share        29,844       27,115    Diluted earnings per share                             $1.47        $0.64
For the three months ended June 30, 2008, conversion of the Company\'s outstanding Series B 6.75% Convertible Perpetual Preferred Stock was not assumed since the effect was not dilutive to earnings per share. NOTE 5. SEGMENT INFORMATIONThe 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)                              2009        2008    SALES AND OTHER OPERATING REVENUES       Flue-cured and burley leaf tobacco operations:            North America                                $36,132    $48,427            Other regions (1)                            521,172    401,485                 Subtotal                                557,304    449,912       Other tobacco operations (2)                       58,808     56,375       Consolidated sales and other operating revenues  $616,112   $506,287    OPERATING INCOME (LOSS)       Flue-cured and burley leaf tobacco operations:            North America                                   $306      $(426)            Other regions (1)                             63,909     35,185                 Subtotal                                 64,215     34,759       Other tobacco operations (2)                        9,198      3,378       Segment operating income                           73,413     38,137       Less:            Equity in pretax earnings (loss) of             unconsolidated affiliates (3)                 3,641        (50)       Consolidated operating income                     $69,772    $38,187    (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.
For the three months ended June 30, 2008, conversion of the Company\'s outstanding Series B 6.75% Convertible Perpetual Preferred Stock was not assumed since the effect was not dilutive to earnings per share. NOTE 5. SEGMENT INFORMATIONThe 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:

Source: PRNewsWireUVV is in the portfolios of David Dreman of Dreman Value Management, Richard Pzena of Pzena Investment Management LLC.

Rating: 2.0/5 (3 votes)

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