Universal Corp. Reports Operating Results (10-Q)

Universal Corp. (NYSE:UVV) filed Quarterly Report for the period ended 2012-06-30.

Universal Corp has a market cap of $1.05 billion; its shares were traded at around $45.48 with a P/E ratio of 9.8 and P/S ratio of 0.4. The dividend yield of Universal Corp stocks is 4.3%. Universal Corp had an annual average earning growth of 13.2% over the past 10 years.

Highlight of Business Operations:

We generally do not purchase material quantities of tobacco on a speculative basis. The majority of our inventories are not considered to be at risk as they are committed for sale to customers. At June 30, 2012, our uncommitted inventories were $97 million, or about 10% of total tobacco inventory, compared to $143 million, or about 21% of our March 31, 2012 inventory, and $201 million, or about 20% of our June 30, 2011 inventory. The percentage of uncommitted inventories at June 30, 2012, is near the bottom of the normal range for our business and reflects leaf sales in our North America segment that have depleted uncommitted inventories there, as well as the smaller crops in South America.

Operating income for the flue-cured and burley tobacco operations, which includes the North America and Other Regions segments, increased by about 35%, to $35.8 million for the quarter ended June 30, 2012, while revenues for those operations declined by about 5%, to $398 million, compared to the same quarter last year. In the Other Regions segment, operating income of $34.8 million was up $13.9 million with improved margins in nearly all regions. The segment's first quarter results were significantly influenced by higher volumes in Africa, mostly as a result of carryover shipments from last year's large crops in some origins, as well as benefits from currency remeasurement and exchange gains there. In South America, earnings were constrained by reduced volumes from this year's smaller crops, although the effect was mitigated by lower overhead costs in the period. Results for the European operations reflected fewer shipments and the translation effects of weaker local currencies against the U.S. dollar in that region. In Asia, results improved on some earlier shipment timing and better margins. Selling, general, and administrative costs for the first quarter were down about 23% for the segment compared with the prior year, due to lower provisions on receivables from suppliers, lower compensation expenses, and net currency remeasurement and exchange gains. Revenues for the Other Regions segment fell by about 6% as the increase in African volumes was more than offset by the effect of changes in the supply chain in Europe and smaller crops in South America.

Operating income for the North America segment decreased by $4.6 million compared to last year's first quarter. The prior year's quarter included carryover old crop sales that were not repeated this year as uncommitted stocks have been depleted. The decline was also influenced by shipment delays from transportation difficulties in Central America and factory overhead allocations. Revenues for the segment increased by about 3% to $60.5 million as lower trading volumes were more than offset by a favorable product mix.

As we move into fiscal year 2013, we believe that crop sizes have declined sufficiently to stabilize the markets. Crop sizes are coming down in most of the key sourcing areas for flue-cured and burley tobacco, including Brazil, Tanzania, and Malawi. In fact, in reaction to last year's very low burley prices, and as a result of poor weather conditions in some origins, burley crops grown for sale in fiscal year 2013, particularly in Malawi, are reduced to levels which are not likely to meet demand in the current year. While the smaller crop sizes are reflective of a healthier market balance, they also limit the volumes we are expecting to handle during the year. In addition, as green prices are moving upwards on a local currency basis in some origins, we are also seeing the counterbalancing effects on our earnings of the stronger U.S. dollar in recent months.

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