Universal Corporation (UVV)

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Universal Corporation (UVV)

F3Q2013 Earnings Call

February 5, 2013 5:00 p.m. EST


Candace Formacek – VP and Treasurer

George Freeman – Chairman, President and CEO

David Moore – CFO


Ann Gurkin – Davenport & Co.

Bryan Hunt – Wells Fargo Securities



Good afternoon. My name is Kim and I will be conference operator today. At this time I would like to welcome everyone to the Universal Corporation Third Quarter Fiscal Year 2013 Results Conference Call.

[Operator Instructions]. Thank you.

I would now like to introduce our host, Candace Formacek, Vice President and Treasurer. You may begin your conference.

Candace Formacek

Thank you, Kim, and thank you for joining us on our call today. George Freeman, our Chairman, President and CEO, and David Moore, our Chief Financial Officer, are here with me today. They will join me in answering questions after these brief remarks.

This call is being webcast live and will be available on our website and on telephone taped replay. It will remain on our website through May 5, 2013. If you are listening to this call after that date or if you are reading a transcription, we have not authorized such recording or transcription; it has been made available to you without our permission, review or approval. We take no responsibility to such presentations. Any transcription inaccuracies or omissions or failure to present available updates are the responsibility of the party who is providing it to you.

Before I begin to discuss our results, I caution you that we will be making forward-looking statements that are based on our current knowledge and some assumptions about the future. For information on some of the factors that can affect our estimates, I urge you to read our 10-K for the year ended March 31, 2012, as well as the 10-Q for the third fiscal quarter of 2013 which was filed today.

The factors that can affect our estimates include such things as customer mandated timing of shipments, weather conditions, political and economic environment, changes in currency, industry consolidation and evolution, and changes in market structure or sources. Finally, some of the information I have for you today is based on unaudited allocations and is subject to reclassification.

Net income for the nine months ended December 31, 2012, was $106.6 million or $3.75 per diluted share and includes restructuring charges of $0.05 per share. Last year's net income for the same period was $66.3 million or $2.34 per diluted share. The prior-year nine months results reflected the net effect of several unusual items which amounted to a net charge of $1.39 per share. Net income of $35.5 million or $1.25 per diluted share for the third fiscal quarter was down compared with net income for the prior-year's third quarter of $58.5 million or $2.06 per diluted share, which included a net benefit from unusual items of $0.25 per share.

Our total segment operating income for the nine months ended December 31, 2012 of $185.9 million increased $11.3 million over the prior year as improved results in the other regions and other tobacco operation segments were partly offset by a decline in the North America segment. Segment operating income for the quarter ended December 31, 2012 declined by 24% to $63.3 million compared with the prior year on lower volumes and margins in all segments.

As we have similarly mentioned in the previous two quarters, shipment timing and lower crop sizes remain as key factors influencing the year-over-year comparisons of our quarter and nine months results. To review these factors in more detail, in the other regions segment, operating income for the first nine months of the year increased by about 15% to $168.1 million. Those results remain heavily influenced by the higher sales volumes in South America and Africa, mostly due to carryover shipments from last year's large crop. Shipment timing was also a factor for the nine months results given accelerated shipments this year compared to later deliveries last year. Conversely, the operating results for this segment in the third fiscal quarter were down by about 15% to $59.3 million compared to the prior year. Results were lower for the quarter mainly on reduced volumes and higher unit costs from smaller crops and a less favorable product mix in some origins.

In the North America segment operating income of $9.8 million declined by $14.1 million for the nine months compared to the same period in the prior year. Lower results were mainly attributed to a combination of lower shipment volumes and fewer old crops trading and carryover sales this year. Operating results for the other tobacco operation segment improved for the nine months ended December 31, 2012 versus last year, primarily due to continued recovery in our dark tobacco business.

Selling, general and administrative costs were $14.6 million lower for the nine months ended December 31, 2012 compared to the prior year. That reduction included benefits from lower provisions for suppliers and net currency re-measurement and exchange gains.

In summary, we are pleased with our results so far this year made possible by the hard work and depth of local market knowledge from our teams on the ground around the world. Despite our success thus far, we still face challenges for the remainder of the fiscal year, and we anticipate lower shipments in the fourth quarter. Last year we began shipping tobacco later compared to the current year and crops were larger. These factors caused volumes to be skewed toward the second half of last year. Larger volumes of uncommitted inventories were also available for sale last year and we had sold a significant amount of those stocks. Our uncommitted stocks were only 10% of total inventory at December 31, 2012 and remain at very low levels.

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