Universal Corporation (UVV)

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Universal Corporation (UVV)

Q3 2009 Earnings Call Transcript

February 5, 2009 at 5:00 pm ET


David Moore - Chief Financial Officer

Karen Whelan - Vice President and Treasurer


Ann Gurkin - Davenport & Company LLC

Sirov James - Bay Harbor

Dax Vlassis - Gates Capital Management


Paul Carpenter - Semaphore Management



Good afternoon. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Corporation's Q3 fiscal year 2009 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to turn the call over to your host Ms. Karen Whelan, Vice President and Treasurer. Ma’am, you may begin your conference.

Karen Whelan

Thank you, Kayla and thank you all for joining us. David Moore, our Chief Financial Officer, is here with me today and he 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 until May 5th. 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 for such presentation. 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. I urge you to read our 10-K for the year-ended March 31st, 2008 for information on some of the factors that can affect our estimates.

Those factors can include such things as customer-mandated timing of shipments, weather conditions, political and economic environment, changes in currency, and changes in market structure or sources.

Finally, some of the information I have for you today is based on un-audited allocations and is subject to reclassification.

Turning to our third quarter, earnings per share were up by 14% to $1.78, bringing the 9 months results to $3 and $0.78 which is up to 12%.

There were four key factors in that performance. First, larger burley crops in Africa as of the very small crops last year, second, good operations and virtually all our regions that were offset by currency re-measurement losses in several countries but especially in Brazil. Higher net interest expense as we funded more expensive crop along with our share repurchase program; and fourth, a lower tax rate.

Looking at the details, operating income for our flue-cured and burley operations was up about $74 million up 3% on 27% revenue increase. Both revenues and operating income for North America increased on higher volume, partly due to earlier shipments this year and partly on additional trading opportunities.

Operating income for the other region segment decreased slightly for the quarter, despite a significant operating improvement in Africa and volume increases from larger burley crops there. This segments performance was heard by lower results from our South American operations due to $20 million in currencies re-measurement losses in Brazil or the local currency weakened by approximately 22% during the quarter.

Some of those re-measurement losses were attributable to advances to farmers, for fertilizer and feeds that relate to the crop that will be sold next year. Crop inputs were more expensive this year due to increase fertilizer prices and the 30% to 40% weaker U. dollar at the time they were purchased. Although, those materials are being used for production of a crop that will be sold next year, the advances to farmers for the inputs are re-measured in US dollars, along with all other monetary assets and liabilities each recording period. As a result, the related re-measurement loss affects operating income this year when the prior crop is being sold.

Shipments this quarter from South America were higher than last year, despite a port closure related to flooding in Santa Katarina State. For the nine months, results for flue-cured and burley operations increased by more than 5% to nearly a $175 million. That improvement was due to a stronger performance in North America were cost savings in Canada and the increased volumes in the United States boosted income and revenue.

The other regions segment reflected stronger performance in the African region from higher volume and from reduced charges and write-downs there. And as I said earlier, South American results for reduced by the effect of re-measurement losses were the local currency devalued by 32% in Brazil. Those losses totaled $43 million for the nine months related to Brazil.

Other tobacco operation results were down for the quarter and the nine months, mostly because of last year’s earnings from the special services group. Sales in that group were accelerated last year because of a shift of business to the origins. So we expected the decrease this year. That change also caused a decline of segment revenue for the quarter.

We saw a big change in our selling, general and administrative expenses in both the quarter and the nine months. The effects of that change are included in our discussion of our operating segments that I am highlighting it because that is where the currency effects are reflected. As G&A expense increased by about $41 million in the quarter and $72 million for the nine months, primarily due to large currency re-measurement and exchange losses this year, compared to similar gains last year.

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