Universal Corporation (UVV)

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Universal Corporation (UVV)

F2Q 2014 Results Earnings Call

November 05, 2013, 05:00 PM ET


Candace Formacek – Vice President and Treasurer

David C. Moore - Senior Vice President and Chief Financial Officer


Ann Gurkin – Davenport & Company



Good afternoon. My name is Sheryl and I will be your conference operator today. At this time I’d like to welcome everyone to the Universal Corporation Second Quarter of Fiscal Year 2014 earnings conference call. (Operator instructions).

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

Candace Formacek

Thank you, Sheryl and thank you all for joining us. 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 February 4, 2014. 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 failures 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, 2013, as well as the 10-Q for the second fiscal quarter of 2014 which were 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 first half of fiscal year 2014, which ended on September 30, 2013, was $83.8 million that is $2.95 per diluted share and includes the first fiscal quarter gain of $81.6 million before tax or $1.96 per diluted share which resulted from the favorable outcome of the Brazilian excise tax case discussed last quarter.

Last year’s net income for the six months period was $71.1 million or $2.50 per diluted share. Excluding the gain in Brazil net income for the six months decreased $40.4 million compared to the same period last year.

For the second fiscal quarter ended September 30, 2013 net income of $25.4 million or $0.90 per diluted share compared with net income for the prior year second quarter of $48 million or $1.68 per diluted share. There are several key items influencing our results for the six months in terms of segment operating income.

Operating income in our other region segment which was down $71.5 million compared with the first half of the previous year was influenced significantly by a drop in sales volume driven actually by shipment timing. The volume reduction reflected the lower carryover shipments in Africa noted last quarter and also in Brazil in the second quarter. Fewer sales of previously uncommitted inventory and later shipments in some origins due in part to the larger crop in the current year.

In addition earnings in that segment were further affected by reduced margins in South America caused by rapid green leaf price increases from volatile markets there this year. The North America segment achieved a $6.4 million increase in operating results on improved sales volumes due in part to some earlier shipment timing and lower processing overheads.

Selling, general and administrative costs were $26.6 million higher in the first half mainly due to unfavorable comparisons from large currency remeasurement and exchange losses for the current fiscal year, mainly in Asia, Africa and South America compared with large gains in the first half of the prior year.

In summary, our comparative results for the first half of this fiscal year continue to be skewed by large sales of carryover crops and earlier shipment timing in the prior year. Although production of flue-cured and burley tobaccos outside of China is higher this year, our leaf volumes shipped in the first half of the fiscal year were significantly lower than last year's levels. Looking forward we expect the second half comparisons to normalize with shipment volumes meeting or exceeding those of last year.

Although we are facing some hurdles this year the leaf markets continue to be strong. As the leading global leaf supplier we work closely with our customers to assure their ongoing requirements for quality, compliant leaf are met around the world. To that end, we are pleased to have recently announced that we have launched a program to expand our leaf production and processing capacity in Mozambique.

Similarly, other smaller-scale projects are concurrently in development in several other origins to enhance local processing and leaf services to bring additional value and services to our customers. We expect to incur incremental capital expenditures of approximately $50 million for these projects beyond our normal maintenance spending, but the investments will be spread over a two-year period. We expect to begin to see the benefits from these projects during fiscal year 2015.

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