Universal Corporation (UVV)

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Universal Corp. (UVV)

F2Q07 (Qtr End 09/30/07) Earnings Call

November 7, 2007, 5:00 p.m. ET


Hart Roper - Chief Financial Officer and VP

Karen Whelan - VP and Treasurer


Ann Gurkin - Davenport & Co. Of Virginia, Inc.

Dex Vlassis – Gates Capital

Steve Marascia - Anderson & Strudwick

Peter Kim - ISI Capital

Kevin Zietz – Goldman Sachs



Good day and welcome to this Universal Corporation Second Quarter Fiscal Year 2008 Results Conference Call. This call is being recorded. At this time for opening comments, I would like to turn the call over to Vice President and Treasurer, Ms. Karen Whelan. Karen, please go ahead.

Karen Whelan

Thank you all for joining us. Hart Roper, our Chief Financial Officer is here with me today and he will join me in answering questions after this 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 February 7. 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 permission, review or approval and 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, so I urge you to read our 10-K for the year ended March 31, 2007 for information on some of the factors that can affect our estimates. Those factors can include such things as costumer 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 unaudited allocations and is subject to reclassification. We will only discuss continuing operations with you today.

We had a good quarter with income from continuing operations up 9% to $40.5 million, or $1.25 per diluted share. For the six months, we earned $58.7 million from continuing operations or $1.81 per diluted share of almost 200% from the $0.63 we earned last year. Most regions showed solid improvement in the quarter and the six months. The key factors were lower provisions for farmer receivables and lower inventory valuation adjustments which in aggregate decline by $27 million in Africa for the quarter. We also had lower restructuring and impairment costs for the six months.

Other positives were shipment timing benefits and operational improvements in addition to lowering that interest expense and a lower effective tax rate.

As we noted last quarter, the smaller crops in Africa have caused higher leaf purchase prices and higher unit processing in agronomic cost. The effect of that reduced margins offsetting part of that region’s improvement.

Revenues were up 20% to $655 million in the quarter and up 11.5% to $1.1 billion for the six months. In both periods, the growth was principally due to higher volumes and leaf prices in Brazil, where currency changes were an important factor, as well as to higher volumes of African tobacco shipped, and higher African prices due to short crops in Malawi and Mozambique where demand was strong. The North America segment of the of the flue-cured and burley operations reported income of about $4 million for the quarter, as US operations moved into full swing for the season. Results were $3 million lower than last year. Key factors in this year’s decline were last year’s $3 million gain on the sale of assets of closed facilities and the effects of drought conditions on the US flue-cured crop.

Revenues for the quarter also reflected those reductions but they were more than offset by earlier Canadian sales and increased volumes in smaller regions. For the six months, the segment reported loss of a million dollars compared to earnings of over $7 million from the prior year. The reduction reflected the same factors of the quarter, but in addition, we had lower carry over sales this year, several one time sales last year especially of old crop burley and significant reduction of the Canadian crop. Those factors also caused revenues for this segment to fall by over $41 million compared to last year.

The other region segment of the flue-cured and burley operations earned almost $64 million up 34% from the same quarter last year, driven by improvement in Africa, Europe and Asia.

In South America, margins were lower because of the effect of the strong local currency in Brazil on lease and operating cost. We entered forward contracts related to certain customer contracts to hedge some of the currency effect, but because we did not elect hedge accounting, the mark-to-market gains on those contracts were recognized in the first quarter ahead of the crop sales.

In Africa, we had lower margins related to a 32% decline in crop sizes in Malawi and Mozambique, but results improved there due to lower provisions for farmer receivables and reduced inventory valuation adjustments. As I said earlier, those items declined by $27 million in the quarter compared to last year.

Europe saw improvement in the quarter due to a better product mix, and Asia's comparisons improved with additional trading volumes and the absence of last year's flood-related costs. Revenues for this segment increased by over $95 million in this quarter.

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