Universal Corporation (UVV)

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Universal Corporation (UVV)

F3Q08 Earnings Call

February 7, 2008 5:00 pm ET


Hartwell Roper – Vice President and Chief Financial Officer

Karen M.L. Whelan - Vice President and Treasurer


Dax Vlassis – Gates Capital Management

Bryan Hunt – Wachovia

Christopher Dechiario – ISI Capital

Steve Marascia – Anderson & Strudwick

Ann Gurkin – Davenport & Co.



I would like to welcome everyone to the Universal Corporation’s third quarter fiscal year 2008 conference call. (Operator Instructions) Thank you. Ms. Whelan, you may begin your conference.

Karen M.L. Whelan

Thank you very much, and 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 these 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 7, 2008. If you’re 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, 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. As such, they are based on our current knowledge and some assumptions about the future events. 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 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.

As we have to the last several quarters, we will only discuss continuing operation with you today.

Income from continuing operations for the third quarter this year increased by 42% to about $51 million, or a $1.56 per diluted share. Last year, it was about $36 million, or $1.17 per diluted share.

For the nine months, we earned about a $109 million from continuing operations; that’s $3.38 per diluted share, up 85% compared to last year.

Sales and other operating revenues were up 12% in both the quarter the nine months, totaling $573 million for the quarter and $1.7 billion for the nine months.

In the quarter, the revenue growth was principally due to higher volume in Europe, Asia, Africa and the Special Services Group, as well as the impact of currency changes. A significant part of the volume increase was related to shipment timing as well.

For the nine months the increase has been more widely dispersed and caused by higher volumes and higher leaf prices in U.S. dollar terms, in most regions.

Now turning to the segment results. The North American segment of the flue-cured and burley operations was flat for the quarter, at about $19 million.

Despite the effect of crop reductions in Canada and the absence of last year sales of old crop U.S. burley, higher volumes of current crop tobacco in most origins, combined with improved pricing in some areas, largely offset the negative factors.

For the nine months, the North America segment reported operating income of about $18 million, down from $27 million last year. That reduction reflected lower carryover sales in the United States this year; last year’s benefit from old crop U.S. burley sales, and the significant reduction of the Canadian crop.

We also incurred higher operating costs in handling the U.S. crop, because of the effect of drought this year. However, we had improvements in pricing and volume in some origins that partially mitigated those factors.

In addition, you might recall that last year’s results reflected a $3 million gain from the sale of idle assets in the nine months.

The other segment of our flue-cured and burley operations called Other Regions are $52 million, up 13% from last year. And that was driven by improvement in operations in Europe and Asia.

The segment also recognized higher income that had been deferred on sales of leaf to another segment to provide just-in-time delivery services. That leaf has now been delivered to customers, so the profit has been recognized.

U.S. performance reflected earlier shipments, better product mix and additional blending and sheet volume, while Asia’s comparisons improved with the absence of last year’s flood-related costs in the Philippines and additional trading volume. Some of the trading volumes were delayed from earlier this year.

Despite higher volumes on earlier shipments, African results fell because of lower margins as smaller crops, high farmer leaf prices and the weaker U.S. dollars increased unit costs significantly.

In several origins, higher gains in currency related to both balance sheet re-measurement and to transactions offset part of the increased costs related to purchasing and processing tobacco with weaker U.S. dollars.

For the nine months, the Other Regions segment earned $148 million compared to $106 million last year, an increase of nearly 39%. The increase reflected improved results in all regions, and we saw many of the same factors that affected the quarter.

In addition to the improvements in Europe and Asia and the recognition of deferred income that I talked about earlier, the nine-month period reflected lower charges, especially in Africa, for inventory and farmer receivables this year, which contributed $26 million to the comparison.

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