Universal Corporation (UVV)

UVV 
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Universal Corporation (UVV)

F2Q2013 Earnings Call

November 6, 2012 5:00 p.m. ET

Executives

Candace C. Formacek – Vice President, Treasurer

George C. Freeman III – Chairman, President and CEO

David C. Moore – CFO, SVP

Analysts

Ann Gurkin – Davenport & Company

Presentation

Operator

Good afternoon. My name is (Kenisha), and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Corporation Second Quarter Fiscal Year 2013 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.

Ms. Candace Formacek, you may begin?

Candace C. Formacek

Thank you, (Kenisha). Thank you for joining us 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 February 5, 2013. If you are listening to this call after that date or if you’re 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 make 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. For information on some other 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 second 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 first half of fiscal year 2013, which ended on September 30, 2012, was 71.1 million, but it’s $2 and 50% per diluted share and includes restructuring charges amounting to $0.05 per share.

Last year’s net income for the six months period was 7.8 million, or $0.02 per diluted share. Last year’s first-half results reflected the net effects of several unusual items, which amounted to a net charge of $1.90 per share and included the charge in the second fiscal quarter for the European commission fine.

There’re several key items influencing our results for the six months in terms of the segment operating income. First, improved results for the first half of the fiscal year were heavily influenced by the effects of shipment timing, particularly in the other region segment, where segment operating income increased by about 41% to 108.8 million.

We saw carryover sales from last year’s large African crop in this year’s first quarter, and some accelerated shipments from South America and other origins in the second quarter. During the same period last year, shipments began later in Brazil and Africa due to a slow start to the season caused by over supplied markets.

In the North America segment, operating income of 4.5 million declined by 6.1 million for the six months. Lower results were attributed to a combination of decreased volumes from shipment delays and fewer old crop trading and carryover sales, offset in part by lower fixed factory cost.

Improvements in operating income and the other tobacco operations segment related mostly to recovery in our dark tobacco business Indonesia operations. Selling, general and Administrative cost were lower for the first half of the year, primarily due to currency remeasurement and exchange gain.

In addition, uncommitted inventories at 10% of total tobacco inventory are at very low levels for our business, and reflect depletion of stock in North America, as well as the smaller crops this year in South America and several African origins.

Although production of flue-cured and burley tobacco outside of China is down, our leaf volume shipped during the first six months were comparable to last year’s level. Our uncommitted stocks have also been reduced to very low levels, and we do not anticipate shipment volumes in the second half of the fiscal year to be equivalent to those of the previous fiscal year.


Beyond that caveat we are pleased with the recovery in leaf tobacco and with our company’s performance and these transitional markets.

Looking forward, we expect market conditions to improve, and we are anticipating larger crops in several key origins where production has not met demand this year. In addition, our continued successful management of our cash flow and uncommitted inventories, has allowed us to maintain our strong balance sheet and financial flexibility, which we view as a competitive advantage. It also enables us to continue rewarding our shareholders as we have done, with our 40 second consecutive annual dividend increased announced early today.

And now, I turn the call back over to you for any questions.

Question-and-Answer Session

Operator

(Operator instructions). Your first question comes from Ann Gurkin.

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