UVV Universal Corp

RICHMOND, Va., Nov. 6, 2014 /PRNewswire/ --

HIGHLIGHTS

Six Months
Diluted earnings per share of $0.35.
Revenues down 32%, to $736 million due to later market timing.
Dividend increase announced for the 44^th consecutive year.

Second Quarter
Diluted earnings per share of $0.48.
Segment operating income of $29 million.

George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), reported that net income for the first half of fiscal year 2015, which ended on September 30, 2014, was $15.7 million, or $0.35 per diluted share, compared with $83.8 million, or $2.95 per diluted share for the same period last year. Last year's results included a non-recurring gain in the first fiscal quarter of $81.6 million before tax ($53.1 million after tax, or $1.96 per diluted share), which resulted from the favorable outcome of litigation in Brazil related to excise tax credits. Results for the current fiscal year included an income tax benefit of $8.0 million (or $0.34 per diluted share) arising from a subsidiary's payment of a portion of a fine following the unsuccessful appeal of a long-running court case. Excluding those items in both years, net income for the six months decreased $23.0 million compared to the same period last year. For the second fiscal quarter ended September 30, 2014, net income was $15.0 million, or $0.48 per diluted share, compared with net income for the prior year's second quarter of $25.4 million, or $0.90 per diluted share.

Segment operating income for the first half of fiscal year 2015 was $20.9 million, a decrease of $34.7 million, and for the quarter ended September 30, 2014, was $28.6 million, a decrease of $20.7 million, both compared to the same periods last fiscal year. Those declines resulted primarily from reduced volumes due to market conditions which have pushed shipments into the second half of the fiscal year. Consolidated revenues decreased by 32% to $735.6 million for the first half of fiscal year 2015, and by 29% to $464.1 million for the three months ended September 30, 2014, compared to the same periods in the prior year, mostly as a result of the lower volumes and lower average prices.

Mr. Freeman stated, "Our results continue to be impacted by an oversupply in tobacco leaf markets and the effects of softer demand from our customers. As is typical under these conditions, markets have developed slowly in some origins, with a later start to purchasing and processing, as well as delayed receipt of shipping instructions from customers. While we usually ship a large portion of our volumes in the second half of our fiscal year, this year significantly more volume is being pushed into this period. Improvements that we have made in Africa, including the opening of our second processing line in Mozambique, will help to move shipments out prior to our current fiscal year end, barring any unexpected logistical challenges. We expect modestly lower lamina volumes in fiscal year 2015 compared to the prior fiscal year due to soft customer demand, but we believe we remain well-positioned in the industry with our strong customer relationships, increasing customer satisfaction with our products and services, and our solid market share. Revenues for the fiscal year are also expected to be down compared to the previous fiscal year primarily due to declining prices and the soft demand that is typical of an oversupply environment. We are confident in our ability to adapt and manage through this period, as we have demonstrated in the past.

"Looking forward, we continue to monitor market challenges in the global tobacco industry that may impact our customers as we explore ways to provide more value-added services, make our operations more efficient, and reduce sourcing complexity. For example, as we announced yesterday, we are expanding sales through a new leaf supply agreement with one of our longstanding global customers, Philip Morris International, Inc., for purchasing processed grades of tobacco. This new arrangement will broaden our leaf purchasing and grower support activities in the United States in fiscal year 2016. In addition, we continue to work to balance anticipated global leaf tobacco supply and demand and to minimize our uncommitted inventories, which remained within our normal range at the end of September.

"I am also pleased to report that we were able to reward our shareholders for the 44^th consecutive year with an annual dividend increase as announced earlier today."

FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:

OTHER REGIONS:

Operating income for the Other Regions segment was $11.1 million for the first half of fiscal year 2015, compared to $37.3 million in the first half of the prior fiscal year. The reduction was driven by lower volumes in all regions. The volume reductions were mainly attributable to delays of current crop shipments into the second half of the fiscal year. Gross profit margins for the segment were improved for the period, despite approximately $10 million of inventory writedowns on certain styles of tobacco that were in excess of demand. Although volumes were down for the Africa region on processing and shipment delays, shipments from Mozambique had caught up with prior year levels by September 30, 2014. Better margins in Brazil, compared with last year's volatile pricing situation that pressured margins, partially offset declines from lower volumes there. Selling, general, and administrative expenses for this segment were down for the six months ended September 30, 2014, as beneficial comparisons to the prior year's heavy foreign currency remeasurement and exchange losses, mostly in the Philippines and South America, and lower supplier provisions, were partially offset by a large value-added tax valuation allowance in South America. Revenues for the segment were down about 31% to $569.2 million, reflecting those lower volumes and lower average green leaf prices.

Operating income for the Other Regions segment was down 49% to $21.7 million in the quarter ended September 30, 2014, compared with the prior year. Similar to the six-month period ended September 30, 2014, the decline was primarily related to lower volumes in most origins as well as inventory writedowns on certain styles of tobacco that were in excess of demand and partially offset by lower selling, general, and administrative expenses largely due to lower supplier provisions. Revenues for the Other Regions segment declined by 30% to $371.7 million in the quarter ended September 30, 2014, compared with the prior year, mainly as a result of the reduced volumes.

NORTH AMERICA:

North America segment operating income of $6.0 million for the six months ended September 30, 2014, decreased by $4.9 million, compared with the same period in the previous year, on reduced sales and processing volumes. The reductions were mainly due to timing, as a result of shipment orders delayed into the second half of the fiscal year, as well as the later harvesting of current crops in the United States due to this year's weather conditions. Revenues for the segment declined by $60.1 million to $85.0 million on those lower volumes.

Similarly, segment operating income for the second quarter of fiscal year 2015 of $4.3 million was down $4.2 million compared with last year's comparable period, on lower sales volumes in Mexico and Guatemala, mainly due to later timing of shipments and delays at the ports. Those factors were partly offset by reduced selling, general, and administrative costs, mostly on lower postretirement benefit costs. The volume reduction also influenced second quarter fiscal year 2015 revenues, which declined by 34% to $53.3 million for the segment.

OTHER TOBACCO OPERATIONS:

For the first half of fiscal year 2015, the Other Tobacco Operations segment's operating income decreased by $3.6 million to $3.9 million from results for the same period last fiscal year. The dark tobacco operations saw declines primarily as a result of lower overall volumes and higher provisions on supplier advances. Those declines were partially mitigated by improved results for the oriental joint venture on better margins from product mix and the absence of the prior fiscal year's currency exchanges losses from devaluation of the Turkish lira. The segment results were also impacted this fiscal year by operational startup costs incurred by our new liquid nicotine and food ingredients businesses. Selling, general, and administrative costs for the segment were lower on reduced foreign currency exchange and remeasurement losses, principally in Indonesia. Revenues for the Other Tobacco Operations segment were down about 28% to $81.3 million for the first half of fiscal year 2015, primarily attributable to the lower volumes in the dark tobacco operations.

The Other Tobacco Operations segment operating income improved by $4.3 million to $2.6 million for the quarter ended September 30, 2014, compared with the same period for the previous fiscal year. Results for the dark tobacco business improved slightly for the second fiscal quarter, as benefits from favorable comparisons to last year's Indonesian foreign currency remeasurement and exchange losses were offset by lower sales volumes of wrapper tobaccos in that origin due to adverse weather conditions that reduced the availability of wrapper in the crop. Results in the fiscal quarter increased for the oriental joint venture on higher volumes, better margins from product mix, and lower selling, general and administrative costs. Revenues for the segment of $39.1 million for the second fiscal quarter were relatively flat, as the lower volumes for the dark tobacco business were offset by volume increases due to the timing of shipments of oriental tobaccos into the United States.

OTHER ITEMS:

Cost of goods sold decreased by about 29% to $379.0 million for the second quarter, and by about 33% to $595.0 million for the first half of fiscal year 2015. The percentage reductions in both periods are comparable to the revenue reductions and reflect the lower sales volumes in the respective periods, as well as lower green leaf prices.

Selling, general, and administrative costs decreased by $11.5 million and by $8.6 million in the first half and second quarter of fiscal year 2015, respectively. In both periods, the declines were chiefly due to favorable comparisons to the previous year's currency remeasurement and exchange losses, mainly in Asia and South America, lower loss provisions on advances to suppliers, and lower incentive compensation costs. Those benefits for the six-month period were partly offset by higher value-added tax valuation allowances in South America.

The consolidated effective income tax rates were approximately 24% and 29% for the quarters ended September 30, 2014 and 2013, respectively. Income taxes for the first half of fiscal year 2015 were impacted by a non-recurring benefit of $8.0 million arising from the partial payment of the European Commission fine by our Italian subsidiary in June 2014.  Excluding that item, the consolidated effective tax rate for the six months ended September 30, 2014, was approximately 10%. The consolidated effective tax rate for the six-month period ended September 30, 2013, was 33%. The rates for all periods were lower than the 35% federal statutory rate because of lower effective tax rates on income from certain foreign subsidiaries. The effective tax rate for the six months ended September 30, 2013, was also lower than the federal statutory rate because of changes in exchange rates on deferred income tax assets and liabilities.

Additional information

Amounts included in the previous discussion are attributable to Universal Corporation and exclude earnings related to non-controlling interests in subsidiaries. In addition, the total for segment operating income referred to in this discussion is a non-GAAP measure. This measure is not a financial measure calculated in accordance with GAAP and should not be considered as a substitute for net income, operating income, cash from operating activities or any other operating performance measure calculated in accordance with GAAP, and it may not be comparable to similarly titled measures reported by other companies. A reconciliation of the total for segment operating income to consolidated operating income is in Note 3. Segment Information, included in this earnings release. The Company evaluates its segment performance excluding certain significant charges or credits. The Company believes this measure, which excludes these items that it believes are not indicative of its core operating results, provides investors with important information that is useful in understanding its business results and trends.

This information includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions readers that any statements contained herein regarding earnings and expectations for its performance are forward-looking statements based upon management's current knowledge and assumptions about future events, including anticipated levels of demand for and supply of its products and services; costs incurred in providing these products and services; timing of shipments to customers; changes in market structure; government regulation; product taxation; industry consolidation and evolution; and general economic, political, market, and weather conditions. Actual results, therefore, could vary from those expected. A further list and description of these risks, uncertainties, and other factors can be found in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2014, and in other documents the Company files with the Securities and Exchange Commission. This information should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

At 5:00 p.m. (Eastern Time) on November 6, 2014, the Company will host a conference call to discuss these results. Those wishing to listen to the call may do so by visiting www.universalcorp.com at that time. A replay of the webcast will be available at that site through February 5, 2015. A taped replay of the call will be available through November 19, 2014, by dialing (855) 859-2056. The confirmation number to access the replay is 24066410.

Headquartered in Richmond, Virginia, Universal Corporation is the leading global leaf tobacco supplier and conducts business in more than 30 countries. Its revenues for the fiscal year ended March 31, 2014, were $2.5 billion. For more information on Universal Corporation, visit its website at www.universalcorp.com.

See accompanying notes.

See accompanying notes.

See accompanying notes.

See accompanying notes.

NOTE 1. BASIS OF PRESENTATION

Universal Corporation, with its subsidiaries ("Universal" or the "Company"), is the leading global leaf tobacco supplier. Because of the seasonal nature of the Company's business, the results of operations for any fiscal quarter will not necessarily be indicative of results to be expected for other quarters or a full fiscal year. All adjustments necessary to state fairly the results for the period have been included and were of a normal recurring nature. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

NOTE 2.   EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

NOTE 3. SEGMENT INFORMATION

The principal approach used by management to evaluate the Company's performance is by geographic region, although the dark air-cured and oriental tobacco businesses are each evaluated on the basis of their worldwide operations. The Company evaluates the performance of its segments based on operating income after allocated overhead expenses (excluding significant non-recurring charges or credits), plus equity in the pretax earnings of unconsolidated affiliates.

Operating results for the Company's reportable segments for each period presented in the consolidated statements of income were as follows:

SOURCE Universal Corporation