UVV Universal Corp

RICHMOND, Va., Feb. 3, 2015 /PRNewswire/ --

HIGHLIGHTS

Third Quarter

Diluted earnings per share of $1.87, up 38%
Segment operating income of $94 million, up 25%
Revenues down 1% to $758 million

Nine Months

Diluted earnings per share of $2.43
Segment operating income of $114 million, down 12%
Revenues down 19% to $1.5 billion

George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), reported that net income for the third quarter of fiscal year 2015, which ended December 31, 2014, was $53.0 million, or $1.87 per diluted share, compared with net income for the prior year's third fiscal quarter of $38.6 million, or $1.36 per diluted share. Segment operating income for the third fiscal quarter of $93.5 million increased 25% compared with the previous year, primarily due to improved results from higher gross margins and lower selling, general, and administrative costs. Consolidated revenues decreased by about 1% to $758.1 million mainly attributable to lower prices and flat total volumes.

Net income for the nine months ended December 31, 2014, was $68.8 million, or $2.43 per diluted share, compared with $122.3 million, or $4.31 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 $1.87 per diluted share), from the favorable outcome of litigation in Brazil related to previous years' excise tax credits. Results for the current fiscal year included an income tax benefit of $8.0 million ($0.28 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 nine months decreased $8.4 million compared to the same period last year. Segment operating income, which excludes unusual items, was $114.4 million for the nine-month period, a decrease of $15.9 million from the prior year. That reduction was mainly attributable to reduced volumes due to market conditions that have pushed shipments later into the fiscal year, offset in part by lower selling, general and administrative costs. Revenues declined by 19% to $1.5 billion for the first nine months of fiscal year 2015, primarily as a result of those lower volumes and lower average prices.

Mr. Freeman stated, "The current fiscal year continues to develop as we expected, with shipments heavily weighted towards the second half of the year. Third quarter lamina volumes shipped by our flue-cured and burley operations were the highest that we've seen for several years. In addition, our third quarter operating earnings benefitted from lower selling, general, and administrative costs, as well as improved gross margins. Our prudent inventory management has kept uncommitted levels in the normal range, at 14%. The robust third quarter sales volumes and operating profit improvements offset a portion of the large declines we reported in the first half of the year from the later start to the markets and delayed receipt of shipping instructions from customers caused by the oversupply conditions this year.

"Although it is early and logistics delays can always occur, the fourth fiscal quarter's processing and shipping schedules are proceeding as anticipated, with the largest portion of shipping volumes coming from the Africa origins. We continue to expect stronger fourth quarter sales volumes compared to the same quarter last year. The current outlook for the 2015 crops, which will impact our fiscal year 2016 results, indicates decreased production volumes in the key growing areas, which is an important step towards more balanced markets.

"I am proud of the achievements of our operations around the globe, as we have managed well through these uncertain markets. Our balance sheet remains strong, and our major refinancing in December ensures that we are well-positioned to meet the future financial needs of our business. We are optimistic about the prospects for our industry, and we continue to see opportunities to enhance our business by providing supply chain efficiencies, such as improved leaf utilization, that also bring value to our customers."

FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:

OTHER REGIONS:

Operating income for the Other Regions segment for the quarter ended December 31, 2014, improved by 20% to $79.0 million compared with the prior year, on increased total volumes and better overall margins. Higher lamina volumes and gross margin recovery from last year's volatile market pricing supported improved results in Brazil. Africa volumes continued to lag the previous year's levels, mostly due to shipments delayed into the fourth fiscal quarter. Results for the segment during the third fiscal quarter were positively impacted by larger sales and trading volumes in Asia, while volumes in Europe were lower on smaller crops and shipping delays, reducing earnings in that region. Selling, general, and administrative expenses for the Other Regions segment were down significantly for the quarter, driven mainly by lower provisions for suppliers, lower incentive compensation costs, and positive comparisons of value-added tax valuation allowances relative to the same period last year. Revenues for the Other Regions segment declined by 2% to $604.1 million for the third quarter on slightly higher volumes at lower average green leaf prices.

Operating income for the nine months ended December 31, 2014, was $90.0 million for the segment, compared to $102.8 million in the prior fiscal year. Although sales volumes remained lower for all regions relative to the prior year nine-month period, strong shipment volumes and profit improvements in the third fiscal quarter helped to narrow the earnings shortfall caused by oversupply conditions and delays of current crop shipments noted in the first half of the year. In addition, operating margins for the segment improved for the period, despite inventory writedowns and pricing pressures that typically accompany oversupply conditions. Selling, general, and administrative expenses for this segment were substantially lower for the nine months ended December 31, 2014, mainly from beneficial comparisons to the prior year's foreign currency remeasurement and exchange losses, mostly in the Philippines and South America, as well as lower provisions for suppliers and lower incentive compensation costs. Revenues for the segment were down about 19% to $1.2 billion, reflecting those lower volumes and slightly lower average green leaf prices.

NORTH AMERICA:

Operating income for the North America segment for the third quarter of fiscal year 2015 was $15.9 million, up $8.1 million compared to the same period of the prior year. Increased third-party processing in the United States and higher lamina sales volumes, including shipments from Guatemala and Mexico delayed from the previous quarter, contributed to the earnings improvement. Revenues for the quarter increased by 13% to $118.8 million on those increased volumes and improved product mix. Operating results for the nine months ended December 31, 2014, increased by $3.2 million to $21.8 million for the segment, compared with the same period for the previous year, mainly due to increased third party processing volumes and improved product mix, despite lower overall sales volumes. Revenues for the period decreased 19% to $203.8 million on the lower sales volumes. For both the three and nine months ended December 31, 2014, selling, general, and administrative costs were down slightly for the segment.

OTHER TOBACCO OPERATIONS:

The Other Tobacco Operations segment reported an operating loss of $1.3 million for the third fiscal quarter ended December 31, 2014, a reduction of $2.7 million from earnings of $1.4 million for the same period of the prior year. Results for the dark tobacco operations for the period were relatively flat, as the effects of reduced volumes were mitigated by favorable currency remeasurement variances, mainly in Indonesia, compared with the prior year. Results for the oriental joint venture declined in the quarter, primarily due to the timing of shipments of oriental tobaccos into the U.S., which were delayed into the fourth quarter of fiscal year 2015, partially offset by favorable foreign currency remeasurement comparisons to losses from Turkish lira devaluation last year. The third quarter segment results were also impacted by operational startup costs incurred by our new liquid nicotine and food ingredients businesses in the special services group. Revenues for this segment decreased for the third fiscal quarter by $11.2 million to $35.1 million, mainly due to the timing of shipments of oriental tobaccos into the United States.

For the nine months ended December 31, 2014, segment operating income of $2.6 million was down from $8.9 million. Results for the oriental joint venture improved during the period, attributable mostly to favorable currency remeasurement comparisons in Turkey. Those results were more than offset by lower sales volumes in the dark tobacco operations and start-up costs in the special services group during the period. Selling, general, and administrative costs for the segment were lower on reduced foreign currency exchange and remeasurement losses, principally in Indonesia. Revenues for the segment were down by $42.2 million to $116.5 million for the nine-month period ended December 31, 2014, primarily attributable to the lower volumes for the dark tobacco operations, as well as the timing of shipments of oriental tobaccos into the United States delayed into next quarter.

OTHER ITEMS:

Cost of goods sold decreased by about 3% to $610.5 million for the third fiscal quarter, and by about 21% to $1.2 billion for the nine months ended December 31, 2014. The percentage reductions in both periods reflect the lower green leaf prices and lower sales volumes in the respective periods, compared with the prior year. Selling, general, and administrative costs decreased by $12.9 million in the third fiscal quarter and $24.4 million for the nine months ended December 31, 2014, compared with the respective prior year periods. Favorable comparisons to the previous year's currency remeasurement and exchange losses accounted for about $2 million and $13 million of the reduction for the quarter and nine-month periods, respectively. Declines were also attributable to lower provisions for losses on advances to suppliers, lower incentive compensation costs, and lower corporate overhead for both periods, while the third fiscal quarter also benefited from positive comparisons of value-added tax valuation allowances.

The consolidated effective income tax rates were approximately 34% and 33% for the quarters ended December 31, 2014 and 2013, respectively. Income taxes for the first nine months 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 nine months ended December 31, 2014, was about 32%, compared with the prior year's rate of 33% for the same period.

On December 30, 2014, the Company executed a new senior unsecured credit facility agreement with a group of banks, which consolidated and extended maturities of its previous short-term revolving credit and long-term borrowing facilities. The new agreement includes a $430 million 5-year revolving credit facility, a $150 million 5-year term loan, and a $220 million 7-year term loan. The revolving credit facility contains terms and conditions that are substantially similar to the Company's previous revolving credit facility. The term loans, which were fully funded at closing, require no amortization and are prepayable without penalty prior to maturity. The facilities include a customary accordion feature allowing for additional borrowings of up to $100 million under certain conditions. Currently, borrowings under the revolving credit agreement bear interest at variable rates based on LIBOR plus a margin of 1.50% to 1.75%. The Company subsequently entered interest rate swap agreements to fix the variable interest component of the 5- and 7-year term loans to 1.44% and 1.73%, respectively. The effective rates on the 5- and 7-year term loans were 2.94% and 3.48%, respectively, as of February 3, 2015.

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 February 3, 2015, 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 May 5, 2015. A taped replay of the call will be available through February 17, 2015, by dialing (855) 859-2056. The confirmation number to access the replay is 70319833.

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.

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:

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SOURCE Universal Corporation