Universal Corp (UVV) 2010 Q2 法說會逐字稿

Good afternoon.

My name is Lamont and I'll be your conference operator today.

At this time I'd like to welcome everyone to the Universal Corporation second-quarter fiscal year 2010 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.)

I would now like to turn the conference over to Mrs.

Whelan, Vice President and Treasurer of Universal Corporation.

You may begin.

Thank you all for joining us.

George Freeman, our Chairman, President, and CEO, and David Moore, our Chief Financial Officer, are here with me today.

They'll 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 until February 3rd, 2010.

If you're listening to this call after that date, or if you're reading a transcription, we haven't authorized such recording or transcription.

It's been made available to you without our permission, review, or approval.

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.

I urge to read our 10-K for the year ended March 31, 2009 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 unaudited allocations and is subject to reclassification.

This is certainly a good year to demonstrate why quarters are not particularly meaningful in our business, so I'll begin with the six-months discussion.

We earned about $3.23 per share for the six months, which was nicely above last year's $2.02.

Net income increased by about $34 million and much of that increase occurred in the first quarter, on earlier shipments from Brazil and Europe.

But we also benefited from a $17 million decline in costs related to currency, as well as better margins.

Interest expense was lower on lower average balances and rates and our effective tax rate was lower because we reversed some provisions for uncertain tax provisions.

That comes from the new accounting a couple of years ago called FIN 48.

Revenues for the six months were flat at about $1.3 billion, but volumes were down.

And that volume reduction is primarily from Africa, where you may recall we had lower sales of old crop in the first quarter, and where the current crop is being shipped a little bit later this year.

That volume reduction is offset by a better mix of business and higher average prices in some areas.

The main factors that affected the six months results are lower currency losses and shipment timing, as well as lower taxes and interest.

And I think you'll see that theme throughout.

A little more detail on the first half -- our flue-cured and burley operations earned $133 million (sic - see Press Release) which is up more than 30% compared to last year.

The single most important factor in that increase was the lower currency-related cost that I mentioned earlier.

That was in Brazil, so the impact is reflected in the Other Regions segment, where results were up by 28%.

Volumes improved in Asia and in South America, and I've already talked to you about the African volume reduction, which is also in that segment.

African results, however, improved because of a better product mix and additional processing income.

In Europe, lower margins and a weaker local currency reduced reported results.

That group uses the euro as a functional currency and the euro was 10% weaker than last year on average for the six-month period.

Operating income for the North American segment increased on higher prices and improved experience related to farmer advances in some areas.

However, revenues were lower on lower sales of old crop leaf and lower Canadian volumes.

Our Other Tobacco Operations segment performed well during the first six months.

The dark tobacco group's improved mix of business more than offset slightly lower volumes, as well as the cost of rationalizing their US operations.

The oriental tobacco joint venture benefited from better product mix this year, but earnings were flat due to the absence of currency gains in the first half.

Now the quarter -- we earned $1.77 per diluted share compared to last year's $1.38 and net income was up about $11 million.

The increase was primarily due to a $25 million decline in currency-related costs.

So the key factors for the quarter earnings were much like the six months -- lower currency losses this year, lower interest expense, and lower tax expense.

Revenues for the quarter, about $648 million, were down significantly, as shipments had either been accelerated into the first quarter or will be delayed until later in the year.

So the key factors for revenues are lower volumes due to shipment timing, which shifted among the quarters.

Those lower volumes were primarily related to the later shipments in Africa that I mentioned earlier that will be shipped later this year and accelerated shipments from Brazil and Europe into the first quarter.

A little more detail on the quarter's segment income -- operating income for flue-cured and burley operations increased by 5% to $69 million over last year.

Results for the Other Regions segment were flat because operating margins improved on lower currency losses this year, but volumes were down.

Operating income for the North America segment increased by $4 million, largely reflecting pricing improvements and lower costs, which more than offset the effect of lower volume.

And the Other Tobacco Products second-quarter results were flat.

Improvement in the dark tobacco business volumes and margin were offset by lower results from the oriental tobacco group where they had currency gains last year that were not repeated.

Overall, we're very pleased with our performance so far this year.

All of our operations are continuing to perform well and they benefit from cost controls and global coordination.

We saw earlier shipments from Brazil and Europe in our first fiscal quarter, so we expected the lower volumes that we had this period.

In addition, some African leaf is being shipped later.

Our costs were lower this quarter, especially those related to currency movement, and that factor has offset the effect of reduced shipments.

We do not see an oversupply of flue-cured tobacco in the coming year.

And, in fact, rains in Brazil during the season could reduce the crop there somewhat.

And although African burley crops were very large this year, they were smaller than we anticipated and it appears that the supply has been absorbed by the market.

We would not expect to see any significant increase in worldwide dealer inventories for flue-cured and burley tobacco from this year's crop.

However, looking at the current worldwide situation, the US dollar has weakened in recent months, I guess, which would increase costs as we enter the next purchasing season.

As we look ahead in the intermediate term, we will maintain our relationship with Japan Tobacco, one of our largest customers, as they work on the steps that they had announced in June to enhance direct leaf procurement capabilities in some origins by acquiring and entering joint ventures with smaller leaf merchants.

They've made certain announcements in recent weeks regarding progress toward their goal, and we believe that it's likely that our US flue-cured and burley volumes, as well as our Malawi burley volumes, both for JT, will be reduced or eliminated over time, although we expect these actions will have no effect on volumes this year.

We remain focused on measuring the business impact of these volume reductions and believe that we will continue to sell significant volumes of processed tobacco to JT outside those two countries.

Do you have any questions?

Lamont, we're prepared to take questions now.

(Operator instructions.) Your first question comes from the line of Ann Gurkin with Davenport.

Thanks.

Congratulations on a great quarter.

Hi, Ann.

How are you?

Hi, Ann.

Just a big picture question, George.

As you think long term about the business and as you try to match where the business operates versus your customers, are there any areas where you need to invest for future growth for Universal?

Not immediately, no.

We're pretty well set.

Even in emerging markets?

Yes.

Okay.

Great.

That's all I have right now.

Thank you all.

(Operator instructions.) There are no further questions at this time.

Okay, Lamont.

Thank you very much.

Thank you all for joining us.

I appreciate your being with us this quarter and we'll look forward to the next one.

And this concludes today's conference call.

You may now disconnect at this time.