Universal Corp (UVV) 2013 Q1 法說會逐字稿

Good afternoon. My name is Matthew and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Corporation's First Quarter Fiscal Year 2013 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 call over to your host, Miss Candace Formacek. Miss Formacek, you may begin.

Thank you, Matthew. Thank you for joining us. 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 taped telephone replay. It will remain on our website through November 6, 2012. If you are 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. We take no responsibility for such presentations. 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 of the 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 first fiscal quarter of 2013, which was filed today. The factors that can affect 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 un-audited allocations and subject to reclassification.

Net income for the first quarter of fiscal year 2013, which ended on June 30, 2012, was $23.1 million. That is $0.81 per diluted share. Last year's first quarter net income was $15.9 million, or $0.52 per diluted share. Last year's first quarter results also included the net effect of two unusual items, restructuring costs of $6.9 million before taxes and a $9.6 million pretax gain on insurance settlement. The net impact of those two items was $2.7 million gain before taxes and an $0.08 benefit per share. Consolidated revenues of $461 million were down about 4% on a small volume reduction at slightly lower average prices.

First, I will cover a few points that are key to the results for the quarter. First, benefits from shipments of carryover stocks from last year's large crops in Africa improved results in the other regions segment. Although average prices on those crops were lower and contributed to declines in revenue for that segment. Second, lower-selling general and administrative costs, improved operating margins in many regions and contributed to operating income improvement, particularly in the other regions segment. The decline was mainly due to a combination of lower provisions on receivables from suppliers, lower compensation expenses and net currency re-measurment and exchange gains. Third. Third key point is that there are lower uncommitted stocks as well as smaller crops affecting our results. Uncommitted stock levels are down significantly compared with last year's first quarter, which reflected oversupply conditions. Smaller crops in South America contributed to lower volumes there this quarter. For some of the detail, income for our flue-cured and burley operations increased by 35% to $35.8 million as improvements in the other regions segment were partly offset by declines in North America.

In our Other Regions segment, operating income was up about $14 million, and operating margins improved in most regions. Results for this segment were influenced mainly by the items mentioned previously. Africa shipments of carryover crops increased volumes and were offset, in part, by fewer shipments due to smaller crops in Brazil. Selling general administrative costs for significantly lower for this segment as previously indicated.

Operating income for the North America segment decreased by $4.6 million, as carryover old crop sales seen in last year's first quarter were not repeated this year as those uncommitted stocks were depleted. Shipment delays in Central America and factory overhead allocations also played a role in the decline. Operating income for the Other Tobacco Operations segment improved by $5.6 million for the first fiscal quarter, with better results in both the Dark Tobacco operations and Oriental joint venture. The Dark Tobacco business improved mainly on recovery in Indonesia, while the joint venture benefited from higher volumes on earlier shipments and lower expenses.

To reiterate, our results for the first fiscal quarter signal a good start to the year ahead and a movement away from last year's oversupply conditions. Some of the benefits in this period are related to variances in shipment timing, particularly carryover shipments from last year's large African crops. We have managed our uncommitted inventory levels well throughout the past year and we now carry those stock at levels which are near the bottom of our historical norms. As we have previously indicated, uncommitted inventories in the United States were substantially depleted during Fiscal Year 2012.

As we move in to Fiscal Year 2013, we believe that crop sizes have declined sufficiently to stabilize the market. Crop sizes are coming down in most of the key sourcing areas for flue-cured and burley tobacco, including Brazil, Tanzania and Malawi. In fact, burley crops grown for sale in Fiscal Year 2013, particularly in Malawi, are reduced to levels which are not likely to meet demand in the current year. While the smaller crop sizes are reflective of a healthier market balance, they also limit the volumes we are expecting to handle during the year. At this time, we will be happy to take your questions.

(Operator Instructions)

Ann Gurkin.

What a great start to your fiscal year. I wanted to start with a couple of questions about the tobacco crop. If you look at what, in referencing your comments about the crop size coming down, what is the risk the crop comes in too small and results in increased fixed-cost absorption?

Where are you talking about, Ann? In terms of South America or just in general for the year?

Particularly South America.

Yes. I think that the expectations that we have had for the crop were that it was going to be smaller and we try to adjust for those factors as we can.

-- significance, surprise would be the Malawi burley crop.

That's right. That is really the only one I see in this fiscal year.

Okay. As you look out towards next year, I'm getting this question, so what is the risk that farmers will switch to grow other crops? As we have seen, prices for corn and soybean go up and that gap between tobacco and other crops is narrowing.

I think you will see -- I can't offhand think of any crops where we are -- in any of our markets that are forecasted to come down next year. I think you will see expansion next year.

Then in the U -

There are some -

I'm sorry.

To add on to that, we are seeing some improvements in the grain prices at some of these levels which may have an affect on that as well.

Okay, great. In terms of the US crop, is there a delay in harvesting that crop?

No. I think - there was some damage in Georgia, which is not - earlier this summer but that's not a big volume down there, in general.

Our crop estimates are showing that level coming back to the pre-hurricane levels that we had predicted before.

Yes, and it was hot and dry but they got some good rains throughout the summer in North Carolina.

In terms of harvesting, it is not delayed at this point, you don't think?

Yes, not to my knowledge.

Okay. I have seen a nice build in cash on the balance sheet. Can you comment at all what the priorities used for that cash?

Well, we always look first for opportunities in our own business. We will look at returning to the shareholder to the extent we have funds we don't think we can redeploy. We typically take a harder look at that in the fall.

All right. Then SG&A came down nicely in the first quarter. Can you help me as to how I should think about SG&A for the full year?

Well, we really do not give guidance on that, Ann. When you look at some of the items that are in there, some of them are things you may see in the future or may not. We do have currency re-measurement exchange effects that are in there. Those are really not predictable, per se. There are also some lower provisions on receivables from suppliers and lower compensation expenses. In part, some of the lower compensation expense is connected to some of our cost-saving work in the past year.

Some of it is variable selling-type expenses. It will swing around a bit based on what shipped in the fourth quarter versus what carried in to the first.

I shouldn't take the first quarter number and annualize it?

That part is really hard to comment on, but I don't know that I would do that.

Okay. What tax rate should we use for the year?

(multiple speakers) Reluctant to do it without more insight into that.

Tax rate for the year?

Ann, at this point I would think it would fall somewhere between 33%, 34%. A little bit below statutory but nothing dramatic.

Then my last question. Do you have a worldwide uncommitted lease number? Not just in universal but for the whole industry?

I don't know.

I don't think we can, Ann. Particularly -

I don't think so, but I would think it's down.

We had 85 million kilo, so it's probably dropped below that now. Is it fair? For just flue cured and burley inventory?

Yes, I do not have an absolute number. I think the fact that it would be trending downward would certainly be logically correct.

Okay. Then one more thing, I am sorry. We had a pretty modest expectation built in for the Oriental business this year. Is that still a fair assessment or are things maybe a little bit better in that business?

I think, Ann, that, that business, as we said, is going to take a little bit longer to recover because of the (multiple speakers) cycle.

It's moving in the right direction but it will take a while.

(Operator Instructions)

There are no further audio questions at this time.

Very good. Thank you, Matthew. Thank you, everyone, for joining us today.

Have a nice afternoon.

This concludes today's teleconference, you may now disconnect.