Universal Corp (UVV) 2013 Q4 法說會逐字稿

Hello, my name is Jessica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Corporation's 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. I would like now to turn the call over to your host, Candace, Formacek, Vice President and Treasurer. Ma'am, you may begin your conference.

Thank you, Jessica, and 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 August 5, 2013. If you are listing to this call after that date or if you are if you 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 presentation. Any transcription inaccuracies or omissions or failures 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-K for the year ended March 31, 2013 which will be filed later this week. 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 fiscal year ended March 31, 2013 was $132.8 million, or $4.66 per diluted share and includes restructuring charges of $0.06 per share. Last year's net income for the same period was $92.1 million, or $3.25 per diluted share and included the net effect of several unusual items which amounted to a net charge of $1.42 per share. Net income of $26.1 million, or $0.92 per diluted share for the fourth fiscal quarter was relatively flat compared with net income for the prior year's fourth quarter of $25.8 million, or $0.91 per diluted share.

Our total segment operating income for the fiscal year ended March 31, 2013 up $232.8 million increased $9.2 million over the prior year as improved results for the Other Regions and Other Tobacco Operations segment outweighed lower results for the North America segment. Segment operating income for the fourth fiscal quarter of $46.8 million declined $2.1 million compared with the prior year.

We delivered better performance than we had anticipated at the beginning of the fiscal year despite smaller crops, rising leaf production costs and margin pressures in most regions. Some of this success was attributable to sale of previously uncommitted inventories and carryover shipments of the prior year's large African and South American crop. In addition, we benefited from lower selling general and administrative costs. Certain that these cost reductions were unpredictable such as currency remeasurement and exchange gains and may not be recurring, while others were results of our targeted cost reduction and efficiency improvement efforts.

Several factors are key to understanding our segment results for the year and fourth quarter. First, the operating income for our Other Regions segment improved 7% for the year, largely due to lower selling, general and administrative costs. Overall volumes for the year were lower for this segment compared with the previous year, reflecting the smaller current crops and additional volumes from carryover shipments of prior year's crop. The North America segment achieved higher overall volume and increased processing business for the year, but experienced lower operative results due to higher green leaf and overhead costs.

For the fourth fiscal quarter, total segment operating income declined by about $2 million. Earnings for the quarter in the at the Other Regions segment were down significantly, influenced by lower African volumes in comparison with last year's large crops and shipments there, but this decline was nearly offset by earnings improvements in the North America and the Other Tobacco Operations segment. The North America segment outperformed against the prior year's fourth fiscal quarter on higher volumes from the larger US crop and increased Processing business.

Our Other Tobacco Operation segment contributed earnings improvements for both the full year and the fourth quarter due mainly to stronger wrapper sales in the dark tobacco operation. In fiscal year 2013, we generated over $230 million in cash flow from our operations and returned nearly $70 million to our shareholders through a combination of dividends and share repurchases. In addition to our financial achievements, our strong local management teams around the globe continued to advance our goal of providing compliant leaf produced in a sustainable and competitive manner to our customers.

As we move into fiscal year 2014, we are seeing crop sizes increase in many of the key sourcing areas for flue-cured and burley tobacco in response to strong global leaf demand. The sales activity has also been robust, especially for quality flavor flue-cured styles of tobacco. Burley tobacco remains in high demand, and current year crop levels are not expected to meet global requirements. At the same time, our uncommitted inventories are near historic lows, limiting our ability to glean additional volumes from this source.

In addition to the low uncommitted inventories, we will not have the benefit of carryover crop shipments which helped our results in the first and second quarters of fiscal year 2013. While we look forward to another productive year, total volume shipped may be lower in fiscal year 2014.

We remain committed to being a leader in our industry and are excited about the future. Universal plays a vital role with respect to the global supply of tobacco, and we have a solid balance sheet that allows us to capitalize on opportunities to grow our Business. We champion programs to address critical industry issues such as the elimination of child labor and the eradication of illicit trade in tobacco products.

We partner with our suppliers to enhance their production, ensure compliant leaf and to support their communities, and we provide solutions for our farmers through the efforts of our large team of agronomists and field technicians worldwide. We also actively work with our long-standing customers to balance tobacco production with their continued strong demand.

Now we are able to take your questions.

(Operator Instructions)

We'll pause for a moment to compile the Q&A roster. Ann Gurkin.

Hello, everyone. I wanted to start with the out performance in North America, you did better than our forecast. I was just curious if there's anything else in those numbers, timing of shipments, new business wins, efficiency, capabilities and processing. Can you comment at all on North America?

Well, I think, Ann, what we've stated for the quarter is that North America does have better volumes from the larger US crop, so you have to take that into consideration. There were higher processing volumes. There was additionally some completion of delayed shipments in Central America that were a part of that too, but there were better results compared with last year.

So, that increasing -- increased processing volume, did you win some new business? Were those some new customers you're adding to your processing in North America?

Not sure I can say precisely with that, a lot of our customers are always our customers, so it's difficult to say if there's particularly a new piece in that.

Okay, great. And then also, the Oriental business is a little bit better than we were looking for as well; is that recovery running a little bit ahead of expectations, can you comment on that? And then how we should think about the Oriental business for fiscal 2014?

Well, the Oriental business did see some better margins. They have had some lower operating expenses, in part due to lower US dollar, but as well as part of overhead cost reductions. And their have been some recoveries in the Oriental leaf production as well.

Outlook for fiscal 2014?

We're not providing any specifics on that.

Continued margin improvement given some of the improvements we saw this quarter, is that fair to assume?

I'd say it's fair to say things are improving.

We always have that as a goal.

It didn't look like the crop size expectations changed in your leaf outlook report, so I was just curious there.

No, such a long lag.

Okay, and then I always ask about cash flow. So can you give us any update as to your expected working capital needs for fiscal 2014 versus 2013? And expectations for use of cash on the balance sheet and your strong cash flow generation?

Well, it's a start, Ann, this is David.

Hi, David.

A lot of African crops were smaller, and they were completed much earlier than normal. And so with increased crop sizes around the world, March 31 of 2013 was just an unusually low period for the use of a working capital, so we accumulated quite a bit of cash. A lot of that will disappear with the larger crops and the more normal timing this year.

Okay. How about a tax rate we should use for fiscal 2014?

Well, do bear in mind, we don't have any permanently reinvested earnings from our foreign. And our philosophy is that we're providing full additional US taxes under the assumption that all of our earnings and profits abroad will be distributed to the United States. And so year in, year out, that tax rate's going to be somewhere around 35% unless something really unusual happens.

Great, and then I get asked this, so I'm just curious, you all's insight and opinions, both on any change in timing of customer orders given the weak volumes we've seen in Europe and challenges in Russia and the Philippines and other markets? And then second, any comments on the rapid growth of E-cigarettes and how you might adjust your business for the growth of that segment? Any comments on those topics?

Well, two things. One, I would say that anything we've seen sort of a decrease in the -- or increase in the period in which customers are shipping. Primarily because I think markets are tightening up.

And then on E-cigarettes, to date that is really primarily a US phenomenon. It's still -- we'll see if it really makes traction. There's a lot of -- there's some smoke there, but I'm not sure there's fire, but --.

We still feel it's really too early, Ann, to really make a prediction for us about that. We do, to the extent that there is any new alternative product using nicotine, tobacco is a likely source and we do continually evaluate changes in the tobacco industry.

That's great, I just get asked that, so I was just curious what you all are seeing. Back to the customer orders, do you think there's some pull forward and orders into fiscal 2013 and fiscal 2014 could slow down with some of these market volume challenges?

I don't know, you see some of our customers have operations in areas where it's growing. So increasingly, Europe is becoming less important in the world market.

Okay, okay. And then my last question is, can you give us numbers for uncommitted inventories for the industry, Candace?

Yes. Our worldwide estimate for the unsold is $29 million, very low.

Wow, okay. That's industry?

Yes.

Okay.

Yes, it's very low.

It's kind of amazing, isn't it?

We been saying that for a while, yes.

And that may offset that decline in Europe, if things are really tight now.

And in general, Ann, we go into the new year with low levels of uncommitted stocks that we own and carry over shipments from prior crops. Because Africa ended early, it's much, much smaller, but we'll be dealing with larger crops from the current year. So, there probably is a variation in timing from one quarter to the next, just this year versus next year.

Great. Congratulations, thank you all very much.

You're welcome.

Have a nice evening.

(Operator Instructions)

And their are no further questions at this time.

Thank you very much, we appreciate your time today.

This does conclude today's conference call, you may now disconnect.