Universal Corp (UVV) 2014 Q3 法說會逐字稿

Good afternoon, my name is Gina and I will be your conference operator today. At this time I'd like to welcome everyone to the Universal Corporation's third quarter of fiscal year 2014, earnings conference call.

(Operator Instructions)

Thank you. Mrs. Formacek, Vice President and Treasurer, you may begin your conference.

Thank you Gina, and thank you for joining us in the 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 May 6, 2014.

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 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, 2013, as well as the 10-Q for the third fiscal quarter of 2014 which was filed today. 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.

We had a strong third quarter with shipment volumes exceeding those of last year's third quarter and operating profit improvements in each segment. Net income for the third fiscal quarter which ended December 31, 2013 was $38.6 million or $1.36 per share. An increase of about 9% compared to net income for the prior year's third quarter of $35.5 million or $1.25 per share. The fiscal 2014 results included restructuring costs of $3.4 million or $0.08 per share. Segment operating income for the quarter of $74.6 million was up 18% compared with $63.3 million for the third fiscal quarter of the previous year.

Consolidated revenues for the quarter increased as well by 13% to $768 million, as higher overall volumes, mainly due to the current season's larger African crops were partly offset by lower volumes in Brazil. Turning to the detail for the quarter, in terms of segment operating income, for the Other Regions segments, operating income increased by 11% to $65.5 million. Better results from higher shipments of larger current crops in Africa and earnings improvements in Europe and Asia were partly offset by weaker results in South America from higher green leaf prices there, less favorable product mix and fewer old crop sales. In the North America segment, operating income of $7.7 million was up $2.5 million compared to the previous year on higher shipments, a more favorable product mix, and lower overheads including post-retirement benefits.

The other tobacco operations segment achieved earnings improvement as well, with segment operating income up $2.6 million for the quarter. Most of the increase was attributable to improved operating income for the Oriental joint venture. However, both the Oriental and the Dark tobacco operations were negatively impacted by foreign currency remeasurement and exchange losses from local currency devaluations in Turkey and Indonesia respectively.

Selling, general and administrative costs for the quarter were up 9%, but declined slightly as a percentage of sale. Higher costs in the quarter mainly reflected unfavorable comparisons to last year's recovery on provisions to suppliers. The third quarter improvements are helping to offset a portion of the large declines we reported in the first half of the year which primarily resulted from lower carryover volumes, weaker margins in Brazil and negative foreign currency in exchange loss comparisons.

Net income for the nine months ended December 31, 2013 was $122.3 million or $4.31 per share, compared with $106.6 million or $3.75 per share for the same period last year. The current year's results included the gain of $81.6 million before tax, $53.1 million after-tax, or $1.87 per share, from the favorable outcome of litigation in Brazil related to excise tax credits. Segment operating income was $130.3 million for the nine-month period, a decrease of $55.6 million over the prior year. Revenues for the first nine months of fiscal year 2014 increased by 2% to $1.9 billion, on slightly lower volumes at higher prices.

In terms of our outlook, the fourth fiscal quarter's processing and shipping schedules are proceeding normally and we expect our shipping volumes in this fiscal year's second half, to exceed those for the same period last year. While it is still very preliminary, the current outlook for the 2014 crop, which will impact our FY15 results, indicates increased production in some origins. At the same time, there are possible reductions in cigarette manufacturers needs, due to lower cigarette sales in Europe and the United States. However, our uncommitted inventories remain at relatively low levels.

And we believe that one of our strengths is our ability to manage our business well in uncertain global markets. Our focus remains on efficiently managing our business and positioning ourselves to meet the needs of our customers and suppliers while delivering consistent results to our shareholders. We believe that there are opportunities to grow our business by investing in projects that bring additional value and services to our customers.

We continue to make good progress on the programs announced in October to expand our leaf production and processing capacity in Mozambique, and to enhance production efficiency in several other origins. Our balance sheet remains strong with cash balances climbing about $117 million, and debt balances falling about $150 million during the quarter ended December 31, 2013, leaving us well-positioned to comfortably fund our capital requirements.

At this time we are available to take your questions.

(Operator Instructions)

Ann Gurkin, Davenport.

Good evening.

Hello Ann. (Multiple speakers)

Congratulations on your good quarter.

Thank you very much.

I wanted to start with the improvement we saw in pricing in the quarter from the second quarter. Can you comment on the drivers behind that? When you said improvement in pricing, what do you mean by that Ann?

You realized improved pricing in the third quarter as part of the sales driver.

I would say that our margins have improved, but a lot of that has to do with the shift and the timing and what the mix is of our earnings in the third quarter versus that first half where we had issues of carryover comparisons from the previous year.

Okay. Have you seen any change in customer demand from Q2 to Q3? I know you've talked about it as we look for the full year and into next year, but any change sequentially?

No, it is all anticipatory.

Okay. How about any pickup in business as customers look to change the blend of their cigarettes. Are you picking up any incremental business as you look over the next 12 to 18 months?

Early to say for that, Ann. I think we will see that as we move through the seasons and how the crops develop in the various regions. That may be part of plans from the manufacturers, but that is yet to be seen.

Okay, and then regarding your joint venture for manufacturing cartridges for e-cigarettes, can you give us any update on how that's progressing?

Well, AmeriNic is progressing as we expected. We have concluded our first commercial R&D production run and we're close to sending out samples, so that is moving as we expected.

That's great. Candace, do you have a worldwide uncommitted leaf inventory number right now?

I do. Our estimate is 52 million kilos as of December 31.

As of December 31?

Yes.

And then finally, SG&A expenses were up in the quarter. Can you help me, guide me like how to think about those SG&A numbers as we look out the next quarter and the next fiscal year? Well, I'd say, Ann, we pointed out for the quarter, that basically as a percentage of sales it was down slightly.

There was one factor that was mainly in negative comparisons to last year's recovery that improved SG&A last year. So that was a bit of a one-off in there. Otherwise, there aren't any other major items that we pointed out at this point. Thank you, that's very --

(Multiple speakers) Guidance of course and our currency does fall into that category.

Fair enough. Thank you.

Thank you.

(Operator Instructions)

At this time there are no audio questions.

Very good, thank you all for joining us.

Have a nice evening.

This concludes today's conference call. You may now disconnect.