Universal Corp (UVV) 2018 Q1 法說會逐字稿

Good afternoon.

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

At this time, I would like to welcome everyone to the Universal Corporation First Quarter Fiscal Year 2018 Earnings Call.

(Operator Instructions) Thank you.

I would now like to turn the call over to Candace Formacek.

You may begin your conference.

Thank you, Ellie, and thank you all for joining us today.

George Freeman, our Chairman, President and CEO; and David Moore, our Chief Financial Officer, are here with me today and 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 November 3, 2017.

Other than the replay, we have not authorized and disclaim responsibility for any recording, replay or distribution of any transcription of this call.

This call is copyrighted and may not be used without our permission.

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, and are representative as of today only.

Actual results could differ materially from projected or estimated results, and we assume no obligation to update any forward-looking statements.

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, 2017, as well as our Form 10-Q for the first fiscal quarter of 2018.

Such factors include, but are not limited to, customer-mandated timing of shipments, weather conditions, political and economic environment, government regulation, 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.

In an effort to provide useful information to investors, our comments today may include non-GAAP financial measures.

For details on these measures, including reconciliations to the most comparable GAAP measures, please refer to our current earnings press release.

Reported net income for the first quarter of fiscal year 2018 ended June 30, 2017, was $3.6 million, or $0.14 per diluted share, which was an increase of $9.1 million compared with a net loss of $5.5 million, or $0.40 per diluted share for the first quarter of fiscal year 2017.

Segment operating income was $6.1 million for the first quarter of fiscal year 2018, up $14.3 million compared to same period last year, mainly from improvements in the Other Regions segment, partially offset by declines in the North America and other tobacco operations segments.

Revenues of $284.6 million for the quarter decreased by 4% on lower total volumes and a less favorable product mix.

Benefits from net currency remeasurement and exchange gain compared with losses in the prior year's first fiscal quarter, and the earlier receipt of distributions from unconsolidated subsidiaries, positively impacted our results, primarily in the Other Regions segment.

In addition, crop levels in Brazil have fully recovered from last season's crop decline, increasing our volumes purchased and processed there and improving factory unit cost, while results for our North American segment declined for the first fiscal quarter when compared to last year's stronger carryover shipment volumes.

Moving to the segment detail.

The Other Regions segment operating income of $4.1 million for the quarter was up $21.1 million compared with the prior year's first fiscal quarter operating loss of $17 million on improved results in every region.

The improvement was heavily influenced by lower selling, general and administrative costs, largely from net foreign currency remeasurement and exchange gains in the first quarter of fiscal year 2018 compared with losses incurred in the first quarter of fiscal year 2017, mainly in Africa.

This segment also benefited from the earlier receipt of distributions from unconsolidated subsidiaries.

In South America, volumes were down slightly in the first fiscal quarter, given larger sales volumes of prior crops in fiscal year 2017's first quarter.

However, recovery of current crop production levels in Brazil has increased processing revenues and reduced factory unit cost as a result of higher total volumes handled there.

Despite weaker volumes, results for Asia benefited from a more favorable sales mix and lower currency remeasurement losses in the Philippines.

Operating income for the North America segment for the quarter ended June 30, 2017, was $2.4 million, down $4.5 million from the comparable prior year period, mainly on lower sales volume.

The earnings decline reflected reduced volumes shipped in the first quarter of fiscal year 2018, primarily due to larger prior crop carryover sales in the first fiscal quarter last year.

In addition, some offshore current crop shipments have been delayed into this year's second fiscal quarter.

The Other Tobacco Operations segment operating loss of $300,00 for the first fiscal quarter reflected a decline of about $2.3 million compared with operating income of $2 million in the same period last year.

Results for the dark tobacco operations were down for the quarter, largely due to lower volumes and a less favorable product mix in Indonesia.

The Oriental joint venture reported slightly lower results for its seasonally weak first fiscal quarter of 2018 compared to the prior year from a less favorable sales mix as well as negative currency remeasurement variances.

Operating results for the special services group were flat compared with the prior year's first fiscal quarter.

Looking forward, crop purchases are essentially complete in Brazil and are progressing well in Africa.

Overall, crop qualities are good.

We expect to increase volumes in Brazil to continue to positively affect earnings throughout this fiscal year.

At the same time, greater reductions than expected in burley crop sizes in Africa, and continued challenging market conditions in Tanzania will reduce our volumes sold from that region.

We are currently forecasting worldwide burley tobacco production levels for fiscal year 2018 of about 510 million kilos, which is a reduction of approximately 13% from fiscal year 2017 levels.

As a result, we believe that demand for burley tobacco may slightly exceed supply.

Although it's still early in the season, customer orders are progressing as anticipated, and our uncommitted stock levels are well within our target range of 17%.

We remain actively engaged with our customers, developing additional opportunities to reduce sourcing complexities, improved supply chain efficiency and offer expanded services to support current and next-generation products.

At this time, we are available to take your questions.

(Operator Instructions) And we do have a question from Ann Gurkin.

Wanted to start with the burley crop, and I know you made a statement overall crop qualities are good.

Does that mean the quality of the crop is good for burley?

Just want to make sure that transfers over to that.

Yes, generally across the board, good crop quality.

Generally, across the board.

Okay.

And then are going to have higher costs for processing that burley because of the reduced volume now?

Well.

Yes, higher unit cost, for sure.

I mean, with less throughput through the factory.

Great.

All right.

And then if you can help me reconcile the statements between last press release and this one.

And I realize you can't get a lot detail, but if you can help at all with any insight.

You talked about too early to determine additional purchases by customers in fiscal '17 may impact their requirements in fiscal '18, that's what you said last quarter.

And then this time you say the purchases are essentially complete and I think they were as anticipated -- progressing as anticipated.

Can you just give me other -- any other insight into those 2 statements?

Yes.

I think when you look at, let's call it, Southern Africa burley, I think the crops are a bit short.

But I think the fact that people took advantage of the big crop last year and maybe bought some additional, and it's kind of making the shortage -- current shortage of burley sort of much more manageable.

Okay.

So that references more burley.

Or is that total purchases?

It's more burley.

It's burley, yes.

Okay, that's great.

That helps a lot.

Okay.

And then I know SG&A was down reflecting the currency remeasurement, but can other opportunities to reduce SG&A fiscal '18 versus fiscal '17?

I ask this every year.

Yes.

I mean, Ann, we always strive to respond to become more efficient.

That is true.

And of course, the chunkiness that we see, the situation with the currency, as we mentioned, was sort of a positive benefit this year compared with the negative benefit last year, which, overall, was a larger swing.

So there's definitely going to be that piece that's in there compared with the prior year.

Yes, that the biggest thing because of the dollar currency.

I agree.

But stripping that currency out, are there opportunities still in there, sorry?

I don't see major other than currency.

I don't see...

Major drivers, no.

Okay, that's great.

Do you all have any comments related to the FDA's announcement last week?

Anything you've learned?

Any insights you want to share?

I mean, I'll give you my opinion and that is that I am encouraged by it because I think it's a sign that we're going to see a regulatory regime based on science and less on emotion.

And I think that's always a good thing, so I'm encouraged.

And what are you hearing for -- in terms of like a time line?

Do you think it's like a multiyear process?

Do you have anything (inaudible) .

I think as all things involved with FDA, I think we're talking years and years.

I think this -- the regulations are just beginning to be developed, so it's kind of early to say when and the timing it will have on us.

But from our standpoint because we're specialists in tobacco, and we have research and development facilities, we're going to just continue to work closely with our customers on meeting their needs for the next-generation products, so it fits in with our abilities just fine.

And if there is a continuum of risk put out there or some kind of framework introduced, how are you thinking about positioning Universal to operate in that kind of environment?

Well, I mean -- I think I would just repeat what I just said.

There's definitely opportunities when you're looking at whatever the products that the customers need.

There's certainly an element within chemistries and ability to do research and development and provide whatever they need in terms of the sourcing for their new products.

And we are and will continue to work with them on -- to be a supplier for those reduced risk products.

Are you supplying the heat-not-burn technology right now?

We won't get into the details, but we do -- we are working with our customers on their next-generation products for sure.

And we were the leading leaf tobacco supplier in the world.

Fantastic.

And then I have one last question.

Can I just get an update on your ingredient business?

The ingredient business is moving along, continues to be a minor element in our business.

And that whole special services group was basically flat for the year, but it's in a start-up mode for sure, continuing.

And your next question comes from Steve Marascia.

Just -- actually, Ann asked 2 of the questions I was going ask.

But I've got a couple more for you.

Following up on the SG&A, did you say basically that the reduction in SG&A was basically currency driven and going forward for the next -- sequentially forward through the next 3, 4 quarters, SG&A is going to be dependent upon currency movements or levels of currency movements?

The delta.

No.

Yes, I wouldn't say it quite that way.

So let me be clear on what I meant.

What she was asking about was SG&A in total and sort of year-over-year comparisons.

What I was pointing out is that a large part of the SG&A reduction that we pointed to had to do with beneficial currency movements or gains and those net positions this year versus last quarter.

First quarter last year were losses.

So that is an element of variance that we know now is in Q1.

We really can't make a prediction about what will happen with currencies going forward, and we know, we don't try to add that.

Okay.

And the other question was you guys had a pretty nice bump-up in your interest income.

What produced that?

We did have some larger cash balances this year.

And I think interest rates are a tiny bit better.

It's not a major part of our cash movement, but I believe that, that's a part of it.

And there are some other operating elements that often fall into that line item as well, still relatively minor, but always beneficial when it's going the right direction.

And we have no further question at this time.

Very good.

Well, thank you all for joining us.

We'll talk to you next time.

This concludes today's conference call.

You may now disconnect.