Universal Managing Well in Oversupply Situation

Source from:  Tobacco Reporter 02/09/2012

In reporting Universal Corp's latest results, George C. Freeman, III, chairman, president, and CEO, said that he was pleased with the company's strong third quarter performance, which had stemmed from the successful management of its business in this year's oversupply situation. "We are working closely with customers, both old and new, to meet their requirements, and we are carefully monitoring our commitments for the upcoming crop cycle," he said. "Recent fiscal quarters reflected a slower start to the buying seasons in Brazil and Malawi, but we believe that we are back on track with shipment timing in most origins. "Green prices have generally declined, as we expected. "Although we continue to deal with the previously anticipated effects of the decreased processing volumes in North America and the challenging markets in our oriental and dark tobacco operations, impacts from the global oversupply have been moderate…" Freeman then looked to the future. "Although it is too early to report specifically about the coming crop season, we continue to expect this year's oversupply situation to influence pricing and margins into the next fiscal year," he said. "At the same time, we do anticipate that crop sizes will come down in many of our growing regions during the next year, which could mitigate those pressures, and markets for some grades may be tightening. "Our customers continue to signal their desire for high quality, compliant tobacco, which has always been our core strength. "I am excited about our prospects for the future as we continue to develop our plans and programs to support stable supplier markets, enhance production efficiencies, and improve sustainable tobacco production." Universal reported net income for the third quarter of fiscal year 2012, which ended on December 31, of $58.5 million, or $2.06 per diluted share, about 12 per cent above its net income of $52.3 million, or $1.82 per diluted share, for the three months to the end of December 2010. These results were said to have included the effect of several 'unusual items' - largely related to asset sales - that amounted to net pre-tax benefits of $10.7 million ($0.25 per diluted share) for the third quarter of fiscal year 2012 and $8.4 million ($0.18 per diluted share) for the third quarter of fiscal 2011. Segment operating income, which excludes those unusual items, increased by $5.6 million to $83.4 million as improved performance in the company's Other Regions segment outweighed declines in the North America and the Other Tobacco Operations segments. Revenues for the quarter of $672 million were down by about two per cent, reflecting lower leaf prices on higher volumes. For the nine months ended December 31, 2011, net income, at $66.3 million, or $2.34 per diluted share, included the effect of the charge in the second fiscal quarter relating to a European Commission fine. That charge and other unusual items amounted to a net pre-tax charge of $38.6 million ($1.39 per diluted share) for the nine-month period. In the nine months to the end of December 2011, net income, at $129.4 million, or $4.46 per diluted share, also included unusual items amounting to a net benefit of $12.8 million ($0.28 per diluted share). Segment operating income declined by $21.8 million during the nine-month period to the end of December 2011, compared with that of the nine months to the end of December 2010.The latest results included the first quarter impact from last year's assignment of Brazilian farmer contracts to Philip Morris International and a portion of the decline in processing volumes in the company's North America segment, as well as reduced volumes and margins in the Other Tobacco operations segment. Operating results in this period included $12 million in dividend income from unconsolidated subsidiaries. Consolidated revenues fell by five per cent to $1.8 billion for the nine months to the end of December 2011, in part due to lower leaf prices on higher shipments, and in part because toll processing volumes replaced a portion of leaf sales to PMI as a result of the contract assignments last year. Enditem