Universal Corporation Reports First Quarter Results

Source from:  PRNewswire 08/05/2016

George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), reported a net loss of $5.5 million, or $0.40 per diluted share, for the first quarter of fiscal year 2017, which ended on June 30, 2016. Those results were relatively flat compared with a net loss of $5.9 million, or a $0.43 per diluted share, for the first quarter of fiscal year 2016. Results for the first fiscal quarter of 2016 included restructuring costs of $2.4 million ($1.6 million after-tax or $0.07 per diluted share). Operating loss of $8.0 million for the quarter ended June 30, 2016, was down $2.7 million compared to the quarter ended June 30, 2015. Segment operating loss, which excludes restructuring costs, was $8.1 million for the first fiscal quarter of 2017, down $4.6 million compared to the same period last year, mainly as a result of larger losses in the Other Regions segment, partially offset by earnings improvements in the North America segment. Gross margin percentages were flat for the comparative quarters with higher selling, general, and administrative costs, primarily from larger currency remeasurement and exchange losses, contributing to the earnings decline. Revenues of $295.5 million for the quarter ended June 30, 2016, increased by $20.1 million on modestly higher total volumes, mostly driven by the change in leaf supply arrangements in the North America region announced last year.

Mr. Freeman stated, "Our seasonally weak first quarter results were in line with our expectations, as we anticipate that fiscal year 2017 will develop similarly to the past several fiscal years, with volumes weighted to the second half of the fiscal year. Results for our North America segment improved on increased volumes, largely due to carryover shipments from changes in the business model there. However, higher currency remeasurement and exchange losses, primarily in our Other Regions segment, negatively impacted our results. Lower crop levels in Brazil from El Nino weather patterns, coupled with our decision to reduce our buying program there due to escalating and unsustainable green leaf prices, reduced our Brazilian purchasing and processing volumes in the first fiscal quarter. We expect decreased volumes from that origin to continue to affect our results throughout the fiscal year. Our global leaf production estimates indicate a return to historical crop levels in Brazil's 2017 growing season, for which plantings are currently underway.

"With the lower 2016 crop levels, we believe that supply of flue-cured and burley tobaccos is largely in line with demand on a global basis. However, inventories held by our customers and the leaf quality and pricing of crops yet to come to market may influence near-term demand for leaf tobacco and the desirability of certain types and styles. It is still early in the season, but customer orders and indications to date remain consistent with our expectations. We currently anticipate that our volumes sold in fiscal year 2017 will be lower than those in the prior fiscal year mainly due to reduced Brazilian volumes, and that shipment timing will again be weighted to the second half of the fiscal year. We are continuing to carefully monitor crop purchases this season, and our uncommitted inventories remain within our normal range.

"We also recently announced that we have discontinued processing in our factory in Hungary and will concentrate the future processing of Hungarian tobaccos in our facilities in Italy. The decision was not taken lightly, and we are grateful to our hardworking employees who have supported us in that operation for many years. This change will yield economies of scale for our Europe region and is another example of our continual drive to achieve supply chain efficiencies that deliver value to the industry."

FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:

OTHER REGIONS:

The Other Regions segment reported an operating loss of $17.0 million for the quarter ended June 30, 2016, compared with the prior year's first fiscal quarter loss of $7.8 million. The decline was primarily a result of higher selling, general and administrative costs, mostly from larger foreign currency remeasurement and exchange losses in Africa and South America. Although sales volumes increased in South America from sales of prior crops, margins were pressured by higher factory unit costs resulting from significantly lower total volumes handled in Brazil. Sales volumes were down in Africa, in its seasonally low first fiscal quarter, on comparisons to larger carryover crop sales in Tanzania last year. Results were weaker in Asia on customer shipment timing comparisons and a less favorable product mix, while Europe saw improved volumes in its sheet tobacco operations. Revenues for the Other Regions segment of $178.0 million were relatively flat compared to the same period last year, as higher volumes in most regions were offset by reduced volumes in Africa, as well as lower processing revenues in Brazil.

NORTH AMERICA:

Operating income of $6.8 million for the North America segment in the quarter ended June 30, 2016, was up $3.4 million compared to last year's first fiscal quarter. Earnings were buoyed by stronger sales volumes, due in part to carryover crop sales from the previously announced changes in leaf supply arrangements, as well as positive comparisons from the earlier timing of earnings recognition as a result of acquiring full ownership of our processing facility in Guatemala in the third fiscal quarter of 2016. Selling, general, and administrative costs for the North America segment were higher, moderating those benefits. Revenues for this segment similarly increased by $24.1 million to $72.7 million on the higher volumes, partly reduced by lower green leaf prices.

OTHER TOBACCO OPERATIONS:

The Other Tobacco Operations segment operating income for the first quarter of fiscal year 2017 of $2.0 million improved $1.1 million compared with the same period last year. Results for the dark tobacco operations improved for the quarter, on completion of previously delayed shipments in Indonesia and an absence of inventory writedowns in Nicaragua this year compared with the prior year. The oriental joint venture reported better results for the quarter mainly from favorable comparisons to the prior year's currency remeasurement losses. Operating results for the Special Services group were flat compared with the prior year's first fiscal quarter. Revenues for this segment in the quarter ended June 30, 2016, decreased by about 9% to $44.8 million mostly due to the volume declines in the dark tobacco business, and lower overall lamina and wrapper prices. Selling, general, and administrative costs for the segment were flat compared with the prior year quarter.

OTHER ITEMS:

Cost of goods sold was up by about 7% to $243.3 million in the quarter ended June 30, 2016, compared with the same period last year, in line with the similar percentage increase in revenues for the period. Selling, general, and administrative costs for the first fiscal quarter increased by $8.9 million to $60.2 million on higher foreign currency remeasurement and exchange losses in the current fiscal period compared with the prior year, largely in the Africa and South America regions, and unfavorable comparisons to reversals of provisions for suppliers and customers made in last year's first fiscal quarter.

A recently-issued accounting change adopted in the first fiscal quarter of 2017 affected our long-term debt balances, which are now recorded on the balance sheet net of the remaining unamortized debt issuance costs. Interest expense of $4.1 million for the first fiscal quarter of 2017 was up slightly from $3.9 million in the same period last year. The consolidated income tax rate was about 37% and 36% for the first quarters of fiscal years 2017 and 2016, respectively, which is comparable to the U.S. federal statutory rate of 35%. Enditem