Universal Q4 2023 Earnings Report

Universal EPS Results

• Actual EPS: $0.97
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Universal Revenue Results

• Actual Revenue: $693.98 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Universal Announcement Details

• Quarter: Q4 2023
• Date: 5/24/2023
• Time: N/A
• Conference Call Date: Wednesday, May 24, 2023
• Conference Call Time: 5:00PM ET

Universal (NYSE:UVV) processes and supplies leaf tobacco and plant-based ingredients worldwide. The company operates through two segments, Tobacco Operations; and Ingredients Operations. It is involved in the procuring, financing, processing, packing, storing, and shipping leaf tobacco for sale to manufacturers of consumer tobacco products. The company contracts, purchases, processes, and sells flue-cured, burley, and oriental tobaccos that are primarily used in the manufacture of cigarettes; and dark air-cured tobaccos principally used in the manufacture of cigars, natural wrapped cigars and cigarillos, smokeless, and pipe tobacco products. It also provides value-added services, including blending, chemical, and physical testing of tobacco; service cutting for various manufacturers; manufacturing reconstituted leaf tobacco; just-in-time inventory management services; electronic nicotine delivery systems; and smoke testing services for customers. In addition, the company offers testing services for crop protection agents and tobacco constituents in seed, leaf, and finished products, including e-cigarette liquids and vapors; and analytical services that include chemical compound testing in finished tobacco products and mainstream smoke. Further, it provides a various value-added manufacturing processes to produce specialty vegetable and fruit-based ingredients, as well as botanical extracts and flavorings for human and pet food markets; and recycles waste materials from tobacco production. Universal Corporation was founded in 1886 and is headquartered in Richmond, Virginia.

Universal Q4 2023 Earnings Call Transcript

[Operator]

Afternoon, and thank you for attending today's Universal Corporation 4th Quarter and Fiscal Year 2023 Earnings Conference Call.

[Speaker 1]

My name is Danielle, and I will be

[Operator]

the moderator for today's call. And answers at the end. It is now my pleasure to pass the conference over to our host, Jennifer Rowe, Assistant Vice President. Jennifer, the floor is yours.

[Speaker 2]

Thank you for joining us. George Freeman, our Chairman, President and CEO Hi, Erichten Henschke, our Chief Operating Officer and Johan Kroner, our Chief Financial Officer are here with me today and will join me in 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 24, 2023. Other than the replay, we have not authorized and disclaim responsibility for any recording, replay or distribution of any transcription of this call. The call is copyrighted and may not be used without our permission.

[Speaker 2]

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 representatives 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 ks for the year ended March 31, 2022, as well as our Form 10 ks for the fiscal year ended March 31, 2023, which we expect to file later this week. Such risks and uncertainties include, but are not limited to, impacts of the COVID-nineteen pandemic, customer mandated timing of shipments, weather conditions, political and economic environment, government regulation and taxation, changes in exchange rates and interest rates, industry consolidation and evolution and changes in market structure or sources. Finally, some of the information I have Today is based on unaudited EBITDA allocations and is subject to reclassifications.

[Speaker 2]

In an effort to provide useful information to investors, Our comments today may include non GAAP financial measures. For details of these measures, including reconciliations to the most comparable GAAP measures, Please refer to our current earnings press release. Fiscal year 2023 was a good year for Universal. Tobacco shipments were strong as logistical constraints eased in fiscal year 2023. And despite tight tobacco supply conditions, we were able to secure the leaf tobacco needed by our customers.

[Speaker 2]

Our plant based ingredients platform continued to perform well, and we are excited about our progress in integrating our ingredients companies and executing on our strategies. During fiscal year 2020 3, we enhanced and increased the scope of our platform by adding sales and research and development resources. And we recently announced plans to expand our plant based ingredient platform's manufacturing capabilities. Our operating income and net income for fiscal year 2023 were up 13% 43%, respectively, compared to fiscal year 2022, in part due to higher tobacco shipments and sales volumes. Our results for fiscal year 2023 and the quarter ended March 31, 2023 included a favorable final ruling on a legal case involving 1 of our subsidiaries in Brazil regarding the exclusion of certain tax credits on exported goods and the calculation of taxable income.

[Speaker 2]

As a result of the favorable ruling, we recognized $5,000,000 of interest income and a $24,200,000 net income tax benefit in the quarter ended March 31, 2023. Some financial highlights for fiscal year 2023. Net income for fiscal year 2023 was $124,100,000 or $4.97 per diluted share. Excluding certain non recurring items detailed in today's press release, net income and diluted earnings per share decreased 5 point $2,000,000 or $0.02 per diluted share, respectively, for fiscal year 2023 compared to fiscal year 2022. Operating income for fiscal year 2023 was $181,100,000 Excluding certain non recurring items detailed in our earnings press release, operating income increased by $7,500,000 for fiscal year 2023 compared to fiscal year 2022.

[Speaker 2]

Segment operating income for our tobacco operations segment was up $15,100,000 while segment operating income for the Ingredients Operations segment was down $6,000,000 for fiscal year 2023 compared to fiscal year 2022. Selling, general and administrative expenses were up $36,500,000 in fiscal year 2023 compared to Fiscal year 2022. Some financial highlights for the quarter ended March 31, 2023. Net income was $53,700,000 or $2.15 per diluted share. Excluding certain non recurring items detailed in our earnings press release, net income and diluted earnings per share decreased by $1,300,000 and $0.06 per diluted share, respectively, compared to the quarter ended March 31, 2022.

[Speaker 2]

Operating income in the quarter ended March 31, 2023 decreased by $4,700,000 compared to the quarter ended March 31, 2022. We were pleased to see a return to more normal shipping conditions, particularly for tobacco operations in fiscal year 2023. Due to this improved logistical environment, we were able to ship a large amount of carryover Tobacco from prior crops, notably from Brazil. Some of the tobacco shipped in fiscal year 2023 with lower margin tobacco due to sales mix and sales of tobacco written down in prior quarters. However, operating income for our tobacco operations segment was up about 10% in fiscal year 2023 compared to fiscal year 2022, largely on higher tobacco shipments.

[Speaker 2]

Results for our tobacco operations segment were also up in the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022, as lower tobacco inventory write downs offset slightly lower tobacco sales volumes. Tobacco supply was tight for virtually all types of tobacco in fiscal year 2023 and African burley crops were particularly small largely due to weather conditions. Our uncommitted tobacco inventory levels remained low at 11% of tobacco inventory as of March 31, 2023. Both worldwide fluke cured and burley tobacco crops to be grown in our fiscal year 2024 are forecast to be larger than those produced in our fiscal year 2023, but we still expect flue cured and burley Tobacco marketing season is underway in Brazil and the Brazilian flue cured Crop is larger than the crop produced in our fiscal year 2023. We are carefully monitoring the burley crops in Africa where above average rainfall Was received in some of our key growing areas even before Cyclone Freddie arrived.

[Speaker 2]

Although weather has reduced, Burley crop sizes, especially in Mozambique, we are still forecasting that fiscal year 2024 African burley crops will be larger compared to those grown in our fiscal year 2020. While gross margins for the Ingredients operations segment were flat for the Fiscal year 2023 compared to fiscal year 2022, operating income for our Ingredients Operations segment was lower In the fiscal year quarter ended March 31, 2023, on higher costs related to an increase in corporate overhead allocation and the expansion of sales and product development capabilities as well as some softening of demand and margin pressures from our customers during the second half of fiscal year twenty twenty three. We believe that the softening in demand And margin pressures are temporary and related to our customers adjusting their inventories to reflect both current supply chain conditions and inflationary pricing pressures on the end consumer. We are continuing to enhance and increase the capabilities of our plant based ingredients platform and have made considerable progress on our vision for the segment, providing a total solution based approach for our customers that utilizes our broad spectrum of capabilities in fruits, vegetables and botanical extracts and flavoring. Returning value to our shareholders in our operations remains an important priority for Universal.

[Speaker 2]

We were very pleased to announce our 53rd annual common dividend increase today, continuing our commitment to deliver shareholder value. We also achieved important milestones in our sustainability efforts during fiscal year 2023. Notably, we are proud to have substantially met 2022 supply chain goals outlined in our sustainability report. For example, we provide access to personal protective equipment to our contracted farmers and their workers. In addition, we were named a supplier engagement leader by CDP for the 2nd consecutive year, earning recognition for our work in engaging our suppliers on climate change.

[Speaker 2]

We are excited about the opportunities within our operations to improve our environmental performance and look forward to continuing to achieve our sustainability goals in fiscal year 2024. At this time, we are available to take your questions.

[Operator]

As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes from the line of Ann Gurkin of Davenport. You may proceed.

[Speaker 3]

Good evening, everybody. Congratulations on the ruling in Brazil. That is nice to see.

[Operator]

Thank you.

[Speaker 3]

If I could ask a question starting with the tobacco segment. So sales were stronger than we were looking for. Margin was lower, I think reflecting mix in the carryover of lower margin tobacco. Two questions on the tobacco segment. How do I think about Sales for fiscal 2024, was there some pull forward in volume or sales into fiscal 2023 from fiscal 2024 from customers due to Concerns about security of supply.

[Speaker 3]

And then second, how do I think about the margin progression for tobacco, if you can help me at all for fiscal

[Speaker 4]

24. What we have seen is, as it was stated, we see increased Crop size out there for this fiscal year 2024 and that applies for flue cured and barley. What we are seeing also is Firm demand and good indications from our customers. So this is what we can say about the volume side.

[Speaker 1]

Yes. The other thing, of course, Anne, with regard to 2023, again, we brought in a lot of carryover tobaccos into fiscal Those carryovers do not exist for 2024, so we didn't really pull anything forward, okay? With regard to the margins, again, 2023 was hurt because of the write downs that we took earlier in the year as well as in fiscal year 2022. So we do expect improved margins, but it's very early in the season. So hopefully that will come to fruition.

[Speaker 3]

Okay. So it was my understanding that there was some pull forward in customer orders over concerns about the macro tightness of tobacco leaf. So I I was just worried some of that volume from 2024 has shifted into 23. Did I conclude?

[Speaker 1]

There was just very little To do that anyway, but at the end of the day, yes, we are shipping it certainly if we have it, but we don't have it.

[Speaker 3]

Okay, great. Switching to the plant based or ingredient segment. I go back to my question, why are you in this business when you had a $6,000,000 decline in operating profit? You had a margin that came in way below expectations. I know you outlined cost and you outlined customer order patterns, you outlined allocation or hiring sales folks, but That volatility, why are you taking up volatility in your business at this stage?

[Speaker 1]

And again, the margins were stable. The gross margins were stable as compared to

[Speaker 3]

the prior year. Not operating margins at all.

[Speaker 1]

Excuse me?

[Speaker 3]

Gross maybe, but not operating margins.

[Speaker 1]

Because you're you're look you are looking at segment operating income, correct? And secondly, operating income includes corporate overhead allocation. So there is a piece in there That relates to corporate overhead. In addition, we have laid out previously that we are growing and trying to build that business. So we're actually incurring some costs associated with sales and R and D efforts that we're going through That will add cost, but you don't see the benefit of those yet.

[Speaker 1]

But that's just part of building that platform. We are actually Very excited about what's going on there, okay? We just announced the expansion that we're doing in Lancaster, Pennsylvania, And we are on our way to achieving the goals that we have set for ourselves. So yes, it's down by $6,000,000 But keep in mind, the total Segment operating income for the organization was up by $9,000,000 okay? So keep in mind that the corporate overhead Fees is a portion of that and that's why some of that thing, yes, it looks very large, but that's just the way it is.

[Speaker 3]

So going forward, how do I model margins? I mean, I don't it was down it was weaker at the beginning of the fiscal year, then it seemed to get a little bit better mid year and now it seems to be worse at the end of the year. So I don't know how to model this going forward. You got to give us some more information.

[Speaker 1]

Well, again, The margins are very good for what we're doing. Yes, there is certainly pushback currently on those margins, Okay. But we are seeing pickup in certain segments of the business. And again, the margins Our staple has compared to the prior year. So we are not at all worried about that piece of the business.

[Speaker 1]

We need to grow it and we understand that. Now what you do with regard to your model, yes, that's difficult because at the end of the day that corporate overhead piece, You'll never ever be able to figure that out, but that's just part of the total.

[Speaker 3]

So can you get to an operating margin that I can capture In the high single digit range including that corporate overhead, can you get back to that number, mid to high single digits, 5%, 6%, 7%?

[Speaker 1]

I can't tell you that at this point in time, and again, I don't think

[Speaker 3]

you're going to look at that way.

[Speaker 1]

Because we in 2018, we did a strategic, we made a strategic decision To diversify and we strongly believe in what we have Started at that point in time, we have spent quite a bit of money, but you can't Just look at this in isolation, you have to see it as a total. And this is a journey and we need to spend some money to grow this thing and that's just the way it is. Again, the margins are very positive, Okay. From a corporate allocation overhead, you could put that corporate allocation also the tobacco business if that's where it was in the past. So again, that's the way the U.

[Speaker 1]

S. GAAP rules work.

[Speaker 3]

Okay. And then can you give me a CapEx number for fiscal 2024? It looks like fiscal 2023 was a little bit below your target range. Was that a timing of projects or is there something else And then what's the number to use for 2024?

[Speaker 1]

Yes. That's certainly what we thought it was going to be slightly higher. For 2024, we're between $65,000,000 $75,000,000

[Speaker 3]

Okay. And SG and A number for fiscal 2024 is 277 for fiscal 2023. Should we use that number or take it up because you're investing in the business?

[Speaker 1]

Well, if you go back a couple of years and you go pre COVID and all that, we were around that same number. So it's in the ballpark. But yes, we are spending some additional monies and inflationary pressures are everywhere. So people make more money and this is the way it is. So it's probably will go up slightly, but we're looking in that same range at the moment.

[Speaker 3]

Okay, great. And then it looks like there's a 5 year term loan coming due in December of 2023. Can you comment on how you're going to approach that?

[Speaker 1]

No, we refinanced all that Anne in December.

[Speaker 3]

Are you dead? Are you dead? So that's why we financed. Okay. Great.

[Speaker 3]

I'll just take that.

[Speaker 1]

That's great. Okay.

[Speaker 3]

And then Jennifer, do

[Speaker 1]

you have a No, no one coming due until I think 50 or 28.

[Speaker 3]

Fantastic. Good news. Okay. And an uncommitted worldwide leaf number, Jennifer, do you have that?

[Speaker 2]

Sure. It's 17,000,000 kilos as of March 31, it's down 30 from December's number.

[Speaker 3]

That's great. Thank you all so much. Thanks a lot.