Universal Corporation (NYSE:UVV) Q3 2023 Earnings Call Transcript
Universal Corporation (NYSE:UVV) Q3 2023 Earnings Call Transcript February 8, 2023
Operator: Good afternoon. Thank you for attending today's Universal Corporation Third Quarter Fiscal Year 2023 Earnings Call. My name is Meghan, and I'll be your moderator for today's call. I would now like to pass the conference over to Candace Formacek, Vice President and Treasurer. Candace, please go ahead.
Candace Formacek: Thank you, Meghan, and thank you all for joining us today. George Freeman, our Chairman, President and CEO; Airton Hentschke, our Chief Operating Officer; and Johan Kroner, 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 May 8, 2023. Other than a 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, 2022, as well as our Form 10-Q for the quarter ended December 31, 2022. Such risks and uncertainties include, but are not limited to, the ongoing COVID-19 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 resources. 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. We are extremely pleased with our results driven by strong tobacco shipments in the nine months and quarter ended December 31, 2022, compared to the same periods in fiscal year 2022. Tobacco shipments are generally moving smoothly, and we are not seeing logistical constraints that we saw in the prior fiscal year. Our Ingredients Operations segment also continued to positively contribute to and diversify our results in the nine months and quarter ended December 31, 2022. There continues to be significant demand for leaf tobacco with all types of leaf tobacco currently in an undersupplied position.
Short burley tobacco crops in Africa, largely due to weather conditions have contributed to the lower leaf tobacco supply. As of December 31, 2022, our uncommitted inventory levels stood at less than 7% of our tobacco inventory, an exceptionally low level. Although it is still early, we are forecasting larger crops in several key tobacco origins in fiscal year 2024. In our Ingredients Operations segment, we recently have been experiencing some softening of demand for some of our ingredients products, which we believe is temporary and largely due to customers adjusting their inventory levels. Some of our ingredients customers have been carrying higher inventory levels because of supply chain uncertainties. Increased costs, particularly selling, general and administrative expenses, including costs related to the expansion of sales and product development resources and deferred compensation costs from acquisitions reduced our results for our Ingredients Operations segment in the quarter and 9 months ended December 31, 2022.
We remain excited about the long-term outlook for our ingredients businesses and continue to make significant capital investments to enhance and increase the capabilities of our plant-based ingredients platform. We are ahead of achieving some of the earlier identified operational synergies across the platform and making considerable progress on our vision for this segment. As announced on February 1, 2023, we have appointed a new director with extensive experience in the ingredients and value-added supplier space to our corporate Board of Directors to assist us as we continue to promote and expand this business. Turning to the results. Net income for the nine months ended December 31, 2022, was $70.3 million or $2.82 per diluted share compared with $60.8 million or $2.44 per diluted share for the nine months ended December 31, 2021.
Excluding certain nonrecurring items detailed in today's earnings release, net income and diluted earnings per share increased by $1.1 million and $0.04, respectively, for the nine months ended December 31, 2022, compared to the nine months ended December 31, 2021. Adjusted operating income, also detailed in today's earnings release, of $128.7 million increased by $12.2 million for the nine months ended December 31, 2022, compared to adjusted operating income of $116.5 million for the nine months ended December 31, 2021. Net income for the quarter ended December 31, 2022, was $41.7 million or $1.67 per diluted share compared with $34.9 million or $1.40 per diluted share for the quarter ended December 31, 2021. Excluding certain nonrecurring items detailed in today's earnings release, net income and diluted earnings per share decreased by $3.1 million and $0.13, respectively, for the quarter ended December 31, 2022, compared to the quarter ended December 31, 2021.
Photo by Louis Hansel on Unsplash
Adjusted operating income, also detailed in today's earnings release, of $77.5 million increased by $2.7 million for the third quarter of fiscal year 2023 compared to adjusted operating income of $74.9 million for the third quarter of fiscal year 2022. Consolidated revenues increased by $419.2 million to $1.9 billion for the nine months ended December 31, 2022, compared to the same period in fiscal year 2022, on higher tobacco sales volumes and prices, as well as the addition of the business acquired in October 2021 in the Ingredients Operations segment. For the quarter ended December 31, 2022, consolidated revenues were $795 million, an increase of $142.4 million compared to $652.6 million for the quarter ended December 31, 2021, on higher tobacco sales volumes and prices.
Turning to the segment detail. Tobacco Operations. Operating income for the Tobacco Operations segment increased by $13.4 million to $119 million and by $7.3 million to $77.1 million, respectively, for the nine months and quarter ended December 31, 2022, compared to the same periods in the prior fiscal year. Tobacco Operations segment results improved primarily due to large shipments of both carryover and current crop tobacco. While sales volumes were higher in the Tobacco Operations segment in the nine months and quarter ended December 31, 2022, compared to the same periods in the prior fiscal year, margins were lower due to sales mix and sales of tobaccos that were written down in prior quarters. Tobacco shipments from Brazil of both carryover and current crops were up significantly in the nine months and quarter ended December 31, 2022, compared to the same periods in the previous fiscal year.
In Africa, despite some lower burley tobacco crop sizes, Tobacco sales volumes were up due to earlier shipment timing in the nine months and quarter ended December 31, 2022, compared to the same periods in fiscal year 2022. Results for our oriental tobacco joint venture were down in the nine months and quarter ended December 31, 2022, compared to the same periods in the prior fiscal year, on lower sales volumes and unfavorable foreign currency comparisons. Selling, general and administrative expenses for the Tobacco Operations segment were higher in the nine months ended December 31, 2022, compared to the nine months ended December 31, 2021, primarily due to unfavorable foreign currency comparisons, higher provisions to suppliers and higher compensation costs.
For the quarter ended December 31, 2022, selling, general and administrative expenses for the Tobacco Operations segment were higher compared to the quarter ended December 31, 2021, largely due to higher compensation costs and larger provisions to suppliers in part due to lower crop yields, partially offset by favorable foreign exchange comparisons. Moving to the Ingredients Operations. Operating income for the Ingredients Operations segment was $9.9 million for the nine months ended December 31, 2022, compared to $10.6 million for the nine months ended December 31, 2021, as benefits from increased sales, better margins and the inclusion of the October 2021 purchase of Shank's Extract, LLC were offset by increased costs, mainly higher selling, general and administrative expenses.
Operating income for the segment was $0.8 million for the quarter ended December 31, 2022, compared to $3.5 million for the quarter ended December 31, 2021, on lower sales, particularly lower sales of extracts and higher costs. Selling, general and administrative expenses for the segment increased in the nine months and quarter ended December 31, 2022, compared to the same periods in the prior fiscal year, largely on higher compensation costs including final deferred compensation costs from acquisitions as well as costs related to the expansion of sales and product development capabilities of our plant-based ingredients platform. In Other Items, we successfully refinanced and expanded our bank credit facility in the quarter ended December 31, 2022, positioning us to meet our future financial needs.
In line with our previous expectations, we also reduced our outstanding borrowings considerably in the three months ended December 31, 2022, as we moved beyond our peak working capital requirements for fiscal year 2023. Also, our fiscal year 2022 Sustainability Report was published in December 2022 and is available on our website, www.universalcorp.com. Sustainability is an essential pillar of our business at Universal. We are committed to disclosing our operational activities as well as our sustainability performance in a consistent and transparent manner. We are excited about our sustainability achievements and the new and updated information and disclosures contained in our 2022 Sustainability Report. At this time, we're available to take your questions.
Meghan, I'll turn it back to you.
See also 11 Best American Oil Stocks To Buy and 15 Mormon Owned Companies and Stocks.
To continue reading the Q&A session, please click here.
