Q3 2020 Earnings Call
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Ladies and tell me they just the operators did each country just scheduled to begin momentarily until that time your lines will again be placed in home. Thank you for your patients again, ladies and gentlemen, they just the operator today's conference is scheduled to begin momentarily until that time.
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Ladies and gentlemen, thank you have free standing by and welcome to the Universal Corporation third quarter fiscal years 2020 earnings call. At this time, all participants I know listen only mode. After good speaker presentation there'll be a question answer session and to ask a question do you.
He does session the only depressed parties. They didn't number one on your telephone if you acquire idea further assistance. Please press star Zero I know like behind the conference over to your speaker today Speaker Candace Formacek device precedent and pressure. Thank you. Please go ahead.
Thank you Rochelle and thank you for joining us today, George Freeman, our chairman President and CEO Eiriksson Penske, 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.
Well on our website and on telephone taped replay it will remain on our website through may 4th 2020 other than the replay we have not authorized and just claim 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 result.
Yeah, I caution you that we will be making forward looking statements that are based on our current knowledge and some assumptions about the future under a representative as of today only actual results could differ materially from projected or estimated result, and we assume no obligation to update any forward looking statements.
For information on some other factors that can affect our estimates I urge you to read our 10-K for the year ended March 31, 2019, and the form 10-Q for the most recently ended fiscal quarter.
Such risks and uncertainties include but are not limited to customer mandated timing of shipments weather condition political and economic environment government regulation and taxation changes in exchange rates on interest rates industry consolidation that evolution and changes in market structure or sources.
Finally somebody information I have for you today is based on unaudited allocation 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.
Relief.
Net income for the nine months ended December 31, 2019, up 56.1 million or $2.23 per diluted share compared with 72.8 million or $2.87 per diluted share for the same period of the prior fiscal year, excluding certain nonrecurring items, which are.
Detailed in today's earnings press release that didn't come in diluted earnings per share declined by 20 million and 78 cents per share respectively. For the nine month ended December 31, 2019 compared to the same period in the previous here for the quarter ended December 31, 2019, net income was 26 million.
Were one dollar four cents per diluted share compared with net income of 28.1 million or $1.11 cents per diluted share for the prior years third fiscal quarter.
Excluding certain nonrecurring items, which are detailed in todays earnings press release that didn't comment diluted earnings per share declined by 17 million and 65 cents per share respectively compared to the same quarter last year.
Segment operating income was 97.1 million for the nine months ended December 31, 2019, a decrease of 28.2 million and for the quarter ended December 31, 2019 was 44 million a decrease of 18.6 million boes compared to the same periods last fiscal year.
Results reflected earnings declines in the North America, and other region segments, partially offset by earnings improvements and the other tobacco operations segment for the nine months ended December 31, 2019, as compared to the same period and the prior fiscal year for the quarter ended December 31, 2019 results declined for also.
Cements compared to the quarter ended December 31 2018.
Consolidated revenues decreased by 277.5 million to 1.3 billion for the nine month and by 131.1 million to 505 million for the three months ended December 31, 2019 compared to the previous fiscal year on lower sales volumes and prices.
Turning to the region operating income for the other regions segment decreased by 28.7 million to 68.1 million for the nine month and by 13.9 million to 39.4 million for the quarter ended December 31, 2019, compared with the same periods for fiscal year.
2019.
In both periods volumes decreased in Africa, mainly from lower carryover crop sales and later customer mandated shipment timing.
In Brazil sales volumes were up in the nine month on higher carry over sale at earlier current crop shipments, but down in the quarter ended December 31, 2019 on lower current crop shipments compared to those periods in the prior fiscal year.
Results for Europe were down in the nine month quarter ended December 31, 2019 on lower processing and sales volumes compared to the same periods in the prior year.
Results for Asia were up for the nine month ended December 31, 2019 on higher trading volumes, but declined in the third fiscal quarter compared to the prior year period.
Operating income for the North America segment of 6.7 million for the nine months ended December 31, 2019 was down by 13.7 million compared to the same period for the prior fiscal year, primarily on significantly lower carryover crop sales.
Volumes in the first half of fiscal year 2019, carryover crop sales volumes were higher on shipments that had been delayed due to reduced transportation availability in the United States. In addition in the nine months ended December 31, 2019, carryover crop sales volumes were down on reduced.
Sales of U.S., Burley tobaccos and current crop volumes were down in Mexico in Guatemala, due to lower sales volumes and smaller crop sizes compared to the same period in fiscal year 2019.
Operating income for the North America segment of Zero point Fourmillion for the quarter ended December 31, 2019 was down by 2.8 million compared to the same period for the prior fiscal year, mainly on lower sales volumes in Guatemala, and lower sales and processing volumes in the United States.
The other tobacco operations segment operating income of 22.3 million increased by 14.2 million for the nine months ended December 31, 2019, compared with the same period last fiscal year for the quarter ended December 31, 2019, the segment's operating income of 4.3 million.
And declined by 1.9 million compared to the same period last year in both periods results for our dark tobacco operations improved from higher wrapper sales volumes influenced in part by earlier shipment timing in the third fiscal quarter of 2020 compared to the previous fiscal year results for our Oriental joint venture were down.
Down for the nine months and quarter ended December 31, 2019 compared to the same periods in the prior fiscal year, primarily from lower sales volumes due in part to some customer shipments delayed into the fourth quarter of fiscal 2020, as well as unfavorable currency Remeasurement and exchange variances in both.
Both periods.
Selling general and administrative costs for the nine months in quarter ended December 31, 2019 decreased by 14.4 million to 152.8 million and by 9.4 million to 48.9 million respectively reductions in both periods reflected positive foreign currency Remeasurement and exchange variance.
This as well as lower value added tax charges compared to the same period in the prior fiscal year.
Consistent with results reported for the first half of our current fiscal year results through the third quarter fiscal year 2020 continue to reflect unfavorable variances to the same period in fiscal year 2019, when we benefited from large carryover crop sales volumes, mainly in North America and Africa.
Flue cured oversupply conditions. This year have also created a selective market environment that is pressured volumes and margins. In addition customer mandated shipping instructions in the second half of fiscal year 2020 are heavily weighted to our fourth fiscal quarter.
We have also remained focused on solidifying our position as a leading global leaf tobacco supplier, we continue to see and develop opportunities in our leaf tobacco business to gain market share and increased operating efficiencies whether it be by realignment of processing capacity such as recent steps taken in Malawi Optum.
As a portion of our sourcing footprint or by focusing on our leadership in supplying sustainable compliant crops.
At the same time, we're progressing and our previously announced plans to invest in non tobacco growth opportunities and announced the completion of our first such acquisition fruit Smart Inc. In early January 2020.
We're very excited about our initial non tobacco acquisition offering potential for growth and adjacent markets. We believe that Bruce smart as an established value added fruit and vegetable ingredient processor with a business to business customer base and an agricultural niche market is a good fit for our company as we've stated fruit smart.
Presents a foundational step in our building a broader agro products service platform.
We continue to work on our pipeline and are working to provide resources necessary to develop this new segments of our business in support of our long term shareholder value objectives.
At this time, we are available to take your questions.
I hear manger to ask a question you know he gets class sorry, and then the number one telephone can they do all your question Dick turnkey <unk> Kenbei, while we compile the cube any roster.
Your first question comes from delaying is anchored King your line is open.
Hello, everyone.
Alan.
I wanted to start with the crop outlook for 2020, it looks like its tightened a little but how should I think about supply and demand.
For the crop both flue cured and Burley as we look out to 2020.
Yeah, we do see and adjustments little decline on the overall production for from indoors and wireless giving to recent.
The 2019 slide oversupply in flow cure to we believe that we still going to see a little oversupply, there which is different in that flows on the barley market. The boiler, we see a more a more stable market.
Equilibrium between supply and demand.
Okay, Great and then as this year has unfolded has demand been weaker than you expected, creating more oversupply as they face the back half of the year than than an initial expectations.
Yes normally in the oversupply situation volumes and margins get affected and yes, we have seen we have seen the situation developing through all the.
Okay and then.
CEO of one of your large customers has been very very vocal out [noise].
Talking at Davos and talking to Bloomberg about that that companies mission is to replace cigarettes with lyft smoke free products and.
How do we think about your how you position your business long term when you have a major customer out there being very very vocal about their strategy to to the to move Georgia smoke free environment. I was just curious about your thoughts on that yeah. The industry is definitely know transformation mold offering a newer ranch or broad books for.
Existing and a new generation off consumer what is important to keep in mind into long term or more sustainable we compliance raw material will be required.
And Universal here is well positioned in the supply chain with our program so sustainability to be the preferred supplier for the industry and we are placing playing a role in that segment into market as of today.
And then the really shell talk about managing your [noise].
Your operations for efficiencies and processing capacity is the industry is universal facing a need right now for a major step down in terms of capacity like do you need to shut downs.
A bunch of capacity to meet this changing transformation of the industry.
And what we have seen and over the years, we have worked hard and be proactive two phase that situation, where we consolidate that process is.
And in many of our in our operations, we recently and though we had to operations in Malawi 140 specialty products Lindy, we are closing down that operation and concentrating everything in the longer those are examples of being proactive we though objective to remain efficient compare.
Additive and supplying compliant broaden portola customers.
Okay, great uncommitted inventories it looks like for slightly above your target range I missed that again reflection of demand softened more than you expected or is it more of a function a timing.
Yes, we are in their high a higher range of.
Overall, our targets there, but what does the boards on here is to say that universal even does does not speculate ritual Buck was we construct our grow up and we buy a crop according to their contracts that we have in place and yes timing timing is one of the effects that we that we see.
You know currents and commit that.
Levels.
Right and you all talked about SGN a.
Being down on large part due to currency, how should I think about Q4 and fiscal 20, Onest United anything you could help me there.
<unk> difficult to say and.
With the there's lots of variables there certainly a currency.
Since then it will we all of the placement certainly we need to look at what the exchange rates are going to go do into into fourth quarter was roles in 20.
Okay, but it's more a function of currently not like underlying efficiencies or are there efficiencies to gain SGN a over the next 12 to 18 months not current taking out the current ticking.
Yes, as I or can pointed out we're always looking and improving and looking for efficiencies and we will continue to do that and you know do we have specific programs in place and I know it is an automatic thing that we do at every year and we look at things and make some some reasonable assumptions.
What we can and can't do and then we'll go from there.
All right and then in North America [noise] North America margin was was way lower than I would've thought and how should I think about that margin can you can you get some of that back in the fourth quarter or or water <unk> or <unk>. What does your thoughts on called the <unk> projection in North America.
Operating margin.
The operating margins again.
It was down little certainly again, we have had less throughput and in the North America is lack crop and we'll have to see how these old pans out beginning in the fourth quarter into fourth quarter, We don't run an awful lot of tobacco, which is tobacco dead.
No we have some where we've got we run in some of those savings will fall into the fourth quarter and some will go into next year. So can't really go anywhere with that at this point in time.
Okay. That's great and then for each Mark can you give us any details like is that going to be accretive to to income over the next couple of years, our fiscal 21 or can you give us any kind of update on how to think about the freight smart acquisition.
Yeah, certainly and with regard to foods more many of the businesses that we have in our pipeline that you know, we're looking for accretion and it just seems possible and you noted the pipeline is that it is a pipeline that has established businesses and in them with.
You know very.
Well developed and they export and management teams and that's what we're looking for some accretion yeah. That's certainly one of the driver so for any acquisition that we would look at.
The accretion in fiscal 2001 is that possible.
Yes, it would be.
Alright, great. Thank you all for your time I appreciate it.
Thank you thank you and.
Hi, good Ajay minded asking question, you've only depressed hide and then number one callisto.
We don't have any further questions over just so please continue.
Fine. Thank you Michelle and thank you all for joining us on our call today Nice evening.
Ladies and gentlemen, they can't go today's conference call. Thank you for participating you may now disconnect.
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[music].
[music].
Ladies and gentlemen, thank you have free standing by welcome to the Universal Corporation third quarter fiscal years 2020 earnings calls.
Hi, all participate I know it said no remotely after guest speaker presentation, there will be a question and I suppose section at <unk> as good question. During this session you only depressed part they didn't number one on your telephone if you require further assistance. Please press star zero I know like they had a conference over the years.
Speaking today Speaker cabbage pharmacy, Vice President Treasurer. Thank you. Please go ahead.
Thank you Rochelle and thank you for joining us today, George frame and our chairman President and CEO Arsone hundred ski our Chief operating officer and Yonker on our 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 my fourth 2020 other than the replay we have not authorized a disclaimer 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 result.
I caution you that we will be making forward looking statements that are based on our current knowledge and some assumptions about the future under representative as of today only actual results could differ materially from projected or estimated result, and we assume no obligation to update any forward looking statements for information on some other factors that can affect our estimates.
I urge you to read our 10-K for the year ended March 31, 2019, and the form 10-Q for the most recently ended fiscal quarter.
Such risks and uncertainties include but are not limited to customer mandated timing of shipments weather conditions political and economic environment government regulation on taxation changes in exchange rates on interest rates industry consolidation that evolution and changes in market structure or sources.
Finally somebody information I have for you today is based on unaudited allocation 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 Mets comparable GAAP measures. Please refer to our current earnings press.
Really.
Net income for the nine month ended December 31, 2019, up 56.1 million or $2.23 per diluted share compared with 72.8 million or $2.87 per diluted share for the same period up the prior fiscal year, excluding certain non recurring items, which are.
Detailed in todays earnings press release, net income and diluted earnings per share declined by 20 million and 78 cents per share respectively for the nine months ended December 31, 2019 compared to the same period in the previous year.
For the quarter ended December 31, 2019, net income was 26 million or one dollar four cents per diluted share compared with net income of 28.1 million or $1.11 cents per diluted share for the prior years third fiscal quarter.
Excluding certain non recurring items, which are detailed in todays earnings press release that didn't comment diluted earnings per share declined by 17 million and 65 cents per share respectively compared to the same quarter last year.
Segment operating income was 97.1 million for the nine month ended December 31, 2019, a decrease of 28.2 million and for the quarter ended December 31, 2019 was 44 million a decrease of 18.6 million both compared to the same periods last fiscal year.
Results reflected earnings declines in the North America, and other regions segments, partially offset by earnings improvements and the other tobacco operations segment for the nine months ended December 31, 2019, as compared to the same period and the prior fiscal year.
For the quarter ended December 31, 2019 results declined for all segments compared to the quarter ended December 31 2018.
Consolidated revenues decreased by 277.5 million to 1.3 billion for the nine month and by 131.1 million to 505 million for the three months ended December 31, 2019 compared to the previous fiscal year on lower sales volumes and prices.
Turning to the region operating income for the other regions segment decreased by 28.7 million to 68.1 million for the nine month and by 13.9 million to 39.4 million for the quarter ended December 31, 2019, compared with the same periods for fiscal year.
2019.
In both periods volumes decreased in Africa, mainly from lower carryover crop sales and later customer mandated shipment timing.
In Brazil sales volumes were up in the nine month on higher carry ever sale at earlier current crop shipments, but down in the quarter ended December 31, 2019 on lower current crop shipments compared to those periods in the prior fiscal year.
Results for Europe were down in the nine month quarter ended December 31, 2019 on lower processing and sales volumes compared to the same periods in the prior year.
Results for Asia were up for the nine month ended December 31, 2019 on higher trading volumes, but declined in the third fiscal quarter compared to the prior year period.
Operating income for the North America segment of 6.7 million for the nine months ended December 31, 2019 was down by 13.7 million compared to the same period for the prior fiscal year, primarily on significantly lower carryover crop sales.
Born in the first half of fiscal year 2019, carryover crop sales volumes were higher on shipments that had been delayed due to reduced transportation availability in the United States. In addition in the nine months ended December 31, 2019, carryover crop sales volumes were down on reduced.
Sales of U.S., Burley tobaccos and current crop volumes were down in Mexico, and Guatemala, due to lower sales volumes and smaller crop sizes compared to the same period in fiscal year 2019.
Operating income for the North America segment of Zero point Fourmillion for the quarter ended December 31, 2019 was down by 2.8 million compared to the same period for the prior fiscal year, mainly on lower sales volumes in Guatemala, and lower sales and processing volumes in the United States.
The other tobacco operations segment operating income of 22.3 million increase by 14.2 million for the nine months ended December 31, 2019, compared with the same period last fiscal year for the quarter ended December 31, 2019, the segment's operating income of 4.3 million.
And declined by 1.9 million compared to the same period last year in both periods results for our dark tobacco operations improved from higher wrapper sales volumes influenced in part by earlier shipment timing in the third fiscal quarter of 2020 compared to the previous fiscal year results for our Oriental joint venture were.
Down for the nine months and quarter ended December 31, 2019 compared to the same periods in the prior fiscal year, primarily from lower sales volumes due in part to some customer shipments delayed into the fourth quarter of fiscal 2020, as well, it's not favorable currency Remeasurement and exchange variances in.
Both periods.
Selling general and administrative costs for the nine month in quarter ended December 31, 2019 decreased by 14.4 million to 152.8 million and by 9.4 million to 48.9 million respectively reductions in both periods reflected positive foreign currency Remeasurement and exchange variance.
As well as lower value added tax charges compared to the same period in the prior fiscal year.
Consistent with results reported for the first half of our current fiscal year results through the third quarter fiscal year 2020 continue to reflect on favorable variances to the same period in fiscal year 2019, when we benefited from large carryover crop sales volumes, mainly in North America and Africa.
Flue cured oversupply conditions. This year have also created a selective market environment that has pressured volumes and margins. In addition customer mandated shipping instructions in the second half of fiscal year 2020 are heavily weighted to our fourth fiscal quarter.
We have also remained focused on solidifying our position as the leading global leaf tobacco supplier, we continue to see and develop opportunities in our leaf tobacco business to gain market share and increase operating efficiencies whether it be by realignment of processing capacity such as recent steps taken in Malawi often.
Visitation of our sourcing footprint or by focusing on our leadership in supplying sustainable compliant crops.
At the same time, we're progressing and our previously announced plans to invest and non tobacco growth opportunities and announced the completion of our first such acquisition fruit Smart Inc. In early January 2020.
We're very excited about our initial non tobacco acquisition offering potential for growth and adjacent markets. We believe that Bruce smart as an established value added fruit and vegetable ingredient processor with a business to business customer base and an agricultural niche market is a good bit for our company as we've stated bridged smart.
Present, a foundational step in our building a broader agro products service platform.
We continue to work on our pipeline and are working to provide resources necessary to develop this new segment of our business in support of our long term shareholder value objectives.
At this time, we are available to take your questions.
As a reminder to ask a question you only get press Star then the number one telephone to me there on your question pads accounting fees paid by while we compile that you have any roster.
Your first question comes from the line of anger King Your line is open.
Hello, everyone.
Yeah.
I wanted to start with.
The crop outlook for 2020 looks like its tightened a little but how should I think about supply and demand.
For the crop both flue cured umbrella as we look out to 2020.
Yes, we do see and adjustment little decline on the overall production for fluid, Georgia and Florida.
Moving to re sense.
2019, slide oversupply in flow cure to we believe that we still going to see a little oversupplied beer, which is different and that slow on the barley market that whether we see a more more stable market.
Good leaving them between supply and demand.
Okay great.
And then as this year has unfolded has demand then weaker than you expected, creating more of a supplies. They face the back half of the year. Then then an initial expectations.
Yes normally in the oversupply situation volumes and margins get affected and yes, we have seen we have seen the situation the relevant throughout India.
Okay and then.
One of your large customers.
Very vocal out.
Talking at Davos, and talking to Bloomberg that but that companies mission is to replace cigarettes with what's smoke free products and.
How do we think about your how you position your business long term when you have a major customer.
They're being very very vocal about their their strategy to to the to move towards a smoke free environment. I was just curious about your thoughts on that yes, the industry that probably not drugs formation mole offering a new branch off but all booked for existing and new generation of consumer what is important to keep in mind that the long.
There are more sustainable we compliance raw material will be required and universal here is well positioned in the supply chain with our program. So sustainability to be the preferred supplier for the industry and we are placing playing a role in that segment in the market as of today.
And then the release you all talk about managing your.
Your operations for efficiencies and processing capacity is the industry is universal facing a need right now for a major step down in terms of capacity like do you need to shut down.
A bunch of capacity to meet kind of changing transformation of the industry.
And what we have CNN over the years, we have worked hard and be proactive to face that situation, where we consolidate that process is.
And in many of our in our operations. We recently no we had to operations in Malawi 140 specialty products Lindsay we had a closing down that operation and concentrating everything in live longer those are examples of being proactive, we though objective to remain efficient comps.
Additive and supplying compliant brought in for our customers.
Okay, great uncommitted inventories it looks like for slightly above your target range.
That again reflection of demand softened more than you expected or is it more of a function of timing.
Yes, we are in the high higher range of.
All forward targets there, but what is important here is to say that universe will leave it does does not.
As it relates with dual back was we construct our crop and we buy a crop according to their contract that we have in place and yes timing timing is one of the effects that we that we see.
Oh, no current plan commit that.
Levels.
All right and you all talked about SGN today.
Being down in large part due to currency, how should I think about Q4 and fiscal 20, Onest Shannay anything you could help me there.
Difficult to say Dan.
With that Theres lots of variables there.
Finally, a currency.
Moves in it what we all of the places certainly we need to look at what the exchange rates are going to go do in the into fourth quarter was roles in 20.
Okay, but it's more a function of currency not like underlying efficiency, the or are there efficiency gain an M&A over the next 12 to 18 months not current taking out the current ticket.
Yes, I or can pointed out we're always looking at improving and looking for efficiencies and we will continue to do that and how do we have specific programs in place.
No.
An automatic thing that we do at every year and we look at things and make some some reasonable assumptions, what we can and can't do and then we'll go from there.
All right and then in North America.
North America margin was one way lower than I would've thought and how should I think about that margin can you can you get some of that back in the fourth quarter or.
What I'm wondering what does your thoughts on kind of the margin per projection of North America.
Operating margin.
The operating margins again.
It was down a little certainly again, we had less through a in the North America is last crop.
And we'll have to see how these old pans out beginning in the fourth quarter into fourth quarter, We don't run an awful lot of tobacco, which is tobacco deck.
We have some baroque we've got we run in some of those savings will fall into the fourth quarter and some will go into next year. So can't really go anywhere with that at this point in time, Okay. That's great and then.
First Mark can you give us any details like is that going to be accretive to the income over the next couple of years, our fiscal 21 or can you give us any kind of update on how to think about the freight smart acquisition.
Certainly and with regard to force more many of the businesses that we have in our pipeline that we're looking for for accretion.
As soon as possible and.
The pipeline.
The pipeline that has established businesses in in them with.
You know very.
Well the belt and make export.
Management teams and that's what we're looking for some accretion yes. That's certainly one of the drivers hopeful of any acquisition that we would look at.
The accretion at the school 21 is that possible.
Yes, it would be.
Alright, great. Thank you all for your time I appreciate it.
Thank you thank you and.
Again as a reminder, asking question you've only depressed tied in the number one callisto.
We don't have any further questions over the phone. Please continue.
Fine. Thank you Michelle and thank you all for joining us on our call today I'd like to evening.
Ladies and gentlemen, they can't go today's conference call. Thank you for participating you may now disconnect.