Q4 2021 Universal Corp Earnings Call

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Good day, and thank you for standing by and welcome to Universal Corporation fiscal year, 'twenty 'twenty 1 earnings call.

At this time all participants are in a listen only mode.

They're just speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone I've touched on P. Please be advised that today's conference is being recorded if.

If you require any further is Houston.

Please press Star Zero I would now like to hand, the conference over to your speaker today, Ms Candace <unk>, Vice President and Treasurer.

Please go ahead.

Thank you Mika and thank you all for joining us this evening.

George Freeman, our chairman President and CEO Ireton, Henske, 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 August.

26.2021.

Other than the 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.

It's 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. This is of particular note. During the current ongoing COVID-19 pandemic when the length and severity of the crisis, and resulting economic and business impacts are so difficult to predict.

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 31.2020.

As well as our form 10-K for the year ended March 31, 2021, which we expect to file with the SEC later this week such.

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 <unk>.

<unk> structure ore sources 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 pleased to report that our net income and diluted earnings per share and our non-GAAP adjusted operating income for fiscal year 2021 are all up over 20% compared to fiscal year 2020 strong leaf tobacco shipments in the second half of fiscal year 2021. The addition.

Of our plant based ingredients acquisitions and favorable foreign currency comparisons all contributed to this improvement in our results were especially proud that we were able to deliver these results in the midst of the COVID-19, pandemic and we'd like to thank our employees growers customers and other partners for their support adaptive.

<unk> and hard work that made this a successful year leap.

Leaf tobacco shipments, which started slowly earlier in the fiscal year accelerated in the second half of the year. We ended the year with leaf tobacco volumes that were just slightly below those in fiscal year 2020 in part due to some tobacco shipments that were delayed and will ship in fiscal year 2022.

Despite global challenges, including increased safety protocols work from home mandates and travel restrictions that necessitated adjustment to how we conduct our leaf tobacco business, we successfully delivered the leaf tobacco desired by our customers.

We also delivered on our capital allocation strategy objective to build and enhance our plant based ingredients platform through the acquisition of Sylva International in the third quarter of fiscal year 2021, we're excited about the prospects for our new ingredients platform and continued to progress on our integration process.

In the fourth quarter of fiscal year 2021, our ingredients operations segment performed well against its objectives in both the human and pet food categories.

In the quarter and year ended March 31, 2021, we benefited from positive net foreign currency comparisons, mostly noncash currency remeasurement of $21 million and $26 million, respectively compared to the same periods in fiscal year 2020, certain currencies weaken.

Significantly in the fourth quarter of fiscal year 2020, largely due to uncertain market conditions related to the burgeoning COVID-19 pandemic.

We ended our fiscal year 2021, with a strong balance sheet and uncommitted leaf tobacco inventory levels, just over our target range at 22%.

In addition to our investments and growth opportunities. We are also pleased to have announced our 50 <unk> annual dividend increase today, continuing our commitment to delivering shareholder value.

Turning now to the details.

Net income for the fiscal year ended March 31, 2021 was $87.4 million or $3.53 per diluted share compared with $71.7 million or $2.86 per diluted share for the fiscal year ended March 31, 2020 <unk>.

Excluding restructuring and impairment costs and certain other nonrecurring items detailed in other items in today's earnings release net income and diluted earnings per share increased by $17.6 million and 76 cents, respectively for fiscal year 2021 compared to fiscal year 2002.

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Adjusted operating income detailed in other items in today's earnings release of $172.9 million increased by $31.7 million for fiscal year 2021, compared to adjusted operating income of $141.3 million for fiscal year 2020.

Net income for the quarter ended March 31, 2021 was $39.4 million or $1.58 per diluted share compared with net income of $15.6 million or <unk> 63 per diluted share for the quarter ended March 31.2020.

Excluding restructuring and impairment costs and certain other nonrecurring items detailed in todays earnings release net income and diluted earnings per share increased by $14.3 million and 57, respectively for the quarter ended March 31, 2021, compared to the fourth quarter of fiscal <unk>.

Year 2020.

Consolidated revenues increased by $73.4 million to $2 billion for the year ended March 31, 2021 and decreased by $14.5 million to $617.6 million for the 3 months ended March 31, 2021 compared to the same periods in the <unk>.

Higher fiscal year on the addition of businesses acquired in calendar year 2020 in the ingredients operations segment offset in part by lower comparative leaf tobacco shipment volumes.

Turning to the segments and.

And tobacco operations segment operating income for the tobacco operations segment increased by $22.2 million to $168.8 million for the fiscal year and by $16.1 million to $61.2 million for the quarter ended March 31, 2021, compared with the same periods.

For fiscal year 2020.

Favorable foreign currency Remeasurement comparisons and strong tobacco shipment volumes benefited tobacco operations segment results for both the quarter and year ended March 31.2021.

In fiscal year 2021, compared to fiscal year 2020 sales volumes were up in Brazil, and the United States on higher sales of carryover crop tobacco, while volumes decreased in Africa, partly from weather reduced crop sizes as well as some delayed shipments but will occur in fiscal year 2022.

Selling general and administrative costs for the segment were lower for fiscal year 2021, compared to fiscal year 2020, largely on favorable net foreign currency remeasurement comparisons, mainly in Indonesia and Brazil.

<unk> product mix and continued strong wrapper demand also benefited segment results and fiscal 2021.

In the quarter ended March 31, 2021 results for the tobacco operations segment were up largely unfavorable currency remeasurement comparisons compared to the fourth fiscal quarter of 2020, when certain currencies drastically weakened mainly due to market uncertainties caused by the COVID-19 pandemic.

Leaf tobacco shipments were modestly lower in the fourth quarter of fiscal 2021 compared to the same quarter in the prior fiscal year, largely due to reduced African volumes, including some volumes that will ship in fiscal year, 2022, and improved product mix and continued strong wrapper demand benefited the segment.

Results in the fourth quarter of fiscal year 2021, compared to the same quarter of the prior fiscal year.

And the ingredients operations operating income for the ingredients operations segment was <unk> 4 million and $5.1 million respectively for the fiscal year and quarter ended March 31, 2021, compared to an operating loss of $8.5 million and $4.1 million respectively.

For the fiscal year and quarter ended March 31.2020.

Results for this segment included cost from amortization of intangibles related to the acquisitions, which totaled $6.4 million and $2.4 million respectively. In the fiscal year and quarter ended March 31, 2021, as well as purchase accounting adjustments of $2.8 million in the year ended March 31.2021.

At $2.7 million in the year and quarter ended March 31, 2020, but also reduced our results for the segment or.

Our ingredients operations saw some changes in product mix during fiscal year 2021, due to changes in customer demand, resulting from the ongoing COVID-19 pandemic.

Demand for ingredients used in products for restaurants, and social venues declined we saw demand increase for ingredients used in grocery items and pet foods and the fourth quarter of fiscal year 2021, we began to see demand for our products recover from certain sectors, such as foodservice, which were negatively impacted by COVID-19.

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Selling general and administrative expenses increased in the fiscal year and quarter on the addition of the acquired businesses.

As we move into fiscal year 2022, we currently expect global supply for the flue cured leaf tobacco to be in line with anticipated demand and for Burley leaf tobacco to be in a slight under supply position. We are continuing to monitor freight costs as the COVID-19 pandemic disrupted shipping patterns, which is.

Resulted in cost increases due to limited container availability.

We published our second annual sustainability report in fiscal year 2021 on our website. The report showcases our strong commitment to our sustainability programs and initiatives, which stems from our belief that sustainability is a key component of our past and future success in fiscal year 2022, we will.

Continued to deliver on our fundamental responsibility to our stakeholders to set high standards of social and environmental performance to support a sustainable supply chain.

At this time, we are available to take your questions Mika I will turn the call back to you.

Thank you and as a reminder to ask a question you will need to press star 1 on your telephone against far 1 on your telephone did withdraw your question press the pound key.

Please standby, while we compile the Q&A last day.

Your first question comes from the line of Ann Gurkin from Davenport <unk> Co. Your line is now open.

Good evening day everybody.

Sure.

That was a very impressive gross margin number for the year you talked about the tobacco carryover and wrapper is there anything else in that 19, 5%.

Nah aside from mix and certainly we have been.

We're looking very hard at cost efficiency.

You see and you have seen over.

The last couple of years, some restructuring that we've done and we're looking at that constantly so that helped as well.

And as we go forward into fiscal 'twenty, 2 how should I think about that number.

It all depends from a mix right.

Mix was really positive as compared to the prior year. So it all depends on what that mix looks like going forward. The rapid demand is still there so.

No profit.

Okay.

Can you help me at all with fiscal 'twenty 2 components revenues, how should I think about interest expense, which was much higher than I was looking for.

'twenty, 1 SG&A expense capex any any of those factors.

Well, there's a couple of things that we pointed out certainly your capex is $35.45.

The reason the interest was up certainly was because we do go on an extra $150 million related to the acquisition that we made this year and there was also some additional land there and we have pointed out and we'll be pointing out from the 10-K that will be filed later this week I think it was about 1 million net.

So there's a couple of things in there with regard to the.

The tobacco business going forward.

It looks good but it's really early on so we will have to see how that all works itself out for fiscal year 'twenty 2.

Okay, the $1.8 million as a onetime in fiscal 'twenty, 1 impact or does that continue within that competitive that was a onetime fiscal year 'twenty 1 impact.

Okay that helps okay great.

Then.

Last quarter I asked about you all talked about.

Working on synergies among the acquired businesses do you have any more detail to give any kind of synergy number of money among your recent acquisitions.

We're what we told you last time around really is what we're trying to determine needs.

Any overlap there that we can use.

The marketing group sofa to come.

Companies to help each other out that we will continue to do that and will continue to be very focused on the integration, which is still ongoing.

There is no real numbers reported to that just yet but.

All of those forces there as well.

Oh go ahead, sorry, George.

I was just going to say no other book.

Say it looks positive but each other.

Great.

Candace do you have a worldwide uncommitted inventory number.

Yes, I do.

This is the.

The number is as of March 31, its 94 million kilos, which is down $11 million from the 12.31 'twenty number.

Okay.

Then.

Any update.

Update on how you view, how you think about share repurchase.

Over the next couple of years.

Okay.

Well we have the.

<unk>.

$150 million out there.

Pricing is right and all of that we will take a hard located but we're more focused on investing in the tobacco business and looking at other opportunities in on the ingredients platform. So that's the priority at the moment and of course, maintaining that dividend 100% George.

I thought you had reached.

Your kind of ideal our target mix for non tobacco businesses are you still looking to add to that platform.

Yes.

The pipeline is still active and.

Again, we.

Put out in 2018 net the capital allocation strategy.

Certainly 1 of the top.

Target there was for our EBITDA and really fiscal 'twenty 2.

10, and 20% I think we have reached that with these 2 yep. So we certainly have taken a step back and we have taken on 2 fairly large for US company. So again.

We're taking a pause, but if the right company comes along certainly we'll look at it.

Alright, and then.

Just longer term strategy I keep hearing customers Philip Morris thing.

1 of your saying that they say cigarette sales could end in a decade, maybe in Japan. They look to convert smokers from combustible to Noncombustible. So how do you position your global leaf asset business capacity with that kind of over.

Reaching strategy vision from 1 of your larger customers how do you how do you address that.

No I think the way to look at first of all is that universal leaf supports a multi category market, we support combustible cigarettes.

Support heat not burn.

They being segment, we support mass market cigars visuals.

Premium cigar Ashish.

The smokeless product.

And we play a role in all of these categories. So we are well positioned with raw material and services.

Florida for all of these statements.

If you look at what has happened cigarettes.

Sales have been declining since 2012, and if you look at the way we position throughout all these years, we have been pretty consistent.

Yearly sales volumes.

As long as we continue performing delivering a quality product.

The price, we believe that will continue.

Continue gaining market share.

That is a big part of executing our strategy.

That's great. That's very helpful. Thank you all very much.

Thanks Sam.

Your next question comes from the line of lesser Ross from less profitable. Your line is now open.

Thank you I just have a couple of questions first of all could you address there's been talk of drought in certain countries in the southern.

American Hemisphere.

And how it is or may affect business are you looking at that.

For our supply.

And then I have a couple more questions, but I'll have the next question is basically on you had mentioned that the availability of containers and it sounds like shipping costs have risen.

And I'm wondering if.

In terms of your pricing power has your pricing power improved.

Let me ask you. The first answer the first question weather conditions is always a challenge in agriculture.

There is.

He is not different.

Tobacco tobacco is a very resilient plants, what we have seen especially here in the US now the <unk>.

Some may has been 1 of the driest in history, but should the American farmers.

A very professional and experienced farmer and they have been transplanting. According to the time using.

Radiation and for these next weekend the Chinese right, we should get some some rains in the tobacco areas overall, we don't see right now extreme weather conditions.

Affecting.

Our operations tobacco in Brazil has been high risk it is being marketed from farmers to companies like ourselves and in Africa. We just started operating on their buying 2 or 3 weeks ago and it's so far is going to is going according to our plan.

The second question related to the rising shipping cost impacting our business.

We are closely monitoring this situation what is important to say here is that majority of our business. It is F O b.

Meaning that all the disruption into this.

On the logistics side.

Availability or lack of availability of containers in vessels.

The cost related to that is normally in that case absorbed by.

By our customers.

It's also important to say here that our logistic departments at Universal leaf and day sales departments. They have been very proactive coordinating with customers those activities accelerating shipments in some areas that we.

Understand that could face some of these bottlenecks and at the same time offering solutions from areas, where there is more concentrated problem like in Asia, we understand that some of these costs have been rising from 100 up to 400% depending the specific country.

Our origin.

In that case companies like Universal leaf, we can delay shipments from some of these are regions. Because we can offer solutions from other origins that they have not been impacted like Brazil like the U S or life Africa. So this is the way we are positioning ourselves and with our close coordination with our customers.

Oh, that's good to know.

And then also I wanted to ask you I know you have 1 large main competitor and your business in the tobacco leaf business.

Well the company won't be named I know that there maybe highly leveraged and have had some financial problems have you seen any change in the competitive landscape. Because you are financially strong or are you picking up market share could you help me a little bit about that.

Well, we do we do we do believe that we are picking up market share I don't know.

Not don't want to comment on.

Our competitions.

Financial situation, but we would like to believe it's because of the quality product.

Quality products and services, we deliver.

Okay.

Okay. Thank you.

Okay.

Once again to ask a question. Please press star 1 on your telephone.

There are no further questions at this time I will hand, it over back to Ms. Candace <unk> for any closing remarks.

Thank you Mika and thank you all for joining US this evening and we will look forward to speaking with you in another quarter.

Goodbye.

This concludes today's conference call. Thank you for participating you may now disconnect.

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