Q4 2022 Universal Corp Earnings Call
[music].
Good afternoon. Thank you for attending today's Universal Corporation fourth quarter fiscal year 2022 earnings call. My name is for them and I will be your moderator for today's call. All lines will remain muted during the presentation portion of the call with an opportunity for questions and answers at the end.
If you'd like to ask a question. Please press star one on your telephone keypad. It is now my pleasure to pass the conference a rich warehouse Candace <unk>, Vice President and Treasurer of Universal Corporation. This form of check. Please go ahead.
Thank you for them and thank you all for joining us George Freeman, our chairman President and CEO Ireton Husky, 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 25, 2022 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 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. This is of particular note during the.
Our current ongoing COVID-19 pandemic, when the length and severity of the crisis and resultant 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, 2021, as well as our Form 10-K for the year ended March 30 <unk>.
One 2022, which we expect to file with the SEC later this week.
Such risks and uncertainties include but are not limited to the ongoing COVID-19 pandemic customer van <unk> 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 change.
As in market structure or sources finally, some of the information I happy 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.
Yeah.
We are proud of our fiscal year 2022 results, which were generally comparable to those in fiscal year 2021 during fiscal year 2022, we continued to face a very challenging logistical environment in many of our key tobacco regions strong performance from our ingredients operations segment offset some challenges there.
Reduced results in our tobacco operations segment.
Our plant based ingredients platform is coming together nicely and is exceeding our expectations with the acquisition of shanks extracts LLC Shanks, we are now positioned to offer our customers a broad range of products from fruit and vegetable juices concentrates and dehydrated ingredients to botanical extracts and flavor.
Earnings in fiscal year 2022, the ingredients operations segment saw increased demand for organic based products and continued strong volumes for human and pet food categories as well as for vanilla extracts.
Ongoing shipping constraints reduced our tobacco operations segment results for the year and quarter ended March 31, 2022, as a result of continued limitations and worldwide shipping availability stemming from COVID-19 pandemic.
You may recall that due to the logistical constraints in fiscal year 2021, we had carryover tobacco volumes, which shipped in fiscal year 2022.
Similar logistical constraints impacted fiscal year, 2022, which led to an even larger amount of tobacco volumes, reflecting a difference of about $70 million in revenue, which did not ship in fiscal year 2022, compared to the carryover volumes from fiscal year 2021.
Tobacco shipment volumes in fiscal year 2022 were also reduced due to smaller African burley crops.
And we experienced volatile tobacco and currency markets in Brazil during the fourth quarter of fiscal year 2022 appreciation of the Brazilian currency, coupled with strong demand for leaf tobacco led to unprecedented increases in green prices for leaf tobacco and earlier purchasing of the 2022 Brazilian.
Crop, resulting in disruption to market dynamics.
To fulfill our customers orders leaf tobacco purchases from our contracted farmers. This season have been at the prevailing inflated market price for all leaf tobacco, regardless of the quality of that leaf tobacco.
This resulted in larger inventory write downs in the quarter ended March 31, 2022 compared to the prior year's fourth quarter.
Turning to our results.
Net income for the year ended March 31, 2022 was $86 6 million or $3 47 per diluted share compared with $87 4 million or $3 53 per diluted share for the year ended March 31, 2021 <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 decreased by $10 8 million and 46% respectively for the year ended March 31, 2022 compared to the year ended March 31 two.
<unk> thousand 21.
Adjusted operating income also detailed in other items of $173 $6 million increased by $7 million for the year ended March 31, 2022, compared to adjusted operating income of $102 9 million for the prior fiscal year.
Net income for the quarter ended March 31, 2022 was $25 8 million or $1 <unk> per diluted share compared with $39 4 million or $1 58 per diluted share for the quarter ended March 31 2021.
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 decreased by $15 3 million and 62, respectively for the quarter ended March 31, 2022 compared to the quarter ended.
At March 31 2021.
Adjusted operating income also detailed in other items of $57 1 million.
Decreased by $8 2 million for the fourth quarter of fiscal year 2022, compared to adjusted operating income of $65 3 million for the fourth quarter of fiscal year 2021.
Consolidated revenues increased by $122 million to $2 1 billion for the year ended March 31, 2022 compared to the year ended March 31, 2021 on the addition of the businesses acquired in the ingredients operations segments and lower tobacco sale.
<unk> volumes, partially offset by higher average sales prices in the tobacco operations segment.
In the quarter ended March 31, 2022 consolidated revenues also increased by $29 4 million to $647 million compared to the quarter ended March 31, 2021 on the inclusion of the <unk> acquisition and the ingredients operations segment and.
Higher tobacco sales prices.
Turning to the segments.
Tobacco operations segment operating income for the tobacco operations segment decreased by $11 1 million to $157 8 million and by 9 million to $52 2 million, respectively for the year and quarter ended March 31 2022.
Compared to the same periods in fiscal year 2021 tobacco.
Tobacco operations segment results declined largely due to tobacco shipment timing as well as some tobacco inventory write downs, partially offset by increased value added services to customers in the year and quarter ended March 31, 2022 compared to the prior fiscal year ended March 30.
One 2021.
Africa sales volumes were lower in the year and quarter ended March 31, 2022 compared to the same periods in the prior fiscal year on smaller burley crops as well as slower shipment timing sale.
Sales volumes for Brazil were lower for the year ended March 31, 2022 compared to the previous fiscal year in part due to lack of vessel and container availability.
In addition inventory write downs, resulting from volatile market conditions in Brazil negatively impacted results for the year and quarter ended March 31 2022.
In Asia, although trading volumes were down on higher freight costs are operations saw a more favorable product mix as well as increased value added services for customers during the year and quarter ended March 31, 2022 compared to the same periods in the prior fiscal year.
Our operations in Europe experienced significantly higher energy costs in the quarter and year ended March 31, 2022 compared to the same periods in the prior fiscal year.
Selling general and administrative expenses for the tobacco operations segment were higher in the year ended March 31, 2022 compared to the year ended March 31, 2021, primarily due to unfavorable foreign currency exchange comparisons mainly remeasurement.
Offset in part by the effects of currency hedging activities.
Our uncommitted tobacco inventory levels about 60% of tobacco inventory at March 31, 2022 remained well within our target range.
Turning to the ingredients operations operating income for the ingredients operations segment was $16 6 million and 6 million respectively for the year and quarter ended March 31 2022.
Compared to operating income of <unk> 4 million and $5 1 million, respectively for the year and quarter ended March 31 2021.
Results for this segment include our October 2020 acquisition of Sylva International Inc.
<unk> and our October 2021 acquisition of shacks.
For both the year and the quarter ended March 31, 2022, our ingredients operations saw strong volumes in both human and pet food categories as well as some rebound in demand from sectors that have been impacted by the ongoing COVID-19 pandemic. In addition, the segment saw strong sales of organic based products.
Certainty hydrated products and botanical extracts and flavorings.
Selling general and administrative expenses for the segment increased in the year and quarter ended March 31, 2022 compared to the same periods in the prior fiscal year on the addition of the acquired businesses.
Looking forward as we move into fiscal year 2023, we are seeing strong demand for our plant based ingredients and tobacco products. We believe leaf tobacco supply for flue cured Burley dark are cured and Oriental tobaccos to be in an under supply position.
At the same time, we continue to see opportunities to increase market share and expand the supply chain services, we provide to our customers.
We expect continued logistical constraints as well as higher costs, particularly freight raw materials labor fertilizer and energy in both our tobacco and ingredients businesses. We are actively working to mitigate these challenges and are confident that we can deliver another good year.
We remain focused on returning value to our shareholders and promoting sustainability and our operations. We are extremely proud to deliver value to our shareholders through dividend increases such as our 50 <unk> annual dividend increase announced today.
Increasing our strong dividend remains one of the strategic priorities of our capital allocation strategy.
We have also achieved some important milestones in our sustainability efforts in fiscal year, 2022, notably releasing goals and targets around agricultural labor practices and environmental performance and publishing our 2021 sustainability report in December .
We were also named a 2021 supplier engagement leader by CDP, earning recognition for our work and engaging our suppliers on climate change.
We look forward to obtaining new achievements with our sustainability programs in fiscal year 2023.
At this time, we are able to take.
Yes.
Sure.
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Okay. If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by Tim again to ask a question Press Star one as a reminder, if you are using a speaker phone. Please remember to pick up your handset before.
Asking your question, we will pause here briefly ask questions registered.
Our first question comes from the line of Ann Gurkin with Davenport Davenport and your line is now open.
Thank you good evening to everybody.
Yes, good afternoon.
Hi, congratulations on a nice margin improvement and the ingredients segment, both sequentially and year over year.
You highlighted improving demand for ingredients for human and pet food, but is there anything else in that margin pricing.
Our improved capacity utilization or accelerated orders, new business order or anything else that you can call out behind that margin improvement.
Yeah.
And this is really our platform. We now have three legs and we can build on that you can see the margin improvement.
Six months exchange of course, sorry year over year prior year silver was only in there for six months. So it's going to take a couple of quarters to really get to Gabon awful August hoping books.
No.
We're very happy about how the whole thing is developing we're looking at it hard we're looking at expanding in the future and we believe that.
There is organic growth there in all kinds of areas, we have to tie it all together, we're still integrating and we're doing some backhaul stuff that really will improve that.
It's really positive things going at the moment.
Can you call out are you have you wanted a new business or.
Those guys are always working hard in all kinds of things.
Looking at getting platform people to help out on that as well.
There is lots of positives there in the future.
And do you want to tell me, where you expect the margin to go for this business.
Pick your timeline three years five years 10 years.
Sure.
Yeah.
It remains to be seen.
That's a long long way out again.
It will be positive we believe the result of organic growth that we have there and there is going to be some headwinds there with regards to inflationary pressures and all those things.
<unk> is not an appropriate spot at the moment, but we are really positive about the outcome for this year and going forward.
Do you think you can drive higher margins and improved margins in fiscal 'twenty three versus 22 for the ingredients segment.
We certainly hope so but again there is going to be some margin pressures.
It all depends on.
On shipping constraints.
I was going to be disappear with certainly.
No impact from that but.
Hello job this year so.
<unk> steady or slightly will be very helpful.
Great.
It looks like you all bought back some stock in the quarter does that mean does.
Does that reflect at all on opportunities in terms of M&A is there any kind of change in thought process.
Cash use for the balance sheet use for acquisitions versus.
Share repurchases.
No, but I do note.
We as Johan mentioned, we're we're working on integrating these three recent acquisitions.
Also note.
And this in this inflation in this world, we live in with inflation and rising interest rates it costs more.
Takes more money to do the same amount of business. So we're we're cognizant of that.
And.
No.
So at a conservative one.
Expenditures right now.
Great. That's a great segue to my next question about interest rates. How do you think about interest given you have I think a variable a term loan that's a variable rate like how do I think about that for fiscal 'twenty three.
Well, we swapped some of it out in the past we took on some new which was floating so we're quite happy with what we got.
The revolver is.
Do it next year sometime so we will be looking at that in the near future. So we'd be looking at that whole.
Whole package going forward to see what we need and then we'll determine where the bank is where the rates are going to go away.
The rates going up we certainly.
Variable piece, we expect interest to pick up slightly.
Great.
And then Martha.
Stuck to tobacco.
Including your comments from your release about Ukraine uncertainty and suspension of orders and transfer of tobacco leaf to other markets for our customers.
That comment.
Comments combined with what could be a <unk>.
Validation between Philip Morris with Swedish match, I guess it raises concern for me.
The potential for a near term.
<unk> backup and oversupply of leaf and other global situations very favorable supply demand across all the different types of relief, but I guess can you walk me through kind of a thought process of kind of a near term concern about that.
Slight oversupply or a weaker demand for leased from customers.
Oversupply is.
He is not something I'm worried about is that right or I guess.
Demand from customers I guess for leaf purchases.
Well with all we go see.
All are great opportunities in our tobacco segment, we have increased our market share. This year as we stated we do see the difference by Hawaii is off to a <unk> now on the supply situation and we have a good outlook going into the fiscal year 2023.
We are ready to position ourselves re buying FERC, <unk>, where we will refinance the FERC analyzer for the farmers.
Our challenge and our position right now is to increase some of this growth to cope with the demand that is out there. So we're very positive about the tobacco.
That's fantastic can you access the fertilizer you need I know, there's a shortage.
Yes, yes, yes, we can real revenue in the main markets, we already negotiated prices we already received.
Some of the FERC license that is needed for every supplier to the pharmacist.
Great.
Any help at all with the outlook for SG&A expenses for fiscal 'twenty three.
Should the piece for.
Ingredients come down a little bit because of maybe a pause in M&A activity.
Certainly there will be data from the M&A activity, there, but again youre going to add six months.
Shanks youll be traveling more hopefully.
So that will have a little bit of the impact.
I think fiscal year 'twenty two is more representative than in fiscal year 'twenty, one with regards to SG&A for sure.
Of course, it level out a bit with also with regard to.
Re measurement and stuff like that so there's going to be a couple of things where we of course see certainly some after.
<unk> labor costs around the world and we will have to see where that ends up but right now.
The whole thing the whole picture for us.
Fairly positive.
Great and if I missed it I apologize a capex number for fiscal 'twenty three that I missed that sorry.
'twenty three I think between $850 million.
Okay, Great and then Candace worldwide uncommitted inventory level.
Yes, that's at 62 million kilos at March 31, that's up 7% from the December 31.
Great. That's great I appreciate you all taking all these questions. Thank you so much.
Thanks for asking.
Yes.
Thank you for your question and our next question comes from the line of Steve <unk> with Capitol Securities.
Steve Your line is now open.
Thank you good afternoon, everyone and congrats on a good quarter and freezing the dividend.
Rather pedestrian question because I forgot how you balance sheet works for the quarter. Your cash was down about 106 million. Your tobacco was up 180 mill is.
That.
Traditional for the fourth quarter in terms of swings that much.
Steve working capital was certainly also we have to start buying earlier in Brazil pricing was also up with regard to exchange as well as pressure on the market there and keep in mind that we bought.
Book shelves in the.
On October four so we have to go out and do some cash as well as some depth there too to findings.
Okay. Thank you very much.
Welcome.
Yeah.
Thank you for your question Steve There are currently no further questions registered as a brief reminder, it is star one on your telephone keypad.
Okay.
Okay.
There are no more questions waiting at this time, so I will pass the call back from a check for closing remarks.
Thank you <unk> and thank you all for joining us have a good evening.
This concludes the <unk> Corporation fourth quarter fiscal year 2022 earnings call. Thank you for your participation you may now disconnect your lines.
Yes.
Okay.