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Universal Corporation (NYSE:UVV)

Q4 2014 Results Earnings Conference Call

May 20, 2014; 05:00 p.m. ET

Executives

George Freeman - Chairman, President & Chief Executive Officer

David Moore - Chief Financial Officer

Candace Formacek - Vice President & Treasurer

Analysts

Operator

Good evening. My name is Alicia and I will be your conference operator today. At this time I would like to welcome everyone to the Universal Corporation, fiscal year 2014 results conference call.

All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions). Thank you.

Ms. Formacek, you may begin your conference.

Candace Formacek

Thank you Alicia. Thank you all for joining us. George Freeman, our Chairman, President, and CEO; and David Moore, our Chief Financial Officer are here with me today. They 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 19, 2014. If you are listening to this call after that date or if you are reading a transcription, we have not authorized such recording or transcription. It has been made available to you without our permission, review or approval. We take no responsibility for such presentation. Any transcription, inaccuracies or omissions or failures to present available updates are the responsibility of the party who is providing it to you.

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. 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, 2013, as well as our form 10-K for the fiscal year ended March 31, 2014, which we expect will be filed with the SEC later this week.

The factors that can affect our estimates include such things as customer-mandated timing of shipments, weather conditions, political and economic environment, changes in currency, industry consolidation and evolution and changes in market structure or sources. Finally, some of the information I have for you today is based on un-audited 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 reconciliation to the most comparable GAAP measures, please refer to our fiscal year 2014 earnings press release.

Net income for the fiscal year ended March 31, 2014 was $149 million or $5.25 per share, compared with $132.8 million or $4.66 per share for the same period last year. Those results included the Brazilian tax credit litigation gain of $1.87 per share and restructuring cost of $0.15 per share for fiscal 2014, as well as restructuring cost of $0.06 per share for 2013.

Total segment operating income of $175.2 million for fiscal year 2014, declined $57.6 million from the prior year, mainly attributable to lower results for the other region and segment.

Net income of $26.7 million or $0.94 per share for the fourth fiscal quarter was higher compared with net income for the prior year's fourth quarter of $26.1 million or $0.92 per share. Those results included restructuring costs of $0.04 and $0.01 per share for 2014 and 2013 respectively.

Segment operating income for the quarter of $44.9 million was down $2.1 million compared with the previous year, as improved results in the Other Regions segment were offset by declines for the North America and Other Tobacco Operation segments. Revenues for the fiscal year and fourth quarter 2014 were up about 3% and 7% respectively as slightly lower volumes were offset by higher prices.

We performed well in the face of a challenging environment this year, and our underlying business and customer relationships remain strong. Given the larger crops this year, shipping volumes in the second half of fiscal year 2014 exceeded those in the comparable period last year. These increased volumes, partially offset lower levels of carryover volumes in the first half of the year, weaker margins in Brazil and negative foreign currency remeasurement and exchange loss comparisons this year.

Now turning to the segment detail. In the other region segment full year segment operating income of $133.4 million was down 31%, mainly influenced by factors that we have been discussing this year, fewer carryover shipments and weaker margins in South American from higher green leaf prices and higher selling general and administrative costs from negative currency remeasurement and exchange compression in Africa, South America and Asia. These factors drove the decline despite higher volumes for the year in African and Asia.

Segment operating income of $30.7 million was up however by 25% for the fourth fiscal quarter, as those higher shipments from the larger current crops in Africa and stronger trading volumes in Asia more than offset declines in South American.

North America segment operating income of $23.2 million increased to $3.5 million for the year on a more favorable product mix and reduced overheads, including postretirement benefit costs. However operating results of $4.6 million declined for the fourth quarter on lower volumes due to shipment timing comparison in Central American and weather related processing yield reductions in North American.

Other Tobacco Operation segment, operating income was down $2 million for fiscal year 2014 and $2.7 million for the fourth quarter, mainly from declines for the oriental joint venture. Operating results for fiscal year 2014 for both the oriental joint venture and the dark tobacco operations reflected underlying business improvements, which were negatively impacted by devaluations of local currencies.

Our higher working capital cash performance this year were sharp contrast to the returns of working capital seen in fiscal year 2013, when we had the advantage of sales of uncommitted inventory and large carryover crops that increased cash flows.

In fiscal year 2014, purchases of larger crops, tighter margins in Brazil from higher green leaf costs, and investments in production growth in Africa utilized much of the substantial levels of cash flow from the previous fiscal year. Despite these requirements, we maintained our strong financial position this year by reducing debt by $80 million and continued to reward our shareholders with more than $75 million in dividend and share repurchases.

Looking ahead, margins in fiscal year 2014 were affected by volatile Brazilian leaf markets, but this has not been a factor in the current crop season. This year the Brazilian season has begun slowly, with delayed sales and purchases, as farmers and customers monitor market developments.

Production volumes there are similar to last year's crop, and the flue-cured crop quality is lower than average. Our uncommitted inventories were higher at March 31, 2014, due in part to the slow start to the selling season in Brazil. In Africa, the markets have opened at a normal pace, and there are production volume increases in certain origins.

At the same time, due to declines in the U.S. and Western European retail cigarette sales, we may see some reductions in purchases of certain styles of tobacco, as customers adjust their inventory durations. Given the increased production and potential customer inventory adjustments, we expect an oversupply of tobacco in fiscal year 2015, which may lead to lower leaf prices that typify such cycles.

Our strategy remains focused on efficiently managing our business, meeting our customers and suppliers evolving needs, and returning value to our shareholders. We continue to invest in opportunities to improve our business and to promote sustainable, compliant leaf production.

Our long-term outlook for Africa remains strong, consistent with our ongoing investments to both expand production this year in Mozambique to serve our customers requirements and to enhance production efficiency in several other African origins.

We also continue to seek out growth opportunities that enhance our company's value and help to sustain tobacco growers. Last month we announced our new food ingredient business, which is not only an attractive business opportunity, but provides tobacco growers with a new market for sweet potatoes, which are often grown in rotation with tobacco.

We are excited about our future and believe that we are well positioned to manage the cycles inherent in our industry, while successfully executing on our strategy.

At this time we are available to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) And there are no questions at this time.

Candace Formacek

Thank you very much.

Operator

This concludes today’s conference call. You may now disconnect.

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