Universal Corporation — Form 10-Q Summary
Reporting period: Fiscal first quarter ended June 30, 2022, compared with the quarter ended June 30, 2021. The request metadata says “2021 Q1,” but the filing covers 2022 Q1 (fiscal 2023). Universal is a global business-to-business supplier of leaf tobacco and plant-based food ingredients.
Financial results and position
| Metric | Quarter ended June 30, 2022 | Prior-year quarter | Change |
|---|---|---|---|
| Sales and other operating revenues | $429.8 million | $350.0 million | Up 23% |
| Gross profit margin | 18.5% | 17.8% | Up 70 basis points |
| Operating income | $13.3 million | $10.6 million | Up 25% |
| Net income attributable to Universal | $6.8 million | $6.4 million | Up 7% |
| Diluted earnings per share | $0.27 | $0.26 | Up 4% |
| Cash used in operating activities | $225.8 million | $126.9 million | Use increased $98.8 million |
Consolidated net income, including noncontrolling interests, was $2.8 million, versus $3.9 million. Adjusted diluted EPS, a non-GAAP measure, was $0.25 versus $0.30; management’s adjustments include the Tanzania sale-related tax and interest items in 2022 and prior-year restructuring costs.
- Segments: Tobacco revenue rose 18% to $348.1 million, while segment operating income fell 9% to $8.1 million. Ingredients revenue rose 46% to $81.8 million and segment operating income increased 6% to $4.6 million. Ingredients results include Shank’s, acquired in October 2021.
- Balance sheet at June 30, 2022: Cash and cash equivalents were $86.6 million; tobacco inventory was $1.08 billion. Short-term notes payable and overdrafts were $454.7 million, and long-term debt was $518.8 million. Net debt was 41% of net capitalization, versus 31% a year earlier and 32% at March 31, 2022.
- Liquidity: The company reported $155 million available under its committed revolving credit facility and approximately $84 million in unused uncommitted credit lines. It was in compliance with debt covenants. No long-term debt was due before fiscal 2024.
- Dividends and investment: Dividends declared were $0.79 per common share, compared with $0.78. Capital expenditures were $15.1 million; the company expects to spend approximately $40–$50 million on capital projects over the next 12 months.
Changes, outlook, and key considerations
- Revenue growth reflected higher tobacco sales volumes and prices, shipments of Brazilian carryover tobacco, and Shank’s contribution. Higher prices for tobacco and other inputs also increased working-capital needs and borrowing.
- Management said it expects seasonal borrowings to decline in the second half as tobacco shipments—weighted to that period—progress. It expects cash, operating cash flows, and available liquidity to meet requirements for at least the next 12 months. No earnings or revenue guidance is provided.
- Management cited strong leaf-tobacco demand but continued shipping constraints, rising tobacco costs, and a strong U.S. dollar that weighed on Tobacco Operations results. It anticipated smaller African burley crops due to weather. Ingredients sales benefited from strong human- and pet-food volumes; raw-material, freight, labor, and other costs were rising.
- Quarterly operating cash use was driven substantially by seasonal working-capital investment. Tobacco inventory increased $258.0 million from March 31, 2022, reaching $1.1 billion. Uncommitted tobacco inventory was $164.3 million, about 15% of total tobacco inventory.
- The sale of idled Tanzania operations produced $1.3 million of cash at closing, with remaining proceeds due in installments by June 2023. The sale added $1.1 million of income taxes and reduced interest expense by $1.8 million through reversal of an uncertain-tax-position accrual.
- Brazil VAT assessments remain contested: the disclosed reasonably possible loss ranges are up to approximately $9 million for Santa Catarina and $3 million for Paraná; no liability was recorded because management did not consider a loss probable. Other litigation and tax matters were not expected to materially affect business or financial position, though an adverse resolution could materially affect a particular period.
- Other risks include COVID-19 uncertainty, supply-chain and freight disruption, foreign-exchange and interest-rate exposure, customer concentration, geopolitical and economic conditions including the conflict in Ukraine, and weather-related crop risks. Management reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether tobacco shipments occur as expected and seasonal borrowing declines in the second half.
- Whether higher tobacco, ingredient, freight, labor, and financing costs pressure margins or cash generation.
- Progress integrating Shank’s and sustaining growth and profitability in Ingredients Operations.
- Developments in the Santa Catarina and Paraná VAT disputes and recoverability of VAT credits.
- Cash proceeds and any further accounting or tax effects from the Tanzania sale; also note the company’s fiscal first-quarter seasonality when assessing quarterly results.