Universal Corporation (NYSE: UVV) — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2021, with comparisons to fiscal 2020 and 2019. The request metadata says “2019 Q4,” but the supplied filing is the fiscal 2021 Form 10-K, not a 2019 quarterly filing.
Business context
Universal is a global business-to-business supplier operating in more than 30 countries. Its principal business is sourcing and processing leaf tobacco; its growing Ingredients Operations business supplies fruit- and vegetable-based ingredients for human and pet food. Tobacco represented 93% of fiscal 2021 revenue. The company acquired FruitSmart in January 2020 and Silva in October 2020, and decided to wind down its CIFI sweet-potato operation.
Financial performance and position
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $1,983.4 million | $1,910.0 million | Up 4% |
| Gross margin | 19.5% | 18.7% | Up 80 basis points |
| Operating income, reported | $147.8 million | $126.4 million | Up 17% |
| Adjusted operating income, non-GAAP | $172.9 million | $141.3 million | Up 22% |
| Net income attributable to Universal | $87.4 million | $71.7 million | Up 22% |
| Diluted EPS, reported | $3.53 | $2.86 | Up 24% |
| Adjusted diluted EPS, non-GAAP | $4.25 | $3.49 | Up 22% |
| Cash from operating activities | $220.4 million | $10.9 million | Up $209.5 million |
Revenue growth primarily reflected the acquired ingredients businesses, partly offset by lower tobacco sales. Tobacco Operations revenue was $1,841.8 million, down 2%, while segment operating income rose 15% to $168.8 million. Ingredients Operations revenue increased to $141.5 million from $22.9 million, and segment operating income improved to $0.4 million from an $8.5 million loss. Ingredient results included $6.4 million of acquired-intangible amortization and $2.8 million of purchase-accounting inventory expense.
At March 31, 2021, cash and cash equivalents were $197.2 million; working capital was $1,262.2 million; and the current ratio was 5.31. Long-term debt was $518.2 million and notes payable and overdrafts were $101.3 million. Company-defined net debt was $431.0 million, up $81.4 million year over year; net debt was 25% of net capitalization, versus 22%. The company reported $430 million available under its committed revolver, covenant compliance, and no long-term debt maturity until fiscal 2024. Shareholders’ equity attributable to Universal was $1,307.3 million.
Capital expenditures were $66.2 million, and the Silva acquisition used approximately $164 million in cash. Common dividends paid were $75.2 million. No common shares were repurchased in fiscal 2021; the full $100 million authorization remained available.
Material changes and unusual items
- Reported operating income included $22.6 million of restructuring and impairment costs, mainly the $16.1 million CIFI wind-down charge. These charges reduced net income by $17.8 million, or $0.72 per diluted share.
- Other notable fiscal 2021 items included $3.9 million of Silva transaction costs, $2.8 million of inventory purchase-accounting expense, a $4.2 million gain from reducing FruitSmart contingent consideration, a $1.8 million foreign tax settlement charge, and tax benefits of $4.4 million from U.S. tax regulations and $3.4 million from amended and finalized prior-year returns.
- Positive foreign-currency remeasurement and exchange comparisons contributed approximately $26 million versus fiscal 2020. Management reported strong second-half tobacco shipments, with full-year volumes slightly below the prior year and some shipments delayed into fiscal 2022.
- Fiscal 2021 effective tax rate was 23.4%, compared with 31.1% in fiscal 2020. Management estimated the 2021 rate would have been approximately 30% without specified tax benefits.
Outlook, risks, and contingencies
Management expected fiscal 2022 flue-cured tobacco supply to be in line with anticipated demand and burley supply to be slightly undersupplied. It forecast capital spending of $35–$45 million and pension contributions of about $7 million, and stated that available cash, operating cash flow, and liquidity sources were expected to meet requirements for at least the next 12 months. Management noted that shipping disruption and limited container availability were raising freight costs; COVID-19-related delays and changing ingredient demand could continue to affect comparisons.
Principal risks include dependence on a small number of tobacco customers (the seven largest generated about 70% of revenue), declining cigarette consumption, tobacco regulation and taxation, crop and weather variability, foreign exchange and political risks, farmer-advance recoverability, and integration and performance of acquisitions. Food-safety, contamination, and changing-consumer-preference risks also apply to Ingredients Operations. The company disclosed contested Brazilian VAT assessments of approximately $8 million and $3 million; management considered no loss probable and recorded no liability. Other litigation and tax matters were not expected to materially affect the business or financial position, though an adverse resolution could affect a particular period.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Silva, which represented 8.5% of consolidated assets and 3.1% of revenue, was excluded from management’s internal-control assessment and the auditor’s internal-control audit.
Important facts for investors to verify
- Confirm the intended reporting period: this filing covers the fiscal year ended March 31, 2021, not 2019 Q4.
- Review the quality and repeatability of earnings, including currency benefits, tax items, restructuring charges, and the company’s non-GAAP adjustments.
- Assess whether FruitSmart and Silva can sustain growth and improve Ingredients Operations profitability, and monitor the CIFI wind-down and asset disposition.
- Track tobacco shipment timing, customer concentration, uncommitted inventory levels, crop conditions, and freight availability and costs.
- Review seasonal borrowing needs, debt and covenant headroom, acquisition-related commitments, and the unresolved Brazilian VAT assessments.
- Consider that Silva was not included in the year-end internal-control effectiveness assessment.