Wednesday, May 25, 2016

Universal Corp & Costco Earnings

Yesterday Universal Corp(UVV) reported Q4 and FY'16 results. According to the press release Q4 EPS came in at $1.72(up 5%) on revenues up 3% to $804 million. FY'16 EPS came in at $3.92 on revenues of $2.1 billion which were down 7% from FY'15. The shares shot up 3.3% in the market today. The company showed really good cost containment through the year. This is what I expected from the company when I added shares.  I'm trusting these shares to be less volatile, and more dependable than the overall market despite the fact EPS is down from 2015. Additionally I really think the shares popped due to the earnings call where it was mentioned new FDA regulations would not really have an impact on their liquid nicotine business. That's a key area for the company as the regulations have basically ensured a monopoly to products already on the market. Here is what CEO George Freeman had to say.

"Mr. Freeman stated, "I am proud to report that we achieved improved results in fiscal year 2016, after managing through this second year of oversupplied market conditions. As anticipated, we ended the year with strong fourth quarter volumes, primarily driven by later timing of customer shipping orders in Brazil and Asia this year, and the positive change in leaf supply arrangements in our North America segment that we announced last year. We also achieved modest growth in overall volumes for the full fiscal year and improved our margins, and our selling, general, and administrative costs were lower. Our inventories continue to be well-managed, and uncommitted stocks have declined from last year's level, in line with our target. In addition, we returned more than $60 million in dividends to our shareholders during the fiscal year, closed the year with higher cash balances, which will support upcoming seasonal working capital requirements in fiscal year 2017, and preserved our solid financial position.

"As we move into the new fiscal year, global production estimates have continued to decline. Plantings have been reduced in some origins where farmers received lower green leaf prices this fiscal year, and El Nino weather patterns have negatively impacted some crops, particularly in Brazil. Consequently, and due to aggressive green leaf market pricing, our crop purchase levels and sales volumes, as well as third-party processing volumes from that origin, will be lower in fiscal year 2017. However, we expect that Brazilian crop levels and our volumes will recover next season.

"While we believe that total production levels have largely moved into balance with anticipated demand, imbalances in certain leaf quality styles or types remain, and our customers' inventory composition and durations may also impact their near-term demand requirements. We also believe that seasonality will continue to influence our quarterly results, with some carryover crop deliveries expected in the first fiscal quarter of 2017. Although it is still early in the season, we currently anticipate that customer-mandated shipment timing will continue to be weighted toward the second half of the year.

"Although oversupplied markets during the past two fiscal years have been less than optimal, I am pleased with our solid performance demonstrated throughout this period, particularly during fiscal year 2016. We remain excited about our prospects and look forward to continuing our leadership role in the industry, as we work for and with our customers to improve efficiencies in our markets and to provide a sustainable, compliant, and competitively priced product, allowing us to fulfill their needs and to continue to provide value to our shareholders."

Today Costco reported Q3 EPS of $1.24 on revenues of $26.15 billion. Sales growth has been very low as it deals with gasoline price deflation and currency swings. The stock traded up 1.30% today.  I'm not disappointed nor ecstatic with the results as it's a tough environment for retailers, but I think Costco will continue to be stable relative to many of it's peers.  There is a lot of concern over Amazon and online retailing right now so investors are cautious.  From what it appears the underlying business is doing OK. It just seems that gas prices are skewing the results.  The conference call is scheduled for May 26 and I'll be interested in what management has to say. 

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