Tuesday, August 4, 2009

Universal Corporation's 2Q Earnings More Than Double 2Q '08's

Universal Corporation, a supplier of raw flue-cured, burley-leaf, oriental and dark tobacco, reported 2Q '09 diluted EPS of $1.47 per diluted share. (Full press release here.) That figure is 129.6% more than 2Q '08's diluted EPS of 64 cents. Its revenue also rose 22%, and its operating income rose 90%. 'Taint easy finding a company this quarter that's reported strong growth in both earnings and revenues, but Universal is one.

This performance, though, had something to do with acceleration of sales, plus cost benefits garnered because of a strong U.S. dollar. Conversely, the U.S dollar weakening (as is happening right now) will raise its costs. Also blotting the picture is the fact that operating cash flow was negative because of changes in the relevant current assets and liabilities. The main cause was a 65.5% drop in customer advances and deposits, which was buffered somewhat by a 31.9% decrease in Universal's advances to suppliers.

Accounts receivable barely budged, and the ratio of accounts receivable to sales fell from 44.4% to 37.3%. There's no sign of any squeeze in that end, which coheres with the CEO's claim that there's no tobacco glut in sight. The only negative factor that the CEO definitely brought up was the potential loss of Universal's sales to Japan Tobacco, which wants to buy from smaller suppliers.

When this report was disseminated, the market yawned. Universal opened at about where it closed, and edged up 32 cents to $38.92 by 9:38 AM ET. Up until 2:24 PM ET, it drifted in a range whose borders were $38.75 and $39.00.

Then, it ramped up to $40.33 in a hurry. After sinking back somewhat, to $39.23, the stock closed up 3.01% at $39.76.

The reason why won't surprise dividend watchers all that much. At 3:28 PM ET, Reuters Key Developments added a declaration of an unchanged 46 cent per share dividend...for shareholders of record on October 13th. Evidently, there had been a little concern about its dividend for the second half of this year.

Disclosure: I have Universal in my actively-managed Marketocracy mock fund.

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