Candace Formacek
Analyst · Davenport
Thank you, Jason, and 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 and 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 4, 2016. 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 failure 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, 2015, as well as our Form 10-K for the fiscal year-ended March 31, 2016, which we expect to file 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, government regulations, changes in currency, industry consolidation and evaluation and changes in market structures or sources. Finally, some of the information I have for you today is based on unaudited allocations and subject to reclassification. In an effort to provide useful information to investors, our comments today may include non-GAAP financial measures. For details on this measures including reconciliations to the most comparable GAAP measures, please refer to our current earnings press release. Net income for the fiscal year ended March 31, 2016, was $109 million, or $3.92 per diluted share, compared with last year's net income of $114.6 million, or $4.06 per diluted share. Those results included certain non-recurring items, detailed in today’s earnings release, which increased diluted earnings per share by $0.02 and $0.46 for fiscal 2016 and 2015, respectively. Excluding those items in both years, net income for fiscal 2016 increased $6.8 million, $0.30 per diluted share, compared to last year. Segment operating income, which excludes those items, was $186.1 million for fiscal year 2016, an increase of $18.8 million, or 11%, from the prior year. That improvement was primarily attributable to a reduction in selling, general, and administrative costs, as well as improved gross margins on this year's modestly higher sales volumes. Revenues of $2.1 billion for fiscal year 2016 declined 7% compared with the previous year, driven mainly by lower green leaf costs and lower processing revenues, partly mitigated by the increase in volumes. After managing through this second year of oversupplied market conditions, we achieved improved results in fiscal year 2016. 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 our 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. We 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. Now turning to the segment detail. The Other Regions operating income for fiscal year 2016 was $143.6 million, up 14% compared to $125.8 million in the previous fiscal year. Better margins, fewer inventory write-downs, and lower selling, general, and administrative expenses drove the improvement outweighed decline. These positive factors outweighed lower margins in Europe and the currency translation effects of a stronger U.S. dollar, which negatively impacted results from that region. Strong volumes in most regions were offset by declines in Africa on smaller crop sizes in some origins compared to the prior year. For the quarter ended March 31, 2016, operating income for this segment increased by 56% to $55.9 million, compared with the same period last year. The improved results reflected higher total volumes as stronger fourth quarter shipments from later shipping patterns this year, mainly in Asia and South America, were partially offset by reduced volumes in Africa from smaller crops and earlier shipments as a result of processing efficiencies in Mozambique. For the North America segment, operating income for fiscal year 2016 of $31.1 million was flat compared with the previous year. Earnings improvements on higher volumes, due in part to old crop sales in the first fiscal quarter, and the previously announced change in business with Philip Morris International, Inc. in the United States from a toll processing model to sales of processed tobacco, were offset by lower margins and lower earnings from Guatemala and Mexico. In addition, processing volumes declined significantly compared with the prior year as a result of that change in business, and a portion of crop volumes sold under this new arrangement will carry over as shipments in fiscal year 2017. Segment operating income for the fourth fiscal quarter of 2016 increased by $9 million to $18.2 million, compared with last year driven primarily by significantly higher sales volumes, due in large part to the change in business mentioned above, as tobaccos purchased under the arrangement began to ship during the quarter. Revenues for the quarter increased by $81.2 million to $182.4 million, reflecting those higher volumes and a more favorable product mix. The other tobacco operations, fiscal year 2016 segment operating income increased by $1 million to $11.3 million compared with last year. Earnings were up significantly for the dark tobacco operations on higher volumes, better margins, and lower selling, general, and administrative costs. That improvement was partly offset by lower results from the oriental joint venture as benefits from improved margins and lower overhead costs were outweighed by higher currency remeasurement losses and tax accruals. The special services group incurred losses for the year, mainly from startup and production testing costs for the new food ingredients business. For the fourth fiscal quarter of 2016, this segment's operating income improved by $1.4 million to $9.2 million, compared to the same period last year. Results for the dark tobacco operations improved on a more favorable product mix from higher wrapper volumes and lower selling, general, and administrative costs. However, segment results were negatively affected by later timing of oriental tobaccos shipped into the United States and the continuation of start-up costs in the special services group. Selling, general, and administrative costs decreased by $23.5 million for the fiscal year ended March 31, 2016 compared with the prior year. The decline was mainly driven by reductions in local currency denominated expenses, from devaluation of foreign currencies in South America and Africa, and lower incentive compensation costs, reduced in part by higher net currency and exchange losses in Asia as well as costs to settle challenges regarding property rights and valuation in South America. 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 there 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 towards the second half of the year. Although oversupplied markets during the past two fiscal years have been less than optimal, we are 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. At this time, we are available to take your questions. Turn it back to you, Jason.
