Leaf tobacco markets headed for better balance

Weather patterns and reduced plantings in some parts of the world are expected to bring leaf tobacco markets largely into balance, according to George C. Freeman, III, chairman, president, and CEO of Universal Corporation.

“We are monitoring weather conditions around the world that will likely have a negative impact on 2016 crop quality and production levels,” Freeman said in announcing the company’s results for the six months to the end of September.

“As a result of the recent heavy rains and hail in southern Brazil from an El Nino weather pattern, we have reduced production projections for both flue-cured and Burley in that country by about eight percent,” he said. “The smaller crop sizes could decrease our buying program there next year.

“The same weather pattern may also affect Africa, decreasing rainfall and impacting crop sizes and quality.

“We believe that the combination of this weather pattern and reduced plantings in some origins will bring markets largely into balance in fiscal year 2017.”

Universal’s net income for the six months to the end of September was $16.5 million or $0.40 per diluted share, up from $15.7 million or $0.35 per diluted share during the same period of last year.

For the second fiscal quarter to the end of September, net income was $22.5 million or $0.81 per diluted share, down from $15.0 million or $0.48 per diluted share during the second fiscal quarter of 2014.

Segment operating income for the first half of fiscal 2016 was increased by $13.7 million to $34.6 million, while for the second fiscal quarter it was up by $9.6 million to $38.1 million.

“We are pleased with the performance of our operations in the first half of this year, which has progressed as expected given the lingering effects of an oversupplied market,” said Freeman.

“Our results for the six months ended September 30, 2015, include higher sales volumes, lower overhead costs, and better overall margins in our key operating regions, due in part to efforts in recent years to improve efficiencies and reduce costs in our business.

“We continue to support supply chain efficiencies, such as in Poland where we recently announced an agreement to assume processing of tobaccos in crop year 2015 for a major customer, giving rise to improved processing efficiencies in that country.”