Candace Formacek - Investor Relations George Freeman - Chairman, President and Chief Executive Officer David Moore - Chief Financial Officer.

Ann Gurkin - Davenport & Company Steve Marascia - Capitol Securities.

Good afternoon. My name is Elaine and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter Fiscal Year 2017 Earnings Conference Call. [Operator Instructions] Thank you. I will now turn the call over to Candace Formacek. You may begin your conference..

Thanks, Elaine 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 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 3, 2017. Other than the replay, we have not authorized and disclaim responsibility for any recording, replay or distribution of any transcription of this call. This call is copyrighted and may not be used without our permission.

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 and are representative as of today only.

Actual results could differ materially from projected or estimated results and we assume no obligation to update any forward-looking statements.

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, 2016 as well as our Form 10-K for the year ended March 31, 2017, which we expect to file with the SEC later this week.

Such factors include, but are not limited to, customer-mandated timing of shipments, weather conditions, political and economic environment, government regulations, changes in currency, industry consolidation and evolution and changes in market structure or sources.

Finally, some of the information I have for you today is based on unaudited allocations and is subject to reclassification. In an effort to provide useful information to investors, our comments today may include non-GAAP financial measures.

For details on these measures, including reconciliations to the most comparable GAAP measures, please refer to our current earnings press release.

We are pleased that we delivered solid results for fiscal year 2017 despite supply headwinds, most notably from the weather-reduced crop sizes in Brazil and ongoing challenging market conditions in Tanzania.

Although we had anticipated ending the year with slightly lower volume, earlier shipment timing and attractive green prices in some origins resulting in additional purchases by our customers boosted shipments later in our fiscal year, allowing us to improve our market share and achieve lamina sales volumes that were slightly above those of the prior fiscal year.

Our segment operating income for the 2017 fiscal year was also improved, largely attributable to a reduction in selling, general and administrative costs and earlier receipt of distributions from unconsolidated subsidiary. Turning to the financial results.

Net income for the fiscal year ended March 31, 2017 was $106.3 million or $0.88 per diluted share compared with last year’s net income of $109 million or $3.92 per diluted share.

The fiscal 2017 results included a one-time reduction of earnings available to common shareholders of $74.4 million or $2.99 per share for purposes of determining the amounts reported for basic and diluted earnings per share from the conversion for cash of the remaining outstanding shares of our 6.75% convertible preferred stock in January 2017.

Excluding that one-time reduction and other non-recurring items detailed in today’s earnings release, diluted earnings per share for fiscal year 2017 of $3.97 increased $0.07 compared to fiscal year 2016.

Segment operating income, which excludes non-recurring items, was $188.5 million for fiscal year 2017, an increase of $2.4 million from the prior year as improved results for the North America segment were partly offset by a decline for the Other Tobacco Operations segment.

Revenues of $2.1 billion for fiscal year 2017 were relatively flat compared with the previous year as the slightly higher volumes and a benefit from earlier receipt of distributions from unconsolidated subsidiaries were offset by lower green leaf costs and lower processing revenues.

Net income for the fourth quarter ended March 31, 2017 was $32.9 million or a loss of $1.64 per diluted share compared with net income for the prior year’s fourth fiscal quarter of $48 million or $1.72 per diluted share.

The 2017 fourth quarter results also included the one-time reduction of earnings available to common shareholders of $74.4 million or $2.90 per diluted share for the quarter. Excluding non-recurring items, diluted earnings per share for the 2017 fourth fiscal quarter of $1.28 decreased $0.44 compared to the same period last year.

Segment operating income for the fourth quarter of $60.5 million also declined by $22.8 million, mainly due to lower sales volumes from this year’s earlier shipping patterns compared with the prior year’s strong fourth quarter volumes. Now turning to the segment detail.

The Other Regions segment operating income for the fiscal year ended March 31, 2017 of $143.3 million was nearly flat, down only $300,000 compared to the previous fiscal year.

Total volumes for the segment declined, but overall margins improved benefiting from lower selling, general and administrative expenses and timing of receipt of distributions from unconsolidated subsidiaries.

Africa volumes were slightly lower, reflecting challenging market conditions in Tanzania that offset volume improvements elsewhere in the region. South America’s results were down as expected from lower volumes and higher factory unit costs as a result of the reduced buying program and lower third-party processing volumes there this year.

The Other Regions segment operating income for the fourth fiscal quarter of 2017 decreased by $9 million to $47 million compared with the same period last year.

Those results were driven by lower fourth quarter shipments from earlier shipping patterns in the third fiscal quarter this year mainly in Africa as well as lower volumes and margins in Brazil. Segment earnings benefited however from lower selling, general and administrative expenses for the quarter. For the North America segment.

Operating income was $35.2 million for the fiscal year ended March 31, 2017, up $4 million compared with the prior year. The improvement was driven mainly by higher sales volumes partially due to earlier timing of current crop shipments in fiscal 2017.

However, margins for the year were lower from a less favorable product mix as well as reduced factory yields on weather affected U.S. crops.

The segment’s operating income for the fourth fiscal quarter declined by $4.5 million to $13.7 million compared with the same period last year from lower sales volumes due in part to earlier timing of shipments in fiscal year 2017 and tighter margins from a less favorable product mix and reduced factory yields in the United States.

The Other Tobacco Operations segment operating income decreased by $1.3 million to $10 million compared with the same period last year. Earnings improved modestly for the dark tobacco operations as higher domestic volumes were largely offset by a less favorable sales mix and higher inventory write-downs this year.

Results from the oriental joint venture also improved for the period mainly on favorable comparisons due to tax accruals in the prior year. Those improvements were outweighed by higher losses in the special services group, primarily for the new food ingredients business.

For the fourth quarter ended March 31, 2017, this segment’s operating loss of $200,000 reflected a decline of $9.4 million compared to the same period last year.

The dark tobacco operations were down for the quarter on lower volumes, a less favorable product mix and lower foreign currency re-measurement gains in Indonesia, while the oriental joint venture saw lower volumes from earlier shipment timing this year.

Results for the special services group also declined in the fourth fiscal quarter compared to the same period in the previous fiscal year. Selling, general and administrative costs decreased by $14.7 million or 6% for the 2017 fiscal year compared with the prior fiscal year.

The decline was mainly due to the favorable comparison to costs incurred in fiscal year 2016 to settle challenges regarding property rights and valuation of land in South America, the reversal of value-added tax reserves and lower net foreign currency and exchange re-measurement losses compared to last fiscal year.

We believe that our success reflects our continuing efforts to bring efficiencies to the leaf tobacco supply chain. We have been able to expand services that we provide our customers and despite continuing slow decline in demand for consumer tobacco products, maintained our volumes handled.

We have also maintained our strong balance sheet this year, and our lower working capital requirements from smaller crops and prudent buying programs helped us to retain the necessary cash reserves to support our working capital needs in fiscal year 2018.

In addition, in fiscal year 2017, we continued our focus on providing returns to our shareholders through completing the conversion of our preferred stock, increasing the common dividend rate and returning more than $60 million in dividends.

As we move into fiscal year 2018, we are forecasting that global flue-cured tobacco production outside of China will increase by about 9%, largely from the recovery of the Brazilian crop due to better weather conditions there and that burley tobacco production will decrease by approximately 8%, primarily due to reductions in Africa.

Although it is too early to determine whether the additional purchases by customers in fiscal year 2017 may impact their requirements in fiscal year 2018, we continue to strive to be our customers’ supplier of choice, providing them compliant products and quality services at a competitive price. At this time, we are available to take your questions..

[Operator Instructions] And your first question comes from the line of Ann Gurkin from Davenport & Company..

Hey..

Good afternoon everyone.

I want to start with the crop outlook, the burley outlook, the further decline, is that a surprise and do you have any insight into the quality of those expectations behind the flue-cured and burley crops or is it too early?.

I don’t think it was – I don’t think it’s a surprise on the burley and Africa quality. Yes, quality is good, average to good, primarily looking at Brazil..

Okay.

And then some income statements, regarding margin, where can the business go long-term, if you think about peak operating margins for the business, where would that be for Universal now given dynamics globally?.

Well, I am not sure exactly what dynamics you are talking about, Ann.

I mean I think that we have always – and what we have been saying for a while is that we believe that there is still room for improvement and finding opportunities in the supply chain to enhance results and that as we see what the outcome is within our customer base and within the general industry over the coming years, we still believe there are opportunities for us to be important to our customers and to maintain our volumes currently.

It’s hard to tell a long-term view. I think we look generally over the next few years. We are pleased that this year we have been able to maintain the volumes that we sold last year and we are continuing to work and develop opportunities with our customers continually..

I guess, given the statement in the press release about moving into ‘18, it’s tough for burley I guess [Technical Difficulty]..

Sorry, Ann, you are cutting out. We missed that last statement..

[Technical Difficulty] is still uncertain, Kind of can that margin hold as we look at 2018, can it go higher, I mean, can you give any kind of comment on that?.

We have – I missed, I still missed part of your statement. But if you are looking for outlook on margins for ‘18, we don’t typically provide estimates in that way.

We are looking, it’s still very early in the season for 2018, we just opened up in Brazil through this quarter and we are working busily as we normally would, but I don’t think we have an outlook on specific margins, opportunities this year..

Ann, Brazil is – I mean, sort of on volume, Brazil is back to normal, but Malawi is down. But general, that’s sort of an offset on big picture..

Great.

Let’s try the other way, on SG&A you had nice improvement in ‘17 versus ‘16, how should we think about that as we go into ‘18 or think about can you drop further improvement in the SG&A line over the next couple of years?.

Ann, I think that we are always looking to find ways to improve our costs and so I won’t rule that out. At the same time, a lot of what you see in the movements are typically one-off kinds of things, our comparisons to prior year. So hopefully, we have tried to provide a color on that in these variances. Some of it is currency.

You will always see that moving around..

Lord knows I can’t predict the currency..

But we do continually work on the fundamentals where we can of course..

Okay, great.

And then on the balance sheet, the decline in customer advance is down to $11 million from $16 million last year, what is behind that number?.

Ann, I don’t know if there is anything specific behind it. It’s sort of been in general decline for years and we don’t push it. We don’t really need the customers to pre-finance their purchases so….

Yes, it doesn’t really matter..

But it hasn’t been material in some time..

Okay, great.

And then since I have you, how about the tax rate for ‘18?.

We knew you would ask that one..

I ask this all the time..

Yes. I would only point out the exchange rate impact on deferred income taxes has some impact on the rate. But generally, I would expect it to be between 34% and 35% this year..

Okay, great.

And then as you think about the business longer term and the move by tobacco companies to, I guess behind innovation to pursue non-combustible or heat-not-burn technologies, any read through on customer inventories or conversations about strategies how to position the business for what could be a change in kind of mix of customer products and demand for leaf, I mean can you help me out with that at all?.

Well, I mean to the extent it’s – the non-combustible tobacco centered products seems to be a theme espoused by our major customers. And to the extent, they go down that route, we intend to be positioned to be – well, we will strive to be their supplier of choice, but we are moving with them as they make that transition..

So moving with them in terms of – uses less leaf per non-combustible device, so are you all in conversations about long-term strategy if that technology proves successful?.

Yes, we are always in discussions with them. Ann and yes, it will use less, but there is a – perhaps it will use higher quality. So it’s not necessarily an all or nothing deal..

Okay, that’s great. That’s all I have. Thank you all very much..

Thanks Ann..

And you have a question from Steve Marascia from Capitol Securities..

Good afternoon everyone..

Good afternoon..

Just a simple question, I don’t know if this has already been asked in prior calls, but I was wondering if any of the machinations [ph] from the new White House team regarding potential trade operations or policies, have you all been able to look at that and see – figure out if that’s going to either positively or negatively impact you on any of the proposals or anything they have vaguely talked about?.

No. I think when we – when there was discussions about ripping up NAFTA that we have operations in Mexico and they would have been affected by that, but you could argue that, that would have been offset here in the U.S. So I think in general, it would – where we would lose out, we would probably gain, so..

I think it’s hard to tell to you Steve, because without the details and without seeing the repercussions and what some of the push and pull might be in certain places, it’s really difficult to try to model that out. I understand the issue and getting that question, but for us, it really depends on a lot of things.

And there are different ways that we conduct our business in different countries and our customers are global, so it’s hard to give a specific answer on that at this stage..

Has it affected your ability to make plans going forward based on the uncertainty what they might provide you or are you just progressing as is…?.

No, because primarily the – I mean, really the U.S. is really a domestic market. I mean, there are some imports, but largely it’s a domestic market. And there are some U.S. exports, but again, in the scheme of business, they are not huge..

Not really. It might come down to the – any regulations that affect the importation of oriental tobacco….

Right, that’s probably the biggest..

Okay, thank you very much..

Thank you..

[Operator Instructions] And I am showing no further questions at this time..

That’s great. Thank you, Elaine and thank you everyone for joining us today..

Good night, everybody..

And this does conclude today’s conference call. You may now disconnect..