- Net sales $506.2 million, +3% vs. year ago
- Diluted EPS $.94, +8.0% vs. year ago
- Adjusted diluted EPS $.95, +5.6% vs. year ago (see table)
- Total moist smokeless tobacco net can volume +1.3%
- Moist smokeless tobacco category +7.6% vs. year ago (26 weeks ended June 14, 2008)
- Ste. Michelle Wine Estates net sales +24.7% and operating profit +29.5% vs. year ago
STAMFORD, Conn., July 24 /PRNewswire-FirstCall/ -- UST Inc. (NYSE: UST)
today reported second quarter and six-month 2008 results slightly ahead of its
expectations.
'Despite a challenging U.S. economy, a significant mid-quarter spike in
gasoline prices and a meaningful increase in smokeless tobacco competitive
activity, UST exceeded its earnings expectations for the quarter,' said Murray
S. Kessler, chairman and chief executive officer. 'We remain on track to
deliver a 10 percent shareholder return for the year, despite the fact that
the company is increasing promotional support in the second half to address
premium smokeless tobacco volume trends in specific areas of the country most
impacted by current economic headwinds and competitive activity.'
Consolidated Results
For the second quarter ended June 30, 2008, net sales increased 3 percent
to $506.2 million, operating income increased 4.4 percent to $237.7 million,
net earnings declined 0.2 percent to $139.7 million and diluted earnings per
share increased 8 percent to $.94 versus the prior year period. During the
quarter, the company repurchased 1.3 million shares at a cost of $66.8 million.
Second quarter 2008 results include antitrust litigation and Project
Momentum related restructuring charges totaling $2.7 million before income
taxes, or $.01 per diluted share. Second quarter 2007 results include Project
Momentum related restructuring charges and lease charges recorded in
connection with the sale of the company's headquarters totaling $6.8 million
before income taxes, or $.03 per diluted share.
Adjusting for these items in each year, underlying second quarter 2008
operating income increased 2.5 percent to $240.5 million, net earnings
decreased 1.9 percent to $141.4 million and diluted earnings per share
increased 5.6 percent to $.95, as indicated on the attached reconciliation
table, which provides a reconciliation of such non-GAAP financial measures to
the most directly comparable GAAP measures.
The 5.6 percent increase in adjusted diluted earnings per share slightly
exceeded the company's previous guidance of approximately 4 percent. This was
driven by continued strong sales and operating profit for the company's wine
operations, cost and spending favorability across all operations due to
Project Momentum, and a reduction in shares outstanding, partially offset by
increased interest expense related to increased borrowings incurred to enhance
share repurchases.
For the six-month period ended June 30, 2008, net sales increased 4.3
percent to $978.9 million, operating income increased 11 percent to $450.6
million, net earnings increased 7.1 percent to $265 million and diluted
earnings per share increased 15.7 percent to $1.77. For the six-month period,
the company repurchased 3.7 million shares at a cost of $198.7 million.
As indicated on the attached table reconciling GAAP to non-GAAP financial
measures, the six-month 2008 and 2007 periods include antitrust litigation
settlement and restructuring charges. In addition, the 2007 period includes a
net gain on the sale of the company's headquarters. Adjusted for these items,
underlying operating income increased 4.5 percent to $453.7 million, net
earnings increased 0.7 percent to $267 million and diluted earnings per share
increased 9.1 percent to $1.79 versus the prior year period.
Smokeless Tobacco Segment
Smokeless Tobacco segment second quarter 2008 net sales decreased 1.3
percent to $393.7 million and operating profit increased 1.1 percent to $226.2
million, versus the prior year period. On an adjusted basis, operating profit
increased 0.8 percent to $228.9 million (see table).
In the quarter, total moist smokeless tobacco net can volume increased 1.3
percent to 172 million, with premium decreasing 0.3 percent to 143.2 million
and price value increasing 9.7 percent to 28.8 million, versus the prior year
period.
'Our sustained investments continue to drive strong moist smokeless
tobacco category growth and overall can volume growth for the company,' said
Daniel W. Butler, president, U.S. Smokeless Tobacco Company (USSTC). 'However,
our premium volume trend softened in June, primarily in one region of the
country. We attribute this to increased competitive activity, our own
promotional timing and higher gasoline prices. Plans have been adjusted to
address these issues in order to return USSTC's premium volume to growth as
the year progresses.'
USSTC's Retail Account Data Share & Volume Tracking System (RAD-SVT) for
the 26-week period ended June 14, 2008, indicates continued strong category
growth trends. USSTC's total shipments increased 1.7 percent versus year ago,
in a category that increased 7.6 percent. USSTC's premium brands grew 0.3
percent, slightly less than the premium segment which grew 0.6 percent,
resulting in a 90.7 percent share of the premium segment. USSTC's price value
shipments increased 8.6 percent, while the total price value segment increased
16.5 percent, resulting in a 21.4 percent share of the price value segment.
USSTC's total share of 57.9 percent declined 3.4 percentage points versus the
prior year period. (See supplemental schedule for information about RAD-SVT
data).
Smokeless Tobacco segment six-month 2008 net sales increased 0.1 percent
to $767.3 million versus the prior year period. Total moist smokeless tobacco
net can sales increased 2.1 percent to 331.9 million, with premium net can
sales up 0.9 percent to 277.6 million and price value net can sales up 8.6
percent to 54.3 million.
Operating profit for the segment, including antitrust litigation
settlement charges and its share of restructuring charges in 2008 and 2007,
increased 45.8 percent to $429.8 million. Excluding these items, underlying
operating profit increased 2.2 percent to $432.6 million.
Wine Segment
In the second quarter 2008, net sales for the Wine segment increased 24.7
percent to $99.1 million, as total premium case sales increased 20 percent to
1.5 million. Strong growth was realized across the product portfolio,
including the recently acquired Stag's Leap Wine Cellars, and was driven by
strong acclaim for several recently released wines, a new advertising campaign
for Columbia Crest and improved distribution as a result of an expanded sales
force. Among the company's fastest growing brands in the quarter was Columbia
Crest, with its current Chardonnay release garnering strong critical acclaim
and contributing to the more than thirty five 90-plus ratings received for Ste.
Michelle Wine Estates in the period. Strong sales growth, combined with
increased productivity led to a 29.5 percent increase in operating profit to
$14.8 million.
'Ste. Michelle Wine Estates remained the fastest growing top-10 winery in
the United States,' said Theodor P. Baseler, president, Ste. Michelle Wine
Estates. 'Outstanding growth continues to be driven by our dedication to
producing world-class quality wines at a great value, combined with
significant investments to expand our sales force and our brand portfolio.'
For the six-month 2008 period, Wine segment net sales increased 25.0
percent to $185.3 million on a 17.9 percent increase in premium case sales
versus the corresponding 2007 period. Operating profit advanced 17.5 percent
to $26.7 million.
Outlook
For the year, the company remains on track to deliver its previously
released adjusted non-GAAP diluted earnings per share target of $3.65, with a
range of $3.60 to $3.70, inclusive of plans to increase smokeless tobacco
promotional support to address increased competitive activity and the current
economic environment. Guidance for 2008 excludes any additional restructuring
charges associated with Project Momentum to be incurred, as management is not
able to make a determination of the estimated amounts or range of amounts of
such charges. The 2008 guidance is consistent with the company's long-term
goal of providing an average annual shareholder return of 10 percent,
including adjusted diluted earnings per share growth and a strong dividend.
Consolidated diluted E.P.S. Full Year
2008 2007 %
Estimate Actual Change
GAAP diluted E.P.S. $3.63 $3.27 11.0
Other items (net of taxes):
Antitrust litigation .01 .54 -
Restructuring charges .01 .04 -
Impact of sale of corporate
headquarters, net - (.39) -
Adj. non-GAAP diluted E.P.S. $3.65 $3.46 5.5
A conference call is scheduled for 9 a.m. Eastern Time today to discuss
these results. To listen to the call, please visit www.ustinc.com. A 14-day
playback is available by calling (888) 286-8010 or (617) 801-6888, code
#49334112 or by visiting the website.
UST Inc. is a holding company for its principal subsidiaries: U.S.
Smokeless Tobacco Company and Ste. Michelle Wine Estates. U.S. Smokeless
Tobacco Company is the leading producer and marketer of moist smokeless
tobacco products including Copenhagen, Skoal, Red Seal and Husky. Ste.
Michelle Wine Estates produces and markets premium wines sold nationally under
20 different labels including Chateau Ste. Michelle, Columbia Crest, Stag's
Leap Wine Cellars and Erath, as well as exclusively distributes and markets
Antinori products in the United States.
All statements included in this press release that are not historical in
nature are forward-looking statements made pursuant to the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1995. Forward-
looking statements regarding the company's future performance and financial
results are subject to a variety of risks and uncertainties that could cause
actual results and outcomes to differ materially from those described in any
forward-looking statement made by the company. These risks and uncertainties
include uncertainties associated with ongoing and future litigation relating
to product liability, antitrust and other matters and legal and other
regulatory initiatives; the company's ability to execute strategic actions,
including acquisitions and the integration of acquired businesses; federal and
state legislation, including actual and potential excise tax increases, and
marketing restrictions relating to matters such as adult sampling, minimum age
of purchase, self service displays and flavors; competition from other
companies, including any new entrants in the marketplace; wholesaler ordering
patterns; consumer preferences, including those relating to premium and price
value brands and receptiveness to new product introductions and marketing and
other promotional programs; the cost of tobacco leaf and other raw materials;
conditions in capital markets, including the market price per share of the
company's common stock and its impact on the number of shares repurchased; and
other factors described in this press release and in the company's Annual
Report on Form 10-K for the year ended December 31, 2007. Forward-looking
statements made by the company are based on its knowledge of its businesses
and the environment in which it operates as of the date on which the
statements were made. Due to these risks and uncertainties, as well as
matters beyond the control of the company which can affect forward-looking
statements, you are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date of this press release. The
company undertakes no duty to update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
UST
CONSOLIDATED SALES AND EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Second Quarter
2008 2007 % Change
Net sales $506,171 $491,254 +3.0
Costs and expenses
Cost of products sold 140,299 126,849 +10.6
Selling, advertising and
administrative 125,400 132,674 -5.5
Restructuring charges 1,206 3,908 -
69.1
Antitrust litigation 1,525 - -
Total costs and expenses 268,430 263,431 +1.9
Operating income 237,741 227,823 +4.4
Interest, net 18,854 8,555 -
Earnings before income taxes,
minority interest and
equity earnings 218,887 219,268 -0.2
Income tax expense 79,039 79,072 -
Earnings before minority
interest and equity earnings 139,848 140,196 -0.2
Minority interest expense 399 246 + 62.2
Income from equity method
investees 211 21 -
Net earnings $139,660 $139,971 -0.2
Net earnings per share:
Basic $.95 $.88 +8.0
Diluted $.94 $.87 +8.0
Dividends per share $.63 $.60 +5.0
Average number of shares:
Basic 147,298 159,557
Diluted 148,577 161,104
UST
CONSOLIDATED SALES AND EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Six months ended June 30,
2008 2007 % Change
Net sales $978,885 $938,272 +4.3
Costs and expenses
Cost of products sold 271,655 242,502 +12.0
Selling, advertising and
administrative 253,504 265,618 -4.6
Restructuring charges 1,618 7,428 -
Antitrust litigation 1,525 122,100 -
Total costs and expenses 528,302 637,648 -17.1
Gain on sale of corporate
headquarters - 105,143 -
Operating income 450,583 405,767 +11.0
Interest, net 36,531 18,130 -
Earnings before income taxes,
minority interest and
equity earnings 414,052 387,637 +6.8
Income tax expense 148,334 139,812 +6.1
Earnings before minority
interest and equity earnings 265,718 247,825 +7.2
Minority interest expense 988 385 -
Income from equity method
investees 264 44 -
Net earnings $264,994 $247,484 +7.1
Net earnings per share:
Basic $1.79 $1.55 + 15.5
Diluted $1.77 $1.53 + 15.7
Dividends per share $1.26 $1.20 +5.0
Average number of shares:
Basic 148,188 159,762
Diluted 149,481 161,340
UST
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
June 30, December 31,
2008 2007
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $47,532 $73,697
Accounts receivable 74,777 60,318
Inventories:
Leaf tobacco 176,937 202,137
Products in process 219,485 258,814
Finished goods 177,001 163,247
Other materials and supplies 24,367 22,365
Total inventories 597,790 646,563
Deferred income taxes 21,946 26,737
Income taxes receivable 922 8,663
Prepaid expenses and other current assets 26,866 30,296
Total current assets 769,833 846,274
Property, plant and equipment, net 505,118 505,101
Deferred income taxes 39,615 35,972
Goodwill 28,211 28,304
Intangible assets, net 55,655 56,221
Other assets 18,473 15,206
Total assets $1,416,905 $1,487,078
Liabilities and stockholders' deficit:
Current liabilities:
Short term borrowings $140,000 $-
Current portion of long term debt 240,000 -
Accounts payable and accrued expenses 191,107 321,256
Income taxes payable 9,224 -
Litigation liability 24,772 75,360
Total current liabilities 605,103 396,616
Long-term debt 900,000 1,090,000
Postretirement benefits other than pensions 84,486 81,668
Pensions 159,369 150,318
Income taxes payable 38,940 38,510
Other liabilities 22,562 20,162
Total liabilities 1,810,460 1,777,274
Contingencies
Minority interest and put arrangement 29,996 30,006
Stockholders' deficit:
Capital stock(1) 105,779 105,635
Additional paid-in capital 1,114,267 1,096,923
Retained earnings 851,583 773,829
Accumulated other comprehensive loss (44,945) (45,083)
2,026,684 1,931,304
Less treasury stock - 64,016,506
shares in 2008 and 60,332,966
shares in 2007 2,450,235 2,251,506
Total stockholders' deficit (423,551) (320,202)
Total liabilities and
stockholders' deficit $1,416,905 $1,487,078
(1) Common Stock par value $.50 per share: Authorized -- 600 million
shares; issued -- 211,558,289 shares in 2008 and 211,269,622 shares
in 2007. Preferred Stock par value $.10 per share: Authorized -- 10
million shares; Issued -- None.
UST
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30,
2008 2007
Operating Activities:
Net earnings $264,994 $247,484
Adjustment to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 26,782 22,545
Share-based compensation expense 5,559 7,001
Excess tax benefits from share-based
compensation (2,020) (6,619)
Minority interest expense 988 385
Income from equity method investees (264) (44)
Gain on sale of corporate headquarters - (105,143)
Gain on disposition of property, plant
and equipment (1,281) (629)
Amortization of imputed rent
on corporate headquarters building - 3,851
Deferred income taxes 1,075 (6,622)
Changes in operating assets and liabilities:
Accounts receivable (14,459) (6,216)
Inventories 48,773 33,877
Prepaid expenses and other assets 5,378 (3,476)
Accounts payable, accrued expenses,
pensions and other liabilities (100,604) (53,758)
Income taxes 19,192 (8,412)
Litigation liability (50,588) 118,008
Net cash provided by operating activities 203,525 242,232
Investing Activities:
Short-term investments, net - (20,000)
Purchases of property, plant and equipment (27,309) (22,582)
Proceeds from dispositions of property,
plant and equipment 1,515 130,456
Investment in joint venture (42) (328)
Net cash (used in) provided by
investing activities (25,836) 87,546
Financing Activities:
Revolving credit facility repayments, net (110,000) -
Proceeds from the issuance of debt 296,307 -
Change in book cash overdraft (16,693) -
Excess tax benefits from share-based
compensation 2,020 6,619
Proceeds from the issuance of stock 10,149 26,122
Dividends paid (186,908) (192,255)
Stock repurchased (198,729) (120,070)
Net cash used in financing activities (203,854) (279,584)
(Decrease) increase in cash and cash
equivalents (26,165) 50,194
Cash and cash equivalents at beginning
of year 73,697 254,393
Cash and cash equivalents at end
of period $47,532 $304,587
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
(Unaudited)
The adjusted non-GAAP financial measures used in this press release
exclude the impact of the net gain on the sale of the company's corporate
headquarters, restructuring charges associated with the Project Momentum cost
savings initiative and antitrust litigation charges. The 'gain on the sale of
corporate headquarters, net' reflects the net impact of the gain recorded on
the sale and the amortization of the short-term imputed rent on the property,
which was recognized through Sept. 2007 when the company relocated its
headquarters. These non-GAAP financial measures are not prepared in accordance
with generally accepted accounting principles and may be different from non-
GAAP measures used by other companies. Non-GAAP financial measures should not
be considered as a substitute for, or superior to, measures of financial
performance prepared in accordance with GAAP. The company believes that these
non-GAAP financial measures are helpful in assessing ongoing and forecasted
operating results. In addition, these non-GAAP financial measures facilitate
the company's internal comparisons to historical operating results and
comparisons to competitors' operating results. The company has included these
non-GAAP financial measures in this press release because it believes such
measures allow for greater transparency related to supplemental information
used by management in its financial and operational analysis. Investors are
encouraged to review the reconciliations of the non-GAAP financial measures
used in this press release to their most directly comparable GAAP financial
measures as provided on the following pages.
Reconciliation of GAAP Financial Measures to non-GAAP Financial Measures
(Unaudited)
Second Quarter
Consolidated Operating Income Second Quarter
2008 2007 % Change
GAAP operating income $237,741 $227,823 4.4
Other items:
Antitrust litigation 1,525 - -
Restructuring charges 1,206 3,908 -
Impact of sale of corporate
headquarters, net - 2,888 -
Adj. non-GAAP operating income $240,472 $234,619 2.5
Consolidated Net Earnings Second Quarter
2008 2007 % Change
GAAP net earnings $139,660 $139,971 -0.2
Other items (net of taxes):
Antitrust litigation 974 - -
Restructuring charges 770 2,500 -
Impact of sale of corporate
headquarters, net - 1,742 -
Adj. non-GAAP net earnings $141,404 $144,213 -1.9
Consolidated diluted E.P.S.
Second Quarter
2008 2007 % Change
GAAP diluted E.P.S. $.94 $.87 8.0
Other items (net of taxes):
Antitrust litigation .01 - -
Restructuring charges - .02 -
Impact of sale of corporate
headquarters, net - .01 -
Adj. non-GAAP diluted E.P.S. $.95 $.90 5.6
Smokeless Tobacco Segment
Operating Profit Second Quarter
2008 2007 % Change
GAAP operating profit $226,198 $223,758 1.1
Other items:
Antitrust litigation 1,525 - -
Restructuring charges 1,173 3,253 -
Adj. non-GAAP operating profit $228,896 $227,011 0.8
Reconciliation of GAAP Financial Measures to non-GAAP Financial Measures
(Unaudited)
Six Months
Consolidated Operating Income
Six months ended June 30,
2008 2007 % Change
GAAP operating income $450,583 $405,767 11.0
Other items:
Antitrust litigation 1,525 122,100 -
Restructuring charges 1,618 7,428 -
Impact of sale of corporate
headquarters, net - (101,292) -
Adj. non-GAAP operating
income $453,726 $434,003 4.5
Consolidated Net Earnings
Six months ended June 30,
2008 2007 % Change
GAAP net earnings $264,994 $247,484 7.1
Other items (net of taxes):
Antitrust litigation 974 77,752 -
Restructuring charges 1,035 4,746 -
Impact of sale of corporate
headquarters, net - (64,725) -
Adj. non-GAAP net earnings $267,003 $265,257 0.7
Consolidated diluted E.P.S.
Six months ended June 30,
2008 2007 % Change
GAAP diluted E.P.S. $1.77 $1.53 15.7
Other items (net of taxes):
Antitrust litigation .01 .48 -
Restructuring charges .01 .03 -
Impact of sale of corporate
headquarters, net - (.40) -
Adj. non-GAAP diluted E.P.S. $1.79 $1.64 9.1
Smokeless Tobacco Segment Operating Profit
Six months ended June 30,
2008 2007 % Change
GAAP operating profit $429,800 $294,748 45.8
Other items:
Antitrust litigation 1,525 122,100 -
Restructuring charges 1,322 6,486 -
Adj. non-GAAP operating profit $432,647 $423,334 2.2
UST
SUPPLEMENTAL SCHEDULE
(Unaudited)
Second Quarter Six months ended June 30,
Smokeless Tobacco 2008 2007 % Chg. 2008 2007 % Chg.
Net Sales (mil) $393.70 $399.00 -1.3 $767.30 $766.50 0.1
Adj. Non-GAAP Oper.
Profit (mil) $228.90 $227.00 0.8 $432.60 $423.30 2.2
MST Net Can Sales
Premium (mil) 143.2 143.6 -0.3 277.6 275 0.9
Price Value (mil) 28.8 26.2 9.7 54.3 50 8.6
Total (mil) 172 169.8 1.3 331.9 325 2.1
Volume% Point
MST Share Data Chg. vs. Chg. vs.
RAD-SVT 26 wks ended 6/14/08(1) YAGO Share YAGO
Total Category +7.6%
Total Premium Segment +0.6% 52.7% -3.6 pts
Total Value Segments +16.5% 47.2% +3.6 pts
USSTC Share of Total Category + 1.7% 57.9% -3.4 pts
USSTC Share of Premium Segment +0.3% 90.7% -0.3 pts
USSTC Share of Value Segments +8.6% 21.4% -1.6 pts
(1) RAD-SVT - Retail Account Data Share & Volume Tracking System. RAD-SVT
information is being provided as an indication of current domestic
moist smokeless tobacco industry trends from wholesale to retail and
is not intended as a basis for measuring the company's financial
performance. This information can vary significantly from the
company's actual results due to the fact that the company reports net
shipments to wholesale, while RAD-SVT measures shipments from
wholesale to retail, the difference in time periods measured, as well
as new product introductions and promotions.
Second Quarter Six months ended June 30,
Wine 2008 2007 % Chg. 2008 2007 % Chg.
Net Sales (mil) $99.10 $79.50 24.7 $185.30 $148.30 25
Operating Profit (mil) $14.80 $11.50 29.5 $26.70 $22.70 17.5
Premium Case Sales (thou) 1,461 1,217 20 2,732 2,317 17.9
Other
Net Sales (mil) $13.40 $12.70 5.2 $26.30 $23.50 11.9
Operating Profit (mil) $4.10 $4.90 -16.9 $8.80 $8.90 -1.5
SOURCE UST, Inc.
