- 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.
