RICHMOND, Va., Feb. 5 /PRNewswire-FirstCall/ --

FISCAL YEAR 2009 THIRD QUARTER HIGHLIGHTS

• Diluted earnings per share up 14% to $1.78 compared to $1.56 last year.
• Revenues up 22% to $699 million on higher volumes from larger crops and higher green tobacco costs.
• Operating income down $2 million to $77 million due to currency remeasurement losses as the U.S. dollar strengthened.

FISCAL YEAR 2009 NINE-MONTH HIGHLIGHTS

• Diluted earnings per share up 12%, to $3.78 per share versus $3.37 per share last year.
• Revenues up 19% to $2.0 billion.
• Operating income up slightly to $187 million.

George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), reported a 14% increase in earnings per diluted share to $1.78 for the Company's third fiscal quarter, which ended on December 31, 2008. These results represented net income of $53.1 million compared to $50.8 million, or $1.56 per diluted share, last year. The quarter reflected very strong operations in all of the Company's reported segments, especially in flue-cured and burley operations where shipments of larger African crops and good performance by the North American group had a significant effect. The performance of those operations was offset by the negative effects of currency remeasurement related to Brazilian net monetary assets that reduced operating income by $20 million. Revenues increased by 22% to $699 million, primarily due to increased costs of green tobacco that were passed through in sales prices, as well as to increased volumes after the very small African crops last year. Similar factors affected the nine-month results. In addition, the Company benefited from lower effective tax rates. Net income for the first three quarters of the fiscal year was $116.0 million, or $3.78 per diluted share, up from $109.3 million, or $3.37 per diluted share, reported last year. Revenues increased by 19% during the nine-month period.

Mr. Freeman stated, 'We are pleased with our operations so far this year. It was gratifying to see the recovery of our African operations. African results improved due to higher volumes as well as efficiencies and strong teamwork. But the continued devaluation of the Brazilian currency has again adversely affected our results because of our balance sheet exposure there. Part of that exposure is related to farmer receivables that will be collected upon delivery of the current crop, and it reflects the higher cost of the local currency when fertilizer and seeds were provided to the farmers. The agricultural materials were purchased in the spring in the midst of the overheated commodity markets and when the local Brazilian currency was 30 - 40% stronger than it is today. The regions have delivered operating improvements as a result of hard work and careful attention to costs.

'Tobacco competes with commodity crops for acreage, and world markets for commodity products have changed a great deal during the fiscal year. Early in the year, the cost of green tobacco escalated as all areas worked to ensure sustainability of supply in the face of competing crops. The market situation for fiscal year 2010 is likely to be very different. We saw a much needed recovery in burley volumes in Africa this year, but signs are pointing to an extremely large burley crop there next year, which is likely to move worldwide markets to oversupply. Flue-cured tobacco markets are expected to remain mostly balanced. We continue to work to maintain future production of the type of quality tobacco that our customers require.

'Notwithstanding the 12% increase in earnings per share this year, we have not been immune to the effects of the financial chaos in world markets. Remeasurement losses related to the rapid and severe weakening of the local Brazilian currency reduced our earnings per share by $0.91. The value of our pension assets was also reduced by the general market decline, and we expect to provide between $10 million and $20 million in additional funding to our qualified defined benefit plan. But our business is healthy, and our balance sheet is strong. We have prudently managed the cash inflow from the sale of our non-tobacco businesses two years ago. We continue to work on cost control measures. We have passed the peak working capital requirement period during the year, and we believe that our financial resources are adequate to meet our needs.'

FLUE-CURED AND BURLEY OPERATIONS:

The flue-cured and burley operations posted a very strong quarter as operating income increased by 3%, to about $73.6 million, and revenues increased by 27%. North America's revenues and operating income were above last year's numbers primarily because of increased sales of current crop tobacco in the United States, partly due to earlier shipments this year. Results in North America also benefited from increased trading activities. Operating income for the Other Regions segment decreased slightly for the quarter despite improved operations in Africa and volume increases from larger burley crops there. The segment's performance was hurt by lower results from the Company's South American operations due to currency remeasurement losses in Brazil, where the local currency weakened by approximately 22% during the quarter. Some of the remeasurement losses were attributable to advances to farmers for crop inputs for the upcoming growing season. Crop inputs were more expensive this year due to increased fertilizer prices and the weaker U.S. dollar at the time they were purchased. Although the crop inputs are being used for production of the crop that will be sold next year, the advances to farmers for those inputs are remeasured in U.S. dollars along with all other monetary assets and liabilities each reporting period. As a result, the related remeasurement loss affects operating income this year when the prior crop is being sold. Shipments this quarter from South America were higher than in the prior year, but they continued to be hampered by a flood-related port closure. Results from Europe were lower in the quarter because significant shipments took place earlier in the year, and Asian operations saw lower earnings on lower volumes and a negative comparison from currency changes this year. Revenues for Other Regions increased by 29%, to $483 million, due to volume and price increases. Price increases were primarily related to higher cost leaf.

For the nine months, results for flue-cured and burley operations increased by more than 5%, to nearly $175 million. The improvement was due to stronger performance in North America where cost savings in Canada and increased volumes in the United States boosted income and revenues. The Other Regions segment reflected stronger performance in the African region from higher volumes and from reduced charges and write downs there. Results of European operations were higher as well, primarily related to higher volumes in the region's tobacco sheet business. South American results were reduced by the effect of the previously mentioned remeasurement losses, which totaled $43 million for the period. The Brazilian currency devalued by about 32% over the nine months, compared to a 15% strengthening last year. Asian results were reduced by their third quarter performance. Revenues for the Other Regions segment were up by 25% to $1.6 billion for the nine months, primarily due to volume increases in Africa and higher prices in several regions related to higher leaf costs.

OTHER TOBACCO OPERATIONS

Results for Other Tobacco Operations declined as earnings from the Special Services group, where sales were accelerated last year, showed an expected decrease related to a shift of business to the origins. That change also caused the 16% decline in segment revenue in the quarter. In addition, results from the oriental tobacco joint venture declined, primarily due to the sale of lower margin styles and grades this year and to currency remeasurement losses. Earnings of the dark tobacco operations were comparable to last year. For the nine months, segment earnings were 15% lower than the same period last year. The shift in business from Special Services caused the decline, but that effect was partially offset by improved performance in dark tobacco operations and the oriental tobacco joint venture. The latter group saw higher volumes for the nine-month period, the effect of which was partly offset by lower margins and lower currency remeasurement gains this year.

OTHER INFORMATION

Selling, general and administrative expenses, which are included in segment operating results, increased by about $41 million in the quarter and $72 million for the nine months, primarily due to the large currency remeasurement and exchange losses this year. Last year, when the U.S. dollar was weakening against most other world currencies, the Company generated currency-related gains. In contrast, fiscal year 2009 has seen the U.S. dollar dramatically strengthen against most currencies since the first fiscal quarter, producing the opposite effect. Thus, year-to-year comparisons reflect net expense increases of approximately $35 million for the quarter and $68 million for the nine months due to currency effects. Currency fluctuations primarily impacted our operating results in Brazil, the Philippines, Indonesia, and Africa and were mostly caused by local currency receivables from suppliers. The Company has hedged some of its net monetary assets with local borrowings.

Net interest expense increased by $5.4 million in the quarter compared to last year, primarily because of increased cash requirements to fund working capital needs and share repurchases. The Company made substantial progress on its share repurchase program, spending about $110 million to purchase 2.23 million shares during the nine months, bringing program totals, since November 2007, to $128 million and 2.55 million shares. The effective tax rate fell to 26% for the quarter and 30% for the nine months. Those rates were lower than last year's rate of about 36% for both periods, primarily because management expects to utilize more of the Company's foreign tax credit carryforwards, which caused the reduction of a valuation allowance for those credits.