GAAP diluted EPS $.87, +4.8% vs. year ago - Adjusted non-GAAP diluted EPS $.90, +8.4% vs. year ago (see table) - Higher than projected premium MST net can sales growth, +1.5% vs. year ago - Strong MST category growth continues, +7.2% vs. year ago (26 weeks ended June 16, 2007) - USSTC’s MST category share stabilizing - Wine posts net sales +28% and operating profit +20% vs. year ago - Project Momentum three-year cost reduction target increased by $50 million to $150+ million - Total year 2007 GAAP diluted EPS target at $3.21, adjusted non-GAAP diluted EPS target raised $.03 to $3.35
UST Inc. (NYSE: UST) recently reported that the company continued to gain momentum in all aspects of its business in the second quarter 2007, resulting in significantly better than expected financial results.
“Through the first six months of 2007, we remained focused on building
momentum in our businesses so that our company can grow its strong brands and
maintain their category-leading positions,” said Murray S. Kessler, president
and chief executive officer. “As the fundamentals of our businesses continue
to improve, we remain confident in our ability to deliver a 10 percent annual
shareholder return on a consistent and sustainable basis over the long term.”
Consolidated Results
For the second quarter ended June 30, 2007 on a GAAP basis, net sales
increased 3.9 percent to $491.3 million, operating income increased 0.9
percent to $227.6 million, net earnings increased 3.9 percent to $140 million
and diluted earnings per share increased 4.8 percent to $.87 versus the prior
year period. 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.
As indicated on the attached table reconciling GAAP to non-GAAP financial
measures, second quarter 2007 adjusted non-GAAP operating income increased 3.9
percent to $234.4 million, net earnings increased 7.1 percent to $144.2
million and diluted earnings per share increased 8.4 percent to $.90 versus
the year-ago period.
The 8.4 percent increase in adjusted non-GAAP diluted earnings per share
exceeded the company’s previous guidance of 1 to 3 percent. This was driven
by continued improvement in premium moist smokeless tobacco net unit volume,
strong results for wine operations, cost and spending favorability across all
operations due to Project Momentum, lower net interest expense, a lower
effective tax rate and a reduction in shares outstanding versus the prior year
period.
For the six-month period ended June 30, 2007 on a GAAP basis, net sales
increased 3.5 percent to $938.3 million, operating income decreased 3.9
percent to $405.4 million, net earnings decreased 1.2 percent to $247.5
million and diluted earnings per share decreased 0.6 percent to $1.53.
As indicated on the attached table reconciling GAAP to non-GAAP financial
measures, the six-month 2007 period included antitrust litigation settlement
and restructuring charges, partially offset by a net gain on the sale of the
company’s headquarters, resulting in an unfavorable net impact of $.11 per
diluted share. Six-month 2007 adjusted non-GAAP operating income increased
2.4 percent to $433.7 million, net earnings increased 5.5 percent to $265.3
million and diluted earnings per share increased 5.8 percent to $1.64 versus
the year-ago period.
Smokeless Tobacco Segment
Smokeless Tobacco segment second quarter 2007 net sales were $399 million,
stable compared to the year-ago period. Operating profit for the segment,
including its share of restructuring charges, increased 2 percent to $223.8
million. Excluding restructuring charges, adjusted non-GAAP operating profit
increased 3.4 percent to $227 million. The adjusted operating profit margin
increased 190 basis points to 56.9 percent as cost efficiencies resulting from
Project Momentum more than offset increased spending in brand building
marketing programs.
The company posted solid moist smokeless tobacco net unit volume growth
for the quarter as a result of ongoing investments to grow the category by
converting adult smokers to smokeless tobacco, investment in premium brand
loyalty programs, and continued successful new product introductions. Premium
moist smokeless tobacco net can sales increased 1.5 percent versus the prior
year period to 144.1 million. Price value net can sales increased 8.6 percent
to 25.8 million and total net can sales increased 2.5 percent to 169.9 million.
U.S. Smokeless Tobacco Company’s Retail Account Data Share & Volume
Tracking System (RAD-SVT) for the 26-week period ended June 16, 2007,
indicates continued strong category growth trends and USSTC’s category share
stabilizing. (See supplemental schedule for information about RAD-SVT data).
Total category shipments increased 7.2 percent versus the year-ago period.
USSTC total shipments increased 3.2 percent, and USSTC’s total share of 61.2
percent declined 2.4 percentage points versus the prior year period, but only
0.1 percentage points versus the previously reported 26-week period ended
February 24, 2007.
USSTC MST Category Share (26 weeks ended)
June 16, 2007 February 24, 2007
61.2% 61.3%
The total premium segment grew 1.4 percent versus the prior year period,
with USSTC brands gaining share of the segment with shipments up 2.1 percent.
The total price value segment increased 15.8 percent, with USSTC’s price value
shipments up 9.6 percent during the same period.
“We are pleased to report our fourth straight quarter of premium unit
volume growth,” said Daniel W. Butler, president, U.S. Smokeless Tobacco
Company. “Our brand building programs are performing well, and with our share
on a path to stabilizing, we are increasing our projected growth rate for
premium unit volume for the year to approximately 1.5 percent from 1 percent,
excluding the extra billing day in the fourth quarter.”
Smokeless Tobacco segment six-month 2007 net sales increased 0.1 percent
to $766.5 million versus the prior year period. Total moist smokeless tobacco
net can sales increased 2.4 percent to 325 million, with premium net can sales
up 1.5 percent to 275.9 million and price value net can sales up 8.1 percent
to 49.1 million.
GAAP operating profit for the segment, including antitrust litigation
settlement charges and its share of restructuring charges, decreased 28.3
percent to $294.7 million. Excluding these items, adjusted non-GAAP operating
profit increased 2.6 percent to $423.3 million.
Wine Segment
In the second quarter 2007, net sales for Ste. Michelle Wine Estates
increased 28.3 percent to $79.5 million. Strong growth was driven by the
incremental benefit from the distribution of Antinori products and the
acquisition of Erath in the back half of last year, combined with continued
product innovation, increased distribution and favorable acclaim on the
company’s core brands. Total premium case sales advanced 19.5 percent to 1.2
million cases. Net sales growth combined with good cost control as a result
of Project Momentum led to a 19.7 percent increase in operating profit to
$11.2 million.
“Last year’s Antinori and Erath transactions have clearly been a success,
with both contributing to our strong growth during the quarter,” said Theodor
P. Baseler, president, Ste. Michelle Wine Estates. “As a result, Ste.
Michelle Wine Estates was the fastest growing top-10 winery in the U.S. during
the second quarter.”
For the six-month 2007 period, Wine segment net sales increased 25.3
percent to $148.3 million on a 17 percent increase in premium case sales
versus the corresponding 2006 period. Operating profit advanced 24.9 percent
to $22.4 million.
Outlook
Project Momentum, the company’s cost-savings initiative, continues to
yield additional opportunities for savings and efficiencies. As such, the
company is raising its targeted savings resulting from this initiative by $50
million, from $100+ million to $150+ million. The additional savings are
expected to be realized in the back half of the original three-year period
established last year.
As a result of the strength in second quarter 2007 results, the company is
increasing its 2007 diluted earnings per share guidance. On a GAAP basis,
diluted earnings per share is targeted at $3.21, with a range of $3.16 to
$3.27 and reflects an additional $.03 in charges in the second half of 2007,
comprised of Project Momentum related restructuring charges and lease charges
in connection with the sale of the company’s headquarters. On an adjusted
non-GAAP basis, the diluted earnings per share target has been raised $.03 to
$3.35, with a range of $3.30 to $3.41.
Consolidated diluted E.P.S. Full Year
2007 2006 %
Estimate Actual Change
GAAP diluted E.P.S. $3.21 $3.12 2.9
Income from discontinued
operations, net - (.02) -
GAAP diluted E.P.S. from
continuing operations $3.21 $3.10 3.5
Other items (net of taxes):
Antitrust litigation .48 .01 -
Restructuring charges .05 .08 -
Impact of sale of
corporate headquarters,
net (.39) - -
Adj. non-GAAP diluted E.P.S. $3.35 $3.19 5.0
Over the long-term, the company’s goal is to provide an average annual
shareholder return of 10 percent, including diluted earnings per share growth
and a strong dividend. Improved sales trends in both the Smokeless Tobacco
and Wine segments coupled with the Project Momentum cost savings initiative
provide confidence that this goal can be achieved, while at the same time
allowing for investment to continue to enhance the company’s competitiveness
in a vibrant and growing smokeless tobacco category. 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 #40729066 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
including Chateau Ste. Michelle, Columbia Crest, Conn Creek, and Villa Mt.
Eden wineries, as well as 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; 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; 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, 2006. 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.
(CONSOLIDATED UNAUDITED RESULTS ARE ATTACHED)
UST
CONSOLIDATED SALES AND EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Second Quarter
2007 2006 % Change
Net sales $491,254 $472,900 + 3.9
Costs and expenses
Cost of products sold 126,849 112,414 + 12.8
Selling, advertising
and administrative 132,899 134,902 - 1.5
Restructuring charges 3,908 - -
Total costs and expenses 263,656 247,316 + 6.6
Operating income 227,598 225,584 + 0.9
Interest, net 8,555 10,793 -20.7
Earnings before income taxes 219,043 214,791 + 2.0
Income tax expense 79,072 80,136 - 1.3
Net earnings $139,971 $134,655 + 3.9
Net earnings per share:
Basic $.88 $.84 + 4.8
Diluted $.87 $.83 + 4.8
Dividends per share $.60 $.57 + 5.3
Average number of shares:
Basic 159,557 160,791
Diluted 161,104 162,240
UST
CONSOLIDATED SALES AND EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Six months ended June 30,
2007 2006 % Change
Net sales $938,272 $906,541 + 3.5
Costs and expenses
Cost of products sold 242,502 216,624 + 11.9
Selling, advertising and
administrative 265,959 266,610 - 0.2
Restructuring charges 7,428 - -
Antitrust litigation 122,100 1,350 -
Total costs and expenses 637,989 484,584 + 31.7
Gain on sale of corporate
headquarters 105,143 - -
Operating income 405,426 421,957 - 3.9
Interest, net 18,130 22,263 - 18.6
Earnings before income taxes 387,296 399,694 - 3.1
Income tax expense 139,812 149,126 - 6.2
Net earnings $247,484 $250,568 - 1.2
Net earnings per share:
Basic $1.55 $1.55 -
Diluted $1.53 $1.54 - 0.6
Dividends per share $1.20 $1.14 + 5.3
Average number of shares:
Basic 159,762 161,194
Diluted 161,340 162,442
UST
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
June 30, December 31,
2007 2006
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $304,587 $254,393
Short-term investments 40,000 20,000
Accounts receivable 58,717 52,501
Inventories:
Leaf tobacco 179,692 201,035
Products in process 206,795 233,741
Finished goods 157,259 145,820
Other materials and supplies 23,635 20,662
Total inventories 567,381 601,258
Deferred income taxes 25,325 11,370
Income taxes receivable 18,000 -
Assets held for sale 1,816 31,452
Prepaid expenses and other current assets 42,155 27,136
Total current assets 1,057,981 998,110
Property, plant and equipment, net 388,757 389,810
Deferred income taxes 32,355 26,239
Other assets 26,129 26,189
Total assets $1,505,222 $1,440,348
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable and accrued expenses $202,057 $268,254
Income taxes payable - 18,896
Litigation liability 130,935 12,927
Total current liabilities 332,992 300,077
Long-term debt 840,000 840,000
Postretirement benefits other than pensions 89,818 86,413
Pensions 151,414 142,424
Income taxes payable 38,033 -
Other liabilities 9,899 5,608
Total liabilities 1,462,256 1,374,522
Contingencies
Stockholders' equity:
Capital stock(1) 105,418 104,956
Additional paid-in capital 1,077,406 1,036,237
Retained earnings 687,410 635,272
Accumulated other comprehensive loss (53,430) (56,871)
1,816,804 1,719,594
Less treasury stock - 51,462,928 shares
in 2007 and 49,319,673 shares in 2006 1,773,838 1,653,768
Total stockholders' equity 42,966 65,826
Total liabilities and stockholders' equity $1,505,222 $1,440,348
(1) Common Stock par value $.50 per share: Authorized -- 600 million
shares; issued -- 210,835,643 shares in 2007 and 209,912,510 shares
in 2006. 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,
2007 2006
Operating Activities:
Net earnings $247,484 $250,568
Adjustment to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 22,545 22,897
Share-based compensation expense 7,001 4,551
Excess tax benefits from share-based
compensation (6,619) (1,285)
Gain on sale of corporate headquarters
building (105,143) -
Gain on disposition of property, plant
and equipment (629) (2,154)
Amortization of imputed rent on corporate
headquarters building 3,851 -
Deferred income taxes (6,622) (4,671)
Changes in operating assets and liabilities:
Accounts receivable (6,216) 6,453
Inventories 33,877 2,145
Prepaid expenses and other assets (3,777) 3,352
Accounts payable, accrued expenses,
pensions and other liabilities (53,373) (51,846)
Income taxes (8,412) 22,867
Litigation liability 118,008 443
Net cash provided by operating activities 241,975 283,320
Investing Activities:
Short-term investments, net (20,000) 10,000
Purchases of property, plant and equipment (22,582) (10,937)
Proceeds from dispositions of property,
plant and equipment 130,456 6,024
Investment in joint venture (71) (785)
Net cash provided by investing activities 87,803 4,302
Financing Activities:
Proceeds from the issuance of stock 26,122 22,950
Excess tax benefits from share-based
compensation 6,619 1,285
Dividends paid (192,255) (184,013)
Stock repurchased (120,070) (99,975)
Net cash used in financing activities (279,584) (259,753)
Increase in cash and cash equivalents 50,194 27,869
Cash and cash equivalents at beginning of year 254,393 202,025
Cash and cash equivalents at end of period $304,587 $229,894
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 will be recognized through Sept. 2007 when the company relocates its
headquarters. For the full year, the net impact of these two items will
result in $.39 per diluted share. 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.
Second Quarter
Consolidated Operating Income Second Quarter
2007 2006 % Change
GAAP operating income $227,598 $225,584 0.9
Other items:
Restructuring charges 3,908 - -
Impact of sale of corporate
headquarters, net 2,888 - -
Adj. non-GAAP operating
income $234,394 $225,584 3.9
Consolidated Net Earnings Second Quarter
2007 2006 % Change
GAAP net earnings $139,971 $134,655 3.9
Other items (net of taxes):
Restructuring charges 2,500 - -
Impact of sale of corporate
headquarters, net 1,742 - -
Adj. non-GAAP net earnings $144,213 $134,655 7.1
Consolidated diluted E.P.S. Second Quarter
2007 2006 % Change
GAAP diluted E.P.S. $.87 $.83 4.8
Other items (net of taxes):
Restructuring charges .02 - -
Impact of sale of corporate
headquarters, net .01 - -
Adj. non-GAAP diluted E.P.S. $.90 $.83 8.4
Smokeless Tobacco Segment
Operating Profit Second Quarter
2007 2006 % Change
GAAP operating profit $223,758 $219,452 2.0
Other items:
Restructuring charges 3,253 - -
Adj. non-GAAP operating
profit $227,011 $219,452 3.4
Six Months
Consolidated Operating Income Six months ended June 30,
2007 2006 % Change
GAAP operating income $405,426 $421,957 -3.9
Other items:
Antitrust litigation 122,100 1,350 -
Restructuring charges 7,428 - -
Impact of sale of corporate
headquarters, net (101,292) - -
Adj. non-GAAP operating
income $433,662 $423,307 2.4
Consolidated Net Earnings Six months ended June 30,
2007 2006 % Change
GAAP net earnings $247,484 $250,568 -1.2
Other items (net of taxes):
Antitrust litigation 77,752 846 -
Restructuring charges 4,746 - -
Impact of sale of
corporate headquarters, net (64,725) - -
Adj. non-GAAP net earnings $265,257 $251,414 5.5
Consolidated diluted E.P.S. Six months ended June 30,
2007 2006 % Change
GAAP diluted E.P.S. $1.53 $1.54 -0.6
Other items (net of taxes):
Antitrust litigation .48 .01 -
Restructuring charges .03 - -
Impact of sale of corporate
headquarters, net (.40) - -
Adj. non-GAAP diluted E.P.S. $1.64 $1.55 5.8
Smokeless Tobacco Segment
Operating Profit Six months ended June 30,
2007 2006 % Change
GAAP operating profit $294,748 $411,142 -28.3
Other items:
Antitrust litigation 122,100 1,350 -
Restructuring charges 6,486 - -
Adj. non-GAAP operating
profit $423,334 $412,492 2.6
UST
SUPPLEMENTAL SCHEDULE
(Unaudited)
Second Quarter Six months ended June 30,
Smokeless Tobacco 2007 2006 %Chg. 2007 2006 %Chg.
Net Sales (mil) $399.0 $399.1 - $766.5 $765.4 0.1
Adj. Non-GAAP Oper. $227.0 $219.5 3.4 $423.3 $412.5 2.6
Profit (mil)
MST Net Can Sales
Premium (mil) 144.1 142.0 1.5 275.9 272.0 1.5
Price Value (mil) 25.8 23.7 8.6 49.1 45.4 8.1
Total (mil) 169.9 165.7 2.5 325.0 317.4 2.4
Volume % Point
Chg. vs. Chg. vs.
MST Share Data
RAD-SVT 26 wks ended 6/16/07(1) YAGO Share YAGO
Total Category +7.2 %
Total Premium Segment +1.4 % 56.5 % -3.2 pts
Total Value Segments +15.8 % 43.4 % +3.2 pts
USSTC Share of Total +3.2 % 61.2 % -2.4 pts
USSTC Share of Premium Segment +2.1 % 91.0 % +0.6 pts
USSTC Share of Value Segments +9.6 % 22.6 % -1.3 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 2007 2006 %Chg. 2007 2006 %Chg.
Net Sales (mil) $79.5 $62.0 28.3 $148.3 $118.3 25.3
Operating Profit (mil) $9.4 19.7 $22.4 $17.9 24.9 $11.2
Premium Case Sales (thou) 1,217 1,018 19.5 2,317 1,981 17.0
Other
Net Sales (mil) $12.7 $11.8 7.9 $23.5 $22.8 3.0
Operating Profit (mil) $4.9 $3.9 26.4 $8.9 $7.6 17.4
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