– Diluted earnings per share $.84, +15.1% vs. year ago
– Adjusted diluted earnings per share $.87, +13.0% vs. year ago (see table)
– Total Moist Smokeless Tobacco net can volume +4.6% and Premium Moist Smokeless Tobacco net can volume +2.7% vs. year ago
– Moist Smokeless Tobacco category +6.7% vs. year ago (26 weeks ended Sept. 8, 2007)
– USSTC’s Moist Smokeless Tobacco category share continues to stabilize
– Ste. Michelle Wine Estates net sales +18.3% and operating profit +34.1% vs. year ago
– Total year 2007 diluted earnings per share target raised by $.06 to $3.27
– Total year 2007 adjusted diluted earnings per share target raised by $.07 to $3.42 (see table)
UST Inc. (NYSE: UST) recently reported that the company delivered strong results in all aspects of its business for the third quarter 2007.
“UST’s strong third quarter financial results were driven by a combination of robust volume growth in moist smokeless tobacco and wine, Project Momentum cost savings and the benefit of share repurchases,” said Murray S. Kessler, president and chief executive officer. “These results demonstrate how the company is utilizing the various tools available to increase shareholder returns, while at the same time investing in its brands to accelerate profitable volume growth.”
Consolidated Results
For the third quarter ended Sept. 30, 2007, net sales increased 4.6 percent to $479.6 million, operating income increased 13.7 percent to $218.4 million, net earnings increased 13.1 percent to $133.6 million, and diluted earnings per share increased 15.1 percent to $.84 versus the prior year period.
Third quarter 2007 results included Project Momentum related restructuring charges, lease charges recorded in connection with the sale of the company’s headquarters, and a minor litigation charge related to a previously resolved antitrust action. These items totaled $7.7 million before income taxes, and adversely impacted diluted earnings per share by $.03.
Third quarter 2006 results included Project Momentum related restructuring charges of $17.5 million ($11.1 million net of tax), partially offset by $3.9 million of net income from discontinued operations related to the company’s previously disposed cigar operations. Combined, these items adversely impacted 2006 diluted earnings per share by $.04.
Adjusting for these items in each year, underlying third quarter 2007 operating income increased 7.9 percent to $226.1 million, net earnings increased 10.6 percent to $138.5 million and diluted earnings per share increased 13.0 percent to $.87, as indicated in the attached reconciliation table.
The 13.0 percent increase in third quarter 2007 adjusted diluted earnings per share was driven by moist smokeless tobacco net can volume growth, strong results for wine operations, favorable cost and spending comparisons due to Project Momentum, and a reduction in shares outstanding as a result of the company’s share repurchase program. During the quarter the company accelerated its investment in share repurchases, spending $130 million to acquire 2.6 million shares.
For the nine-month period ended Sept. 30, 2007, net sales increased 3.9 percent to $1,417.9 million, operating income increased 1.6 percent to $623.8 million, net earnings increased 3.4 percent to $381.1 million and diluted earnings per share increased 4.4 percent to $2.37.
The nine-month 2007 period included antitrust litigation settlement and restructuring charges, partially offset by a net gain on the sale of the company’s headquarters. These items adversely impacted diluted earnings per share by $.15.
The nine-month 2006 period included antitrust litigation settlement and restructuring charges, partially offset by income from discontinued operations related to the company’s previously disposed cigar business. These items adversely impacted 2006 diluted earnings per share by $.06.
Adjusting for these items in each year, underlying nine-month 2007 operating income increased 4.2 percent to $659.8 million, net earnings increased 7.2 percent to $403.8 million and diluted earnings per share increased 8.2 percent to $2.52, as indicated in the attached reconciliation table.
For the nine-month 2007 period, the company repurchased 4.7 million shares at a cost of $250 million.
Smokeless Tobacco Segment
Third quarter 2007 net sales increased 1.8 percent to $384.1 million and operating profit increased 14.5 percent to $213.1 million versus the prior year period. As shown in the reconciliation table, adjusted operating profit increased 7.5 percent to $216.6 million and the adjusted operating profit margin increased 300 basis points to 56.4 percent. The margin improvement was driven by cost efficiencies resulting from Project Momentum, which more than offset increased spending in brand building marketing programs.
In the quarter, total moist smokeless tobacco net can volume increased 4.6 percent to 165.2 million, with premium increasing 2.7 percent to 139.0 million and price value increasing 16.3 percent to 26.2 million, versus the prior year period. The company attributes this strong growth to ongoing initiatives to grow the category by converting adult smokers to smokeless tobacco, investment in premium brand loyalty programs, and continued successful new product introductions.
U.S. Smokeless Tobacco Company’s Retail Account Data Share & Volume Tracking System (RAD-SVT), for the 26-week period ended Sept. 8, 2007, indicated continued strong category growth trends and USSTC’s category share continuing to stabilize. (See supplemental schedule for information about RAD-SVT data). Total category shipments increased 6.7 percent versus the year-ago period. USSTC total shipments increased 3.5 percent, and USSTC’s total share of 61.0 percent declined 1.9 percentage points versus the prior year period, but only 0.2 percentage points versus the previously reported 26-week period.
USSTC MST Category Share (26 weeks ended)
June 16, 2007 Sept. 8, 2007
61.2% 61.0%
USSTC’s premium brands grew 2.1 percent, outpacing the premium segment which grew 1.3 percent versus the prior year period. USSTC’s price value shipments increased 11.3 percent, while the total price value segment increased 14.5 percent.
“We are pleased to report our fifth consecutive quarter of premium net can volume growth,” said Daniel W. Butler, president, U.S. Smokeless Tobacco Company. “With share trends improving in a strongly growing category, we believe the company is well positioned to deliver sustainable volume-driven earnings growth in the future.”
For the first nine months of 2007, net sales increased 0.7 percent to $1,150.5 million versus the prior year period. Total net can volume increased 3.1 percent to 490.2 million, with premium up 1.9 percent to 414.9 million and price value up 10.8 percent to 75.3 million. Operating profit decreased 15.0 percent to $507.8 million and adjusted operating profit increased 4.2 percent to $640.0 million.
Wine Segment
In the third quarter 2007, net sales for Ste. Michelle Wine Estates increased 18.3 percent to $82.3 million as total premium case volume increased 12.6 percent to 1.2 million. Strong growth was driven by core brands, especially Chateau Ste. Michelle, as well as by last year’s acquisition of Erath and the recent acquisition of Stag’s Leap Wine Cellars, which closed on September 11, 2007. The net sales growth, combined with improved product mix, led to a 34.1 percent increase in operating profit to $12.7 million.
“This quarter, Chateau Ste. Michelle was the fastest growing top 25 premium wine brand in the United States,” said Theodor P. Baseler, president, Ste. Michelle Wine Estates. “Solid performance by our core brands, combined with our recent acquisitions of Erath and Stag’s Leap Wine Cellars, drove strong growth and improved returns in our business.”
For the nine-month 2007 period, net sales increased 22.8 percent to $230.6 million on a 15.4 percent increase in premium case volume versus the corresponding 2006 period. Operating profit advanced 28.1 percent to $35.1 million.
Outlook
As a result of the strength in third quarter 2007 results, the company is increasing its targeted 2007 GAAP diluted earnings per share guidance by $.06 to $3.27, with a range of $3.25 to $3.29. On an adjusted non-GAAP basis, the diluted earnings per share target has been raised by $.07 to $3.42, with a range of $3.40 to $3.44.
Consolidated diluted E.P.S. Full Year
2007 2006 %
Estimate Actual Change
GAAP diluted E.P.S. $3.27 $3.12 4.8
Income from discontinued
operations, net - (.02) -
GAAP diluted E.P.S. from
continuing operations $3.27 $3.10 5.5
Other items (net of taxes):
Antitrust litigation .50 .01
Restructuring charges .04 .08 -
Impact of sale of corporate
headquarters, net (.39) - -
Adj. non-GAAP diluted E.P.S. $3.42 $3.19 7.2
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. Strong fundamentals 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 #30437544 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 15 different labels including Chateau Ste. Michelle, Columbia Crest, Stag’s Leap Wine Cellars and Erath, 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.
UST
CONSOLIDATED SALES AND EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Third Quarter
2007 2006 % Change
Net sales $479,612 $458,649 + 4.6
Costs and expenses
Cost of products sold 126,469 115,855 + 9.2
Selling, advertising and
administrative 129,916 133,186 - 2.5
Restructuring charges 1,677 17,495 -
Antitrust litigation 3,158 - -
Total costs and expenses 261,220 266,536 - 2.0
Operating income 218,392 192,113 +13.7
Interest, net 9,308 9,955 - 6.5
Earnings from continuing operations
before income taxes 209,084 182,158 +14.8
Income tax expense 75,484 67,963 +11.1
Earnings from continuing operations 133,600 114,195 +17.0
Income from discontinued operations,
including income tax effect - 3,890 -
Net earnings $133,600 $118,085 +13.1
Net earnings per basic share:
Earnings from continuing operations $.85 $.71 +19.7
Income from discontinued operations - .03 -
Net earnings per basic share $.85 $.74 +14.9
Net earnings per diluted share:
Earnings from continuing operations $.84 $.71 +18.3
Income from discontinued operations - .02 -
Net earnings per diluted share $.84 $.73 +15.1
Dividends per share $.60 $.57 + 5.3
Average number of shares:
Basic 157,666 160,440
Diluted 158,951 162,187
UST
CONSOLIDATED SALES AND EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Nine months ended Sept. 30,
2007 2006 % Change
Net sales $1,417,884 $1,365,190 + 3.9
Costs and expenses
Cost of products sold 368,971 332,479 + 11.0
Selling, advertising and
administrative 395,875 399,796 - 1.0
Restructuring charges 9,105 17,495 - 48.0
Antitrust litigation 125,258 1,350 -
Total costs and expenses 899,209 751,120 + 19.7
Gain on sale of corporate
headquarters 105,143 - -
Operating income 623,818 614,070 + 1.6
Interest, net 27,438 32,218 - 14.8
Earnings from continuing
operations before income taxes 596,380 581,852 + 2.5
Income tax expense 215,296 217,089 - 0.8
Earnings from continuing operations 381,084 364,763 + 4.5
Income from discontinued operations,
including income tax effect - 3,890 -
Net earnings $381,084 $368,653 + 3.4
Net earnings per basic share:
Earnings from continuing
operations $2.40 $2.27 + 5.7
Income from discontinued
operations - .02 -
Net earnings per basic share $2.40 $2.29 + 4.8
Net earnings per diluted share:
Earnings from continuing
operations $2.37 $2.25 + 5.3
Income from discontinued
operations - .02 -
Net earnings per diluted share $2.37 $2.27 + 4.4
Dividends per share $1.80 $1.71 + 5.3
Average number of shares:
Basic 159,056 160,940
Diluted 160,536 162,355
UST
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
Sept. 30, December 31,
2007 2006
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $125,657 $254,393
Short-term investments 10,000 20,000
Accounts receivable 67,952 52,501
Inventories:
Leaf tobacco 164,500 201,035
Products in process 220,418 233,741
Finished goods 186,030 145,820
Other materials and supplies 22,702 20,662
Total inventories 593,650 601,258
Deferred income taxes 23,708 11,370
Income taxes receivable 6,866 -
Assets held for sale - 31,452
Prepaid expenses and other current assets 31,201 27,136
Total current assets 859,034 998,110
Property, plant and equipment, net 486,955 389,810
Deferred income taxes 40,469 26,239
Goodwill 34,499 6,547
Intangible assets 56,907 4,723
Other assets 14,381 14,919
Total assets $1,492,245 $1,440,348
Liabilities and Stockholders' (deficit) equity:
Current liabilities:
Accounts payable and accrued expenses $237,157 $268,254
Income taxes payable - 18,896
Litigation liability 132,524 12,927
Total current liabilities 369,681 300,077
Long-term debt 840,000 840,000
Postretirement benefits other than pensions 91,098 86,413
Pensions 154,952 142,424
Income taxes payable 37,728 -
Other liabilities 12,801 5,608
Total liabilities 1,506,260 1,374,522
Contingencies
Minority interest and put arrangement 27,592 -
Stockholders' (deficit) equity:
Capital stock(1) 105,510 104,956
Additional paid-in capital 1,085,634 1,036,237
Retained earnings 726,493 635,272
Accumulated other comprehensive loss (55,462) (56,871)
1,862,175 1,719,594
Less treasury stock -- 54,037,765 shares
in 2007 and 49,319,673 shares in 2006 1,903,782 1,653,768
Total stockholders' (deficit) equity (41,607) 65,826
Total liabilities and stockholders'
(deficit) equity $1,492,245 $1,440,348
(1) Common Stock par value $.50 per share: Authorized -- 600 million
shares; issued -- 211,020,196 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)
Nine Months Ended Sept. 30,
2007 2006
Operating Activities:
Net earnings $381,084 $368,653
Adjustment to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 33,362 33,722
Share-based compensation expense 9,575 7,610
Excess tax benefits from share-based
compensation (7,520) (6,559)
Gain on sale of corporate headquarters
building (105,143) -
Gain on disposition of property, plant
and equipment (474) (1,915)
Amortization of imputed rent on corporate
headquarters building 6,740 -
Deferred income taxes (12,024) (9,513)
Changes in operating assets and liabilities:
Accounts receivable (9,856) 4,364
Inventories 41,914 45,594
Prepaid expenses and other assets (2,122) 12,618
Accounts payable, accrued expenses,
pensions and other liabilities (15,650) (26,407)
Income taxes 3,802 3,628
Litigation liability 119,597 (918)
Net cash provided by operating activities 443,285 430,877
Investing Activities:
Short-term investments, net 10,000 (10,000)
Purchases of property, plant and equipment (51,504) (25,177)
Proceeds from dispositions of property,
plant and equipment 130,701 6,157
Acquisition of business (155,202) (10,578)
Loan to minority interest holder (27,096) -
Minority interest holder loan payment 27,096 -
Investment in joint venture (322) (2,921)
Net cash used in investing activities (66,327) (42,519)
Financing Activities:
Repayment of debt (7,095) -
Proceeds from the issuance of stock 30,517 53,792
Excess tax benefits from share-based
compensation 7,520 6,559
Dividends paid (286,622) (275,871)
Stock repurchased (250,014) (150,034)
Net cash used in financing activities (505,694) (365,554)
(Decrease)/increase in cash and
cash equivalents (128,736) 22,804
Cash and cash equivalents at
beginning of year 254,393 202,025
Cash and cash equivalents at
end of period $125,657 $224,829
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. 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.
Third Quarter
Consolidated Operating Income Third Quarter
2007 2006 % Change
GAAP operating income $218,392 $192,113 13.7
Other items:
Antitrust litigation 3,158 - -
Restructuring charges 1,677 17,495 -
Impact of sale of corporate
headquarters, net 2,889 - -
Adj. non-GAAP operating income $226,116 $209,608 7.9
Consolidated Net Earnings Third Quarter
2007 2006 % Change
GAAP net earnings $133,600 $118,085 13.1
Income from discontinued operations - (3,890) -
GAAP net earnings from continuing
operations 133,600 114,195 17.0
Other items (net of taxes):
Antitrust litigation 2,018 - -
Restructuring charges 1,072 11,092 -
Impact of sale of corporate
headquarters, net 1,835 - -
Adj. non-GAAP net earnings $138,525 $125,287 10.6
Consolidated diluted E.P.S. Third Quarter
2007 2006 % Change
GAAP diluted E.P.S. $.84 $.73 15.1
Income from discontinued operations - (.02) -
GAAP diluted E.P.S. from continuing
operations .84 .71 18.3
Other items (net of taxes):
Antitrust litigation .01 - -
Restructuring charges .01 .06 -
Impact of sale of corporate -
headquarters, net .01 - -
Adj. non-GAAP diluted E.P.S. $.87 $.77 13.0
Smokeless Tobacco Segment Operating Profit Third Quarter
2007 2006 % Change
GAAP operating profit $213,073 $186,153 14.5
Other items:
Antitrust litigation 3,158 - -
Restructuring charges 403 15,445 -
Adj. non-GAAP operating profit $216,634 $201,598 7.5
Nine Months
Consolidated Operating Income Nine months ended Sept. 30,
2007 2006 % Change
GAAP operating income $623,818 $614,070 1.6
Other items:
Antitrust litigation 125,258 1,350 -
Restructuring charges 9,105 17,495 -48.0
Impact of sale of corporate
headquarters, net (98,403) - -
Adj. non-GAAP operating income $659,778 $632,915 4.2
Consolidated Net Earnings Nine months ended Sept. 30,
2007 2006 % Change
GAAP net earnings $381,084 $368,653 3.4
Income from discontinued operations - (3,890) -
GAAP net earnings from continuing
operations 381,084 364,763 4.5
Other items (net of taxes):
Antitrust litigation 79,770 846 -
Restructuring charges 5,818 11,092 -47.5
Impact of sale of corporate
headquarters, net (62,890) - -
Adj. non-GAAP net earnings $403,782 $376,701 7.2
Consolidated diluted E.P.S. Nine months ended Sept. 30,
2007 2006 % Change
GAAP diluted E.P.S. $2.37 $2.27 4.4
Income from discontinued operations - (.02) -
GAAP diluted E.P.S. from continuing
operations 2.37 2.25 5.3
Other items (net of taxes):
Antitrust litigation .50 .01 -
Restructuring charges .04 .07 -42.9
Impact of sale of corporate
headquarters, net (.39) - -
Adj. non-GAAP diluted E.P.S. $2.52 $2.33 8.2
Smokeless Tobacco Segment Operating Profit Nine months ended Sept. 30,
2007 2006 % Change
GAAP operating profit $507,821 $597,295 -15.0
Other items:
Antitrust litigation 125,258 1,350 -
Restructuring charges 6,889 15,445 -55.4
Adj. non-GAAP operating profit $639,968 $614,090 4.2
UST
SUPPLEMENTAL SCHEDULE
(Unaudited)
Third Quarter Nine months ended
Sept. 30,
Smokeless Tobacco 2007 2006 % Chg. 2007 2006 % Chg.
Net Sales (mil) $384.1 $377.3 +1.8 $1,150.5 $1,142.6 +0.7
Adj. Non-GAAP Oper.
Profit (mil) $216.6 $201.6 +7.5 $640.0 $614.1 +4.2
MST Net Can Sales
Premium (mil) 139.0 135.4 +2.7 414.9 407.4 +1.9
Price Value (mil) 26.2 22.5 +16.3 75.3 67.9 +10.8
Total (mil) 165.2 157.9 +4.6 490.2 475.3 +3.1
Volume % Point
MST Share Data Chg. vs. Chg. vs.
RAD-SVT 26 wks
ended 9/8/07(1) YAGO Share YAGO
Total Category +6.7 %
Total Premium
Segment +1.3 % 56.1 % -3.0 pts
Total Value
Segments +14.5 % 43.8 % +3.0 pts
USSTC Share of
Total Category + 3.5 % 61.0 % -1.9 pts
USSTC Share of
Premium Segment +2.1 % 91.1 % +0.7 pts
USSTC Share of
Value Segments +11.3 % 22.7 % -0.6 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.
Third Quarter Nine months ended
Sept. 30,
Wine 2007 2006 % Chg. 2007 2006 % Chg.
Net Sales (mil) $82.3 $69.5 +18.3 $230.6 $187.8 +22.8
Operating Profit (mil) $12.7 $9.4 +34.1 $35.1 $27.4 +28.1
Premium Case Sales (thou) 1,224 1,087 +12.6 3,541 3,068 +15.4
Other
Net Sales (mil) $13.3 $11.9 +11.8 $36.8 $34.7 +6.0
Operating Profit (mil) $4.2 $4.3 -3.3 $13.1 $12.0 +9.9
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