Fourth Quarter 2007
- Net sales $532.9 million, +9.7% vs. year ago
- Diluted earnings per share $.89, +4.7% vs. year ago
- Adjusted diluted earnings per share $.95, +9.2% vs. year ago (see table)
- Total Moist Smokeless Tobacco net can volume +7.3% and premium +5.9% vs. year ago
- Moist Smokeless Tobacco category +7.1% vs. year ago (26 weeks ended Dec. 1, 2007)
- Ste. Michelle Wine Estates net sales +30.5% and operating profit +48.6% vs. year ago
Year 2007
- Net sales $1,951 million, +5.4% vs. year ago
- Diluted earnings per share $3.27, +4.8% vs. year ago
- Adjusted diluted earnings per share $3.46, +8.5% vs. year ago (see table)
- Total Moist Smokeless Tobacco net can volume +4.2% and premium +2.9% vs. year ago
- Ste. Michelle Wine Estates net sales +25.4% and operating profit +35.9% vs. year ago
UST Inc. (NYSE: UST) recently reported that the company exceeded its previous diluted earnings per
share guidance by 4 cents and that it delivered record volume, sales and earnings per share for the fourth quarter and year 2007 based on strong fundamentals in its core businesses, smokeless tobacco and wine.
“We began the year with a commitment to build on the momentum we started gaining in 2006. The goal was to accelerate profitable volume growth while at the same time, deliver a 10 percent shareholder return by using more of the
tools in our toolbox to grow earnings,” said Murray S. Kessler, chairman and chief executive officer. “I believe our underlying results, which ultimately delivered a 13 percent shareholder return, are the best demonstration of just how effective the plan was and how well the UST team executed it.”
Consolidated Results
For the fourth quarter ended Dec. 31, 2007, net sales increased 9.7
percent to a record $532.9 million, operating income increased 4.1 percent to
$229.8 million, net earnings increased 1.4 percent to $139.2 million, and
diluted earnings per share increased 4.7 percent to $.89 versus the prior year
period.
Fourth quarter 2007 and 2006 results included restructuring charges
related to Project Momentum and antitrust litigation settlement charges.
Combined, these items totaled $13.6 million before income taxes in 2007 and
$5.2 million in 2006, and adversely impacted diluted earnings per share by
$.06 and $.02, respectively. During the fourth quarter 2007, the company
resolved two of the last remaining Conwood derivative litigation cases.
Adjusting for these items in each year, underlying fourth quarter 2007
operating income increased 7.7 percent to $243.4 million, net earnings
increased 5.2 percent to $147.9 million and diluted earnings per share
increased 9.2 percent to $.95, as indicated in the attached reconciliation
table.
The 9.2 percent increase in fourth quarter 2007 adjusted diluted earnings
per share was driven by moist smokeless tobacco net can volume growth, which
benefited from an extra billing day versus the year ago period, strong results
for wine operations, Project Momentum cost savings, and a reduction in shares
outstanding as a result of the company’s share repurchase program.
Separately, during the quarter the company accelerated its investment in
share repurchases, spending $348 million to acquire 6.3 million shares.
For the year ended Dec. 31, 2007, net sales increased 5.4 percent to a
record $1,950.8 million, operating income increased 2.3 percent to $853.6
million, net earnings increased 2.9 percent to $520.3 million and diluted
earnings per share increased 4.8 percent to a record $3.27.
For the year, 2007 results 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 $.19.
The 2006 total year 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 $.07.
Adjusting for these items in each year, underlying total year 2007
operating income increased 5.2 percent to $903.1 million, net earnings
increased 6.6 percent to $551.7 million and diluted earnings per share
increased 8.5 percent to $3.46, as indicated in the attached reconciliation
table.
For the year 2007, the company repurchased 11 million shares at a cost of
$598 million, three times the original guidance given at the beginning of the
year. In addition, the company paid out $378 million in dividends, generating
a 4.4 percent average dividend yield. This yield, combined with underlying
diluted earnings per share growth, resulted in a total shareholder return of
approximately 13 percent.
Smokeless Tobacco Segment
Fourth quarter 2007 net sales increased 4.2 percent to $396.1 million and
operating profit was stable at $207.9 million versus the prior year period. As
shown in the reconciliation table, adjusted operating profit increased 4.0
percent to $221.1 million.
In the quarter, total moist smokeless tobacco net can volume increased 7.3
percent to 168.8 million, with premium increasing 5.9 percent to 142.0 million
and price value increasing 14.9 percent to 26.8 million, versus the prior year
period.
The fourth quarter 2007 reported volume benefited from an extra billing
day on Monday, Dec. 31 versus 2006. The company’s smokeless tobacco products
are dated for freshness and are shipped each week to arrive on Mondays, at
which point revenue is recognized. This benefit was partially offset by lower
shipments in the military channel primarily related to a one-time supply chain
disruption. Net of these two factors, which totaled approximately 7 million
cans and of which the majority were premium, total net can volume increased
2.7 percent and premium increased 1.3 percent versus the prior year period.
The company attributes continued strong can volume growth to ongoing
initiatives to grow the category by converting adult smokers to smokeless
tobacco, investment in premium brand-building programs, more effective
participation in the price value segment and continued successful new product
introductions.
“We are very pleased that for the year our premium brands delivered
consistent volume growth above our original expectations,” said Daniel W.
Butler, president, U.S. Smokeless Tobacco Company. “Our powerful Copenhagen
and Skoal brands remain responsive to investment and resilient to competition.
We will further increase the focus on building our brands in 2008 in order to
sustain our growth and leadership position in the moist smokeless tobacco
category.”
Another indication of U.S. Smokeless Tobacco Company’s consistent volume
growth is reflected in its Retail Account Data Share & Volume Tracking System
(RAD-SVT). For the 26-week period ended Dec. 1, 2007, USSTC total shipments
increased 3.5 percent versus year ago, in a category that increased 7.1
percent. As a result, USSTC’s total share of 59.9 percent declined 2.1
percentage points versus the prior year period. Despite USSTC volume
continuing to grow at the same level as the previously reported 26-week period,
sequential share declined 1.1 percentage points. USSTC’s premium brands grew
2.2 percent, outpacing the premium segment which grew 1.7 percent. USSTC’s
price value shipments increased 10.9 percent, while the total price value
segment increased 14.7 percent. RAD-SVT data is unaffected by changes in
billing days and does not include military shipments (See supplemental
schedule for information about RAD-SVT data).
For the twelve-month period ended Dec. 31, 2007, net sales increased 1.6
percent to $1,546.6 million, operating profit decreased 11.1 percent to $715.7
million and adjusted operating profit increased 4.2 percent to $861.0 million
versus the prior-year period. Total net can volume of 659.0 million increased
by 26.3 million cans or 4.2 percent, with premium up 2.9 percent and price
value up 11.9 percent. Excluding the extra billing day and the impact of
military sales on volume, total USSTC can volume increased 3.1 percent and
premium increased 1.8 percent for the full year.
Wine Segment
In the fourth quarter 2007, net sales for Ste. Michelle Wine Estates
increased 30.5 percent to $123.4 million as total premium case volume
increased 20.2 percent to 1.8 million. Strong growth was driven by all major
brands, especially Chateau Ste. Michelle, Antinori, Erath and the recently
acquired Stag’s Leap Wine Cellars. Net sales growth, improved product mix and
a state excise tax refund that benefited the quarter by $4.8 million, led to a
48.6 percent increase in operating profit to $24.8 million.
“The strong results for the year are a great indication that our ’string
of pearls’ strategy is working,” said Theodor P. Baseler, president, Ste.
Michelle Wine Estates. “With top-rated wineries and powerful brands, Ste.
Michelle Wine Estates remains the fastest growing top-10 wine company in the
United States.”
For the year ended Dec. 31, 2007, net sales increased 25.4 percent to a
record $354.0 million on a 17 percent increase in premium case volume versus
the corresponding 2006 period. Operating profit advanced 35.9 percent to a
record $59.9 million.
Outlook
For 2008, diluted earnings per share are targeted at $3.65, with a range
of $3.60 to $3.70. Guidance for 2008 excludes any additional restructuring
charges associated with Project Momentum, as management is not able to make a
determination of the estimated amounts or range of amounts, to be incurred.
Consolidated Diluted E.P.S. Full Year
2008 2007 %
Estimate Actual Change
GAAP diluted E.P.S. $3.65 $3.27 +11.6
Other items (net of taxes):
Antitrust litigation - .54 -
Restructuring charges - .04 -
Impact of sale of corporate
headquarters, net - (.39) -
Adj. non-GAAP diluted E.P.S. $3.65 $3.46 +5.5
The 2008 guidance is consistent with the company’s long-term goal of
providing 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 enhancing
the company’s performance in vibrant and growing categories.
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
#80433581 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 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; 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, 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)
Fourth Quarter
2007 2006 % Change
Net sales $532,895 $485,721 + 9.7
Costs and expenses
Cost of products sold 155,604 133,609 + 16.5
Selling, advertising and
administrative 133,920 126,194 + 6.1
Restructuring charges 1,699 4,502 -
Antitrust litigation 11,853 675 -
Total costs and expenses 303,076 264,980 + 14.4
Operating income 229,819 220,741 + 4.1
Interest, net 13,162 9,567 + 37.6
Earnings before income taxes 216,657 211,174 + 2.6
Income tax expense 77,468 73,971 + 4.7
Net earnings $139,189 $137,203 + 1.4
Net earnings per share:
Basic $.90 $.86 + 4.7
Diluted $.89 $.85 + 4.7
Dividends per share $.60 $.57 + 5.3
Average number of shares:
Basic 154,288 160,275
Diluted 155,613 162,062
UST
CONSOLIDATED SALES AND EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Year ended Dec. 31,
2007 2006 % Change
Net sales $1,950,779 $1,850,911 + 5.4
Costs and expenses
Cost of products sold 524,575 466,088 + 12.5
Selling, advertising and
administrative 529,795 525,990 + 0.7
Restructuring charges 10,804 21,997 -
Antitrust litigation 137,111 2,025 -
Total costs and expenses 1,202,285 1,016,100 + 18.3
Gain on sale of corporate
headquarters 105,143 - -
Operating income 853,637 834,811 + 2.3
Interest, net 40,600 41,785 - 2.8
Earnings from continuing operations
before income taxes 813,037 793,026 + 2.5
Income tax expense 292,764 291,060 + 0.6
Earnings from continuing operations 520,273 501,966 + 3.6
Income from discontinued operations,
including income tax effect - 3,890 -
Net earnings $520,273 $505,856 + 2.9
Net earnings per basic share:
Earnings from continuing operations $3.30 $3.13 + 5.4
Income from discontinued operations - .02 -
Net earnings per basic share $3.30 $3.15 + 4.8
Net earnings per diluted share:
Earnings from continuing operations $3.27 $3.10 + 5.5
Income from discontinued operations - .02 -
Net earnings per diluted share $3.27 $3.12 + 4.8
Dividends per share $2.40 $2.28 + 5.3
Average number of shares:
Basic 157,854 160,772
Diluted 159,295 162,280
UST
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
December 31, December 31,
2007 2006
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $47,161 $254,393
Short-term investments - 20,000
Accounts receivable 60,318 52,501
Inventories:
Leaf tobacco 202,137 201,035
Products in process 258,814 233,741
Finished goods 163,247 145,820
Other materials and supplies 22,365 20,662
Total inventories 646,563 601,258
Deferred income taxes 26,737 11,370
Income taxes receivable 8,663 -
Assets held for sale - 31,452
Prepaid expenses and other current assets 30,296 27,136
Total current assets 819,738 998,110
Property, plant and equipment, net 505,101 389,810
Deferred income taxes 35,972 26,239
Goodwill 28,304 6,547
Intangible assets 56,221 4,723
Other assets 15,206 14,919
Total assets $1,460,542 $1,440,348
Liabilities and Stockholders' (deficit) equity:
Current liabilities:
Accounts payable and accrued expenses $298,278 $268,254
Income taxes payable - 18,896
Litigation liability 75,360 12,927
Total current liabilities 373,638 300,077
Long-term debt 1,090,000 840,000
Postretirement benefits other than pensions 81,668 86,413
Pensions 150,318 142,424
Income taxes payable 38,510 -
Other liabilities 18,610 5,608
Total liabilities 1,752,744 1,374,522
Contingencies
Minority interest and put arrangement 28,000 -
Stockholders' (deficit) equity:
Capital stock(1) 105,635 104,956
Additional paid-in capital 1,096,923 1,036,237
Retained earnings 773,829 635,272
Accumulated other comprehensive loss (45,083) (56,871)
1,931,304 1,719,594
Less treasury stock - 60,322,966 shares in
2007 and 49,319,673 shares in 2006 2,251,506 1,653,768
Total stockholders' (deficit) equity (320,202) 65,826
Total liabilities and stockholders'
(deficit) equity $1,460,542 $1,440,348
(1) Common Stock par value $.50 per share: Authorized - 600 million
shares; issued - 211,269,622 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)
Year ended Dec. 31,
2007 2006
Operating Activities:
Net earnings $520,273 $505,856
Adjustment to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 46,622 45,839
Share-based compensation expense 11,784 10,403
Excess tax benefits from share-based
compensation (9,035) (9,863)
Gain on sale of corporate headquarters
building (105,143) -
(Gain) loss on disposition of property,
plant and equipment 576 (327)
Amortization of imputed rent on corporate
headquarters building 6,740 -
Deferred income taxes (16,146) (16,922)
Changes in operating assets and liabilities:
Accounts receivable (2,153) 1,685
Inventories (5,517) (15,780)
Prepaid expenses and other assets (1,002) 14,703
Accounts payable, accrued expenses, pensions
and other liabilities 52,112 40,541
Income taxes 4,645 22,945
Litigation liability 62,433 (2,224)
Net cash provided by operating activities 566,189 596,856
Investing Activities:
Short-term investments, net 20,000 (10,000)
Purchases of property, plant and equipment (82,256) (37,044)
Proceeds from dispositions of property, plant
and equipment 130,725 6,179
Acquisition of business (155,197) (10,578)
Loan to minority interest holder (27,096) -
Minority interest holder loan payment 27,096 -
Investment in joint venture (425) (3,620)
Net cash used in investing activities (87,153) (55,063)
Financing Activities:
Repayment of debt (7,095) -
Proceeds from credit facility borrowings 250,000 -
Excess tax benefits from share-based
compensation 9,035 9,863
Proceeds from the issuance of stock 37,855 68,214
Dividends paid (378,325) (367,499)
Stock repurchased (597,738) (200,003)
Net cash used in financing activities (686,268) (489,425)
(Decrease) increase in cash and cash
equivalents (207,232) 52,368
Cash and cash equivalents at beginning of year 254,393 202,025
Cash and cash equivalents at end of period $47,161 $254,393
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.
Fourth Quarter
Consolidated Operating Income Fourth Quarter
2007 2006 % Change
GAAP operating income $229,819 $220,741 +4.1
Other items:
Antitrust litigation 11,853 675 -
Restructuring charges 1,699 4,502 -
Adj. non-GAAP operating income $243,371 $225,918 +7.7
Consolidated Net Earnings Fourth Quarter
2007 2006 % Change
GAAP net earnings $139,189 $137,203 +1.4
Other items (net of taxes):
Antitrust litigation 7,616 439 -
Restructuring charges 1,092 2,926 -
Adj. non-GAAP net earnings $147,897 $140,568 +5.2
Consolidated Diluted E.P.S. Fourth Quarter
2007 2006 % Change
GAAP diluted E.P.S. $.89 $.85 +4.7
Other items (net of taxes):
Antitrust litigation .05 - -
Restructuring charges .01 .02 -
Adj. non-GAAP diluted E.P.S. $.95 $.87 +9.2
Smokeless Tobacco Segment Operating Profit Fourth Quarter
2007 2006 % Change
GAAP operating profit $207,878 $207,835 -
Other items:
Antitrust litigation 11,853 675 -
Restructuring charges 1,341 4,097 -
Adj. non-GAAP operating profit $221,072 $212,607 +4.0
Twelve Months
Consolidated Operating Income Year ended Dec. 31,
2007 2006 % Change
GAAP operating income $853,637 $834,811 +2.3
Other items:
Antitrust litigation 137,111 2,025 -
Restructuring charges 10,804 21,997 -
Impact of sale of corporate
headquarters, net (98,403) - -
Adj. non-GAAP operating income $903,149 $858,833 +5.2
Consolidated Net Earnings Year ended Dec. 31,
2007 2006 % Change
GAAP net earnings $520,273 $505,856 +2.9
Income from discontinued operations - (3,890) -
GAAP net earnings from continuing
operations 520,273 501,966 +3.6
Other items (net of taxes):
Antitrust litigation 87,386 1,292 -
Restructuring charges 6,910 14,034 -
Impact of sale of corporate
headquarters, net (62,890) - -
Adj. non-GAAP net earnings $551,679 $517,292 +6.6
Consolidated Diluted E.P.S. Year ended Dec. 31,
2007 2006 % Change
GAAP diluted E.P.S. $3.27 $3.12 +4.8
Income from discontinued operations - (.02) -
GAAP diluted E.P.S. from continuing
operations 3.27 3.10 +5.5
Other items (net of taxes):
Antitrust litigation .54 .01 -
Restructuring charges .04 .08 -
Impact of sale of corporate
headquarters, net (.39) - -
Adj. non-GAAP diluted E.P.S. $3.46 $3.19 +8.5
Smokeless Tobacco Segment Operating Profit Year ended Dec. 31,
2007 2006 % Change
GAAP operating profit $715,699 $805,130 -11.1
Other items:
Antitrust litigation 137,111 2,025 -
Restructuring charges 8,230 19,542 -
Adj. non-GAAP operating profit $861,040 $826,697 +4.2
UST
SUPPLEMENTAL SCHEDULE
(Unaudited)
Fourth Quarter Year ended Dec. 31,
Smokeless Tobacco 2007 2006 % Chg. 2007 2006 % Chg.
Net Sales (mil) $396.1 $380.0 +4.2 $1,546.6 $1,522.7 +1.6
Adj. Non-GAAP
Oper. Profit
(mil) $221.1 $212.6 +4.0 $861.0 $826.7 +4.2
MST Net Can Sales
Premium (mil) 142.0 134.0 +5.9 556.9 541.4 +2.9
Price Value (mil) 26.8 23.4 +14.9 102.1 91.3 +11.9
Total (mil) 168.8 157.4 +7.3 659.0 632.7 +4.2
Volume % Point
MST Share Data Chg. vs. Chg. vs.
RAD-SVT 26 wks ended 12/1/07(1) YAGO Share YAGO
Total Category +7.1%
Total Premium Segment +1.7% 55.1% -3.0 pts
Total Value Segments +14.7% 44.7% +3.0 pts
USSTC Share of Total Category + 3.5% 59.9% -2.1 pts
USSTC Share of Premium Segment +2.2% 90.9% +0.5 pts
USSTC Share of Value Segments +10.9% 21.9% -0.8 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.
Fourth Quarter Year ended Dec. 31,
Wine 2007 2006 % Chg. 2007 2006 % Chg.
Net Sales (mil) $123.4 $94.6 +30.5 $354.0 $282.4 +25.4
Operating Profit
(mil) $24.8 $16.7 +48.6 $59.9 $44.1 +35.9
Premium Case
Sales (thou) 1,797 1,494 +20.2 5,338 4,563 +17.0
Other
Net Sales (mil) $13.4 $11.1 +20.1 $50.1 $45.8 +9.4
Operating Profit
(mil) $4.7 $4.0 +18.2 $17.9 $16.0 +12.0
SOURCE UST Inc.
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