UST Inc. (UST), a maker of smokeless tobacco products and premium wines, Friday reported a 6.2% drop in earnings for the third quarter, while sales grew marginally from the previous year. However, excluding items, earnings per share rose from last year and beat Street expectation. Further, the company reaffirmed its earnings view for 2008.
The Stamford, Connecticut-based company reported net earnings that dropped to $125.32 million from $133.60 million in the previous year period. However, earnings on a per share basis remained flat with last year at $0.84, as the third quarter of the current fiscal had fewer shares outstanding than the previous year.
Results of the latest period included restructuring charges and acquisition related costs, while in the previous year, results included items related to antitrust litigation, restructuring and impact of sale of corporate headquarters.
Excluding items, earnings dropped to $135.90 million from $138.53 million in the prior year. However, on a per share basis, adjusted earnings rose to $0.91 from $0.87 last year. On average, seven analysts polled by First Call/Thomson Financial expected earnings of $0.90 per share for the quarter.
Net sales for the quarter rose 1% to $484.63 million from $479.61 million reported in the year-ago period. Analysts expected revenues of $489.87 million.
Smokeless Tobacco unit generated $364.1 million during the third quarter of the current fiscal, down 5.2% from last year. Total underlying moist smokeless tobacco net can volume grew 0.9% to 164.9 million and underlying premium net can volume edged up 0.1% to 137.3 million.
Though generally there is higher demand for smokeless tobacco, the rise in gasoline prices and food costs have led to less demand for premium smokeless tobacco.
The Wine division reported a third-quarter growth of 21.2% to $99.8 million. Strong growth was realized across the product portfolio 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.
Operating income dropped 6.8% to $203.68 million. Total costs and expenses increased 7.6% to $280.95 million as the latest period included $7.08 million costs related to acquisition, which was absent in the previous year. Further, costs of products sold rose 13.6%, while restructuring charges were much higher from last year.
For the first nine months, net earnings grew to $390.32 million or $2.62 per share from $381.08 million or $2.37 per share in the previous year. Net sales increased to $1.463 billion from $1.417 billion in the previous year.
Cash and cash equivalents at the end of September 30, 2008 was $29.50 million, while it was $73.70 million as of December 31, 2007.
In early September, the company announced it had reached a definitive agreement for Altria Group, Inc. (MO) to acquire all outstanding shares of UST for $69.50 per share in cash. The transaction is valued at about $11.7 billion, which includes the assumption of about $1.3 billion of debt. The acquisition would bolster the position of Altria, the maker of Marlboro cigarettes, in smokeless tobacco market.
The company said Friday that the acquisition is on track to close during the first full week of January 2009 and no later than January 7.
Looking ahead, the company reaffirmed its adjusted earnings per share target of $3.65 for 2008 with a range of $3.60 to $3.70. The Street estimates 2008 earnings of $3.64 per share.
UST is currently trading at $67.15, down $0.35 or 0.52%, on 1.08 million shares. For the past year, the stock trended in the range of $49.28-$68.90.
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