Grower prices down but AOI’s profits fall

Market prices paid in US dollars for suppliers’ green tobacco have again been generally lower this year, according to Alliance One International’s president and CEO, Pieter Sikkel.

Announcing the company’s results for its first quarter to the end of June, Sikkel said that global leaf tobacco markets were still in oversupply, though the supply/demand situation was beginning to tighten in some regions.

And he predicted that oversupply would ‘further correct through the current crop cycle’.

‘Despite global oversupply and reduced average sales prices, our sales for the first quarter improved 5.9 percent versus last year to $263.8 million primarily due to increased volumes shipped from South America and enhanced customer demand for Asian products,’ Sikkel said.

‘South American and African markets have been delayed by four to six weeks this year mainly related to weather. As a result, we have experienced a slow start that is expected to improve through the year with sales building each subsequent quarter and resulting in improved full-year revenue and adjusted EBITDA when compared to last fiscal year.’

AOI reported that its gross profit had decreased by 2.6 percent to $34.2 million and that its gross profit as a percentage of sales had decreased to 13.0 percent this year from 14.1 percent last year, driven by Brazilian Real hedging expenses, a change in product mix, customer processing requirements and the weather-related delay in crop timing. ‘Mainly as a result of changes in Brazilian Real/US Dollar exchange rates versus our hedging plans, gross profit this year included $1.4 million of foreign currency hedging expense, compared to $2.1 million of foreign currency hedging gains last year, or a $3.5 million change,’ Sikkel said. ‘Benefits from Brazilian Real depreciation versus the US dollar that resulted in hedging expense in the first quarter are expected to be recognized as current Brazilian crop purchases and inventory are sold through later this fiscal year.’

Later in his report, Sikkel said that AOI continued to make progress toward its global plans and strategies. ‘Those plans include investing in sustainable tobacco production where appropriate returns are achievable, eliminating costs from the supply chain and optimizing our global footprint to match future customer requirements,’ he said. ‘We have made solid progress in all these initiatives during the quarter and expect execution of these plans to improve our results and shareholder value.’