Universal Corporation 2027 Q1 Earnings Call

Good morning, and thank you for joining us. With me today are Preston Wigner, our Chairman, President, and CEO, and Steve Diel, our Chief Financial Officer. During the course of this call, we will be making forward-looking statements that are based on our current knowledge and some assumptions about the future. These are representative as of today only. Actual results, performance, or achievements could differ materially from the anticipated results, prospects, performance, or achievements expressed or implied by such forward-looking statements. We assume no obligation to update any forward-looking statements, except as required by law. For information on some of the risks and uncertainties related to these forward-looking statements, please refer to the reports we file with the SEC and under cautionary statements regarding forward-looking statements in our current earnings press release.

Finally, some of the information we have for you today may be based on unaudited allocations and may be subject to reclassification. Our comments today may also include certain non-GAAP financial measures. For details regarding these measures, including a reconciliation of these non-GAAP measures to the most comparable GAAP measures, please refer to our current earnings press release and other public materials. This call is being webcast live and will be available for replay on our website through November 6th, 2026. This call is copyrighted and may not be used without our permission. Other than the referenced replay, we have not authorized and disclaim responsibility for any recording, replay, or distribution of any transcription of this call. I would like to now turn the call over to Preston.

Thank you, Wu Xi. Good morning, everyone, and thank you for joining us today. As we begin fiscal year 2027, our first quarter results reflect the market and operating conditions we anticipated. First quarter results for our leaf tobacco business followed a seasonal pattern more consistent with historical trends than what we experienced in our exceptional first quarter of last year. The flue-cured and burley markets are in an oversupply position, and as expected, customer buying activity has been slower. We have managed through these types of market cycles before, and our global footprint, experienced teams, and long-standing customer relationships give us a strong foundation for doing so again. Our focus is on buying with discipline, anticipating and monitoring green tobacco trends carefully, and maintaining the right inventory position. Against that backdrop, our expected customer demand remains consistent with our fiscal year sales plan.

In line with historical patterns, we expect shipments to be weighted more heavily in the second half of the fiscal year. Turning to ingredients, first quarter results continue to reflect persistent consumer market headwinds, tariff volatility, and longer than anticipated product development cycles. Despite these challenges, we continued efforts to improve performance across the ingredients platform, leveraging the investments we have made and focusing on stronger commercial execution, improved facility utilization, and increased financial and operational efficiency. I will now turn the call over to Steve to review our financial results, after which I will share a few additional thoughts.

Thank you, Preston. Good morning, everyone. I will start by reviewing our segment financial summary. For our tobacco operations segment, revenue was $437 million for the first quarter of fiscal year 2027, down 13% versus the same quarter of last year. Segment operating income was $3.5 million as compared to $35.7 million for the same quarter of last year. As Preston mentioned, in general, our fiscal first quarter tends to be a slow quarter due to the seasonality inherent in our leaf tobacco business model. During the first quarter of fiscal year 2027, such seasonality was even more pronounced as customers delayed timing of purchasing decisions with the recent market shift to an oversupply dynamic. I should note that we see this as a timing issue, and our customer demand expectations for the full fiscal year are consistent with our initial sales plan.

Prior year comparisons were also negatively impacted by lower tobacco carryover crop sales, which were closer to historical normalized levels in the current first quarter and a less favorable product mix. Additionally, our tobacco segment experienced $4.4 million of negative operating income variance in the first quarter of fiscal year 2027 versus the prior year due to foreign currency movements. For our ingredients operations segment, revenue was $87 million for the first quarter of fiscal year 2027, down 3% as compared to the same quarter of last year. The segment generated an operating loss of $700,000 for the quarter as compared to operating income of $1.7 million for the same quarter of last year.

During the quarter, our ingredients segment continued to work through persistent consumer market headwinds and high fixed costs related to growth investments. While we're confident in our plan to improve segment performance, given the relatively long product development cycle in the ingredient space, we expect that tangible improvements will take some time to materialize. On a consolidated basis for the first quarter of fiscal year 2027, revenue was $524 million, down 12% from the same quarter of last year. Operating income was $2.3 million, as compared to $33.8 million for the same quarter of last year. The net loss attributable to Universal was $5 million, as compared to a net income of $8.5 million for the same quarter of last year.

In regarding liquidity and capital structure, as of June 30, 2026, our net debt was slightly over $1 billion, approximately $52 million lower relative to the same point last year. This decrease was mainly due to lower working capital usage as a result of tobacco crop purchase timing and lower green tobacco prices. Our liquidity availability, which includes cash and availability under our committed and uncommitted credit lines, totaled approximately $1.1 billion. I'll now turn the conversation back to Preston.

Thank you, Steve. Looking ahead, we're approaching fiscal year 2027 with strategic focus and operational discipline while keeping long-term value creation at the center of our work. We're guided by the three pillars of our corporate strategy: maximizing and optimizing tobacco, growing ingredients, and strengthening Universal for the future. Across each of our strategic pillars, we will be disciplined in our approach and focused on execution. For tobacco, we will continue to navigate current market conditions by leveraging our global footprint and deep market experience, strategic focus on sustainability, and long-standing customer relationships. As we plan for the next crop cycle, we're also evaluating how forecasted El Niño conditions could affect crop supply in certain regions.

Universal has a long history of operating through complex agricultural, economic, and geopolitical cycles. Our proven sourcing capabilities, supported by local expertise in our operating regions, remain an important competitive advantage in that work. For ingredients, we are strengthening performance across the platform through greater commercial focus, improved facility utilization, and financial discipline while remaining focused on the long-term opportunity we see in the business. Realizing the benefits of these strategies will take time. We expect some of the improvement efforts to continue through the next fiscal year. We are optimistic about our ability to make steady and incremental advancements towards our goal.

To strengthen for the future, we will identify ways in which we can advance progress in foundational areas such as efficiencies in financial management, human resources, and human capital management as a strategic business function, using technology like AI to innovate and enhance how we perform our work and operate our business. We have entered this fiscal year clear on our priorities, confident in our strategy, focused on executing with discipline. Thank you again for joining us today. We will now open the call for questions.