Universal Corporation

Good day and thank you for standing by. Welcome to the Universal Corporation first quarter fiscal year 2022 earnings call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, you may press star 0. I would now like to hand the conference over to your speaker for today, Ms. Candice Formacek. Please go ahead.

Thank you, Erica, and thank you all for joining us today. George Freeman, our Chairman, President, and CEO, Ayerson Henchke, our Chief Operating Officer, and Johan Kroner, our Chief Financial Officer, are here with me today and will join me in answering questions after these brief remarks. This call is being webcast live and will be available on our website, and on telephone taped replay. It will remain on our website through November 4th, 2021. Other than the replay, we have not authorized and disclaim responsibility for any recording, replay, or distribution of any transcription of this call. This call is copyrighted and may not be used without our permission. Before I begin to discuss our results, I caution you that we will be making forward-looking statements that are based on our current knowledge and some assumptions about the future. and a representative as of today only. Actual results could differ materially from projected or estimated results, and we assume no obligation to update any forward-looking statements. This is a particular note during the current ongoing COVID-19 pandemic, when the length and severity of the crisis and resultant economic and business impacts are so difficult to predict. For information on some of the factors that can affect our estimates, I urge you to read our 10-K for the year ended March 31, 2021, and form 10-Q for the most recently ended fiscal quarter. Such risks and uncertainties include, but are not limited to, the ongoing COVID-19 pandemic, customer mandated timing of shipments, weather conditions, political and economic environment, government regulation and taxation, changes in exchange rates and interest rates, industry consolidation and evolution, and changes in market structure or sources. Finally, some of the information I have for you today is based on unaudited allocations and is subject to reclassification. In an effort to provide useful information to investors, our comments today may include non-GAAP financial measures. For details on these measures, including reconciliations to the most comparable GAAP measures, please refer to our current earnings press release. We are off to a good start for fiscal year 2022. Results for our tobacco operation segment improved on higher African carryover tobacco shipments and a favorable tobacco product mix in the three months ended June 30, 2021, compared to the three months ended June 30, 2020. Our ingredients operation segment, which includes our October 2020 acquisition of Silva International, delivered very strong performance in the three months ended June 30, 2021. It is exciting to begin to see the positive outcome from our capital allocation strategy, which we put in place in May 2018 with the goal of ensuring that we are well positioned for the future. Investments in our tobacco business have enabled us to expand the supply chain services we provide our customers and to create footprint rationalization efficiencies, and we are seeing the returns from those investments in our results. Our plant-based ingredients platform is coming together nicely. We continue to believe we are on track for our ingredients businesses to meet our previously announced goal of representing 10 to 20% of our results in fiscal year 2022. We are excited about the performance of our investments thus far and will continue to seek prudent strategic opportunities to enhance our businesses and return value to our shareholders. Turning to our results, Net income for the quarter ended June 30, 2021 was 6.4 million or 26 cents per diluted share compared with 7.3 million or 29 cents per diluted share for the quarter ended June 30, 2020. Excluding restructuring and impairment costs and certain other non-recurring items detailed in other items in today's earnings release, net income and diluted earnings per share increased by 6.8 million and 28 cents respectively. for the quarter ended June 30, 2021, compared to the quarter ended June 30, 2020. Adjusted operating income, also detailed in today's earnings release, of $12.6 million, increased by $8.3 million for the first quarter of fiscal year 2022, compared to adjusted operating income of $4.4 million for the first quarter of fiscal year 2021. Consolidated revenues of $350 million for the first quarter of fiscal 2022 increased by $34.2 million compared to the same period in fiscal year 2021. The increase was mainly due to the addition of the business acquired in October 2020 in the ingredients operations segment, partly offset by modestly lower comparative leaf tobacco sales volumes. Turning to the segments, Tobacco operations, the first fiscal quarter is historically a slow quarter for our tobacco businesses. Operating income for the tobacco operations segment increased by 3.8 million to 8.9 million for the quarter ended June 30, 2021, compared with the quarter ended June 30, 2020. Although tobacco sales volumes were down modestly, segment results improved on carryover shipments, product mix, and increased supply chain services to customers in the quarter compared to the same quarter in the prior fiscal year. Carryover crop shipments were higher in Africa in the quarter ended June 30, 2021 compared to the same quarter in the prior fiscal year in part due to some shipments that were delayed from fiscal year 2021. Brazil experienced an improved product mix on lower volumes in the quarter ended June 30, 2021 compared to the same period in the prior fiscal year when high volumes of lower margin carryover crops shipped. Carryover tobacco crop shipments were lower and product mix was less favorable in Asia in the first quarter of fiscal year 2022 compared to the same quarter in fiscal year 2021. And in the first quarter of fiscal year 2022, we also provided increased supply chain services to customers for wrapper tobacco compared to the same quarter in the prior fiscal year. Selling general and administrative expenses for the tobacco operations segment were lower in the quarter, ended June 30, 2021, compared to June 30, 2020, primarily on higher recoveries of value-added taxes and advances to suppliers. Operating income for the ingredients operations segment was $4.3 million for the quarter, ended June 30, 2021. compared to an operating loss of $0.7 million for the comparable quarter in the prior fiscal year. Results for the segment improved year over year on the inclusion of the October 2020 silva acquisition. For the first quarter of fiscal 2022, our ingredients operations saw strong volumes in both human and pet food categories, as well as some rebound in demand from sectors that have been suffering during the ongoing COVID-19 pandemic. Selling general and administrative expenses increased in the quarter ended June 30, 2021, compared to the same quarter in the prior fiscal year on the addition of the acquired business. Our tobacco and plant-based ingredients businesses are both currently performing according to our plans. Like other industries, we are seeing some logistical constraints around the world with regard to vessel and container availability stemming from the ongoing COVID-19 pandemic. However, at this time, we do not know what significant such constraints may have on shipment timing or our results. We are continuing to monitor these and other pandemic-related conditions which affect our operations. And lastly, as part of our ongoing efforts to set high standards of social and environmental performance to support a sustainable supply chain, we have developed targets to reduce greenhouse gas emissions. which are consistent with the levels required to meet the goals of the Paris Agreement, limiting global warming to well below two degrees centigrade above pre-industrial levels. Our targets were recently approved by the Science-Based Targets Initiative and reflect our commitment to reduce our global greenhouse gas emissions by 30% by 2030. At this time, we are available to take your questions.

The floor is now open for questions. If you have any questions, please press Spar 1 on your telephone keypad. Again, that's Spar 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Anne Gherkin from Davenport & Co. Your line is open. Please go ahead. Good evening, everybody.

I have a couple of questions. Congrats on a terrific start to your fiscal year. Beginning with tobacco, you talked about some carryover in Africa. Can you quantify what that contributed to the first quarter?

No, and we don't normally go into the details. Of course, we always have some carryover here and there, but we did tell you in the fourth quarter that there were some shipments that got hung up due to COVID primarily because some of the vessels just bypassed some of the Africa ports, and we saw that come into the first quarter this year.

And should we think about any kind of timing of shipment changes for the balance of the year? Is there anything to call out at this point, or is it too early?

No, it's too early, Anne. It really, as Ken pointed out, really the constraints are there. Certainly, we had hoped that we could see the light at the end of the tunnel. We can't see that just yet. Depending on what shipping lanes you're looking at, it's rougher in Asia, the shipping lane out of Asia, as compared to some of the others. But still, there are certainly some headwinds with regard to logistics.

Okay. And then in terms of the leaf update, it looks like Burley numbers went up. Can you comment on how both flu cured and Burley looks in terms of supply and demand?

Yeah, we do see on the barley side, we do see that the last two years, the crops have declined around the world, and we do see the barley in an undersupply situation. And when we look forward, we see that there's going to be an increase in production in the barley. On the flukyard overall, it is in balance, but we also have seen some pressure on some specific styles and qualities and also plant positions. Oriental, overall, we see balance, and for the dark and the rapa, we see increased demand.

Okay. Candice, do you have a worldwide uncommitted leaf inventory number?

Yes, ma'am. We have 73 million kilos for the unsold flu cured in Burley as of 6-30-21, which is down 21 million from 3-31-21, the last number we gave you.

Okay. And then I ask this question, I think, every time, but Philip Morris, or one of your large customers, is out talking about discontinuing cigarette sales. Now they're out saying they want to discontinue cigarette sales within a decade in the UK. So how do you plan your business? How do you address that scenario? And I don't think it's just going to be the UK market. I think it's going to move around globally. Okay.

Well, we believe that that is not going to be one solution that's going to be for every market. And when we see what happened recently with the reports from our major customers, compared to the past few years where there was a decline between 2% to 3%, right now we see the overall international market fletch or almost fletch. I think what is important also to consider here is the growth in the non-combustible section that segment of the market that I referred to some time ago, because we participated. We see some important increases in the heat not burn, in the vaping, in the smokeless. And we are participating in all these different categories. And we are also expanding our services into the supply chain. So that's the way we look at it.

OK, so that segues into one of my questions from your investor presentation that's on your website. continue to be part of the supply chain for next generation tobacco products. So is that what you're referencing in that latest comment?

Yes, that's correct.

Okay. Okay, great. And then ingredients, it's nice to see the business recover versus last year. In terms of customer orders, were there any accelerated orders or any kind of unusual order patterns in the quarter? Or is this kind of a run rate we should think about? for the ingredients.

The quarter one. No, and just again, keep in mind, of course, this is the first quarter that we have salt and silver in there, so that's important. And then on top of that, those logistical constraints will have an impact, I think, later on this year on margins. When you look at freight rates out of Asia, five times what they were pre-COVID, and our guys are trying very hard to pass along those costs. But that will be next to impossible. So you will see a bit of pressure on the margins going forward. We're certainly talking to our customers about it, and some of them certainly will share in those costs. But, you know, there will be, again, some headwinds there.

Do you contract with customers on an annual basis, or do you have a pass-through process? for higher freight costs or input costs for customers? How does that work?

It depends on the customer. Certainly a large group does have annual contracts, but, again, you have outs with regard to freight and things like that, unusual circumstances. But, again, you know, when the freight rates are as they are today, you know, There is just a difficulty, and we're bringing products out of Asia our way, so we're actually paying for those costs. So as compared to the tobacco, where most of the tobacco we sell on an FOB basis, so those costs are for the account of the customer. So that's where there is a bit of a difference. But on the ingredient side, when we bring those products over, those costs are ours.

So it looks to me like there's a margin of 7.7% in the first quarter. I don't know how to think about the margin for this segment long-term. How should I think about that?

Don't exactly know how you got back to those numbers, but again, I think you need to wait a couple of quarters so you have some comparisons there, Ann. Because again, we will slowly go through it and you will see the full year come out and it will be a whole lot easier to take a look at it that way. Keep in mind that you have amortization in there and some other things. So just give us a couple of quarters and you will see. We're very, very happy with the results at the moment and it's really developing into the platform that we were looking for.

In terms of acquisitions, I thought you all were kind of at your target for the near term in terms of investments. Are you still actively out there looking for businesses to acquire or add to the platform?

Yeah, the pipeline certainly is active, and we will continue to look at any target that comes across the board that will help us develop this platform into what we are looking to be for the future.

All right, and then going back to your investor presentation on slide 20, you put out average operating margin. Can you get back to that average operating margin in that presentation? You've been running below it since like 2013, 14. Can you get back to that number, 200 million operating income number?

We are certainly trying to get there, Ann. Again, With regard to the reason in 2018 we embarked on this capital allocation strategy is to offset some of the decline that we see in the future in tobacco. We have done a very good job on gaining market share and trying to keep it up. And, you know, we have seen in the quarter that, you know, with regard to services and everything, you know, we're making gains there. So, you know, we're certainly striving to achieve those numbers. But, again, there are some headwinds, and we just, you know, need to take it one step at a time.

Okay. And then, sorry, one more thing. On slide 23 in that presentation, CapEx has ramped up 20 to 21. How should I think about CapEx for fiscal 22? Yeah.

For 22, the number is between 35 and 45. That's what we have put in the filings. Last year, it was up a bit. We bought some warehousing related to the green businesses, and we certainly made some very good investments on the tobacco side to perform services that we're seeing the fruits of right now.

Okay. That's great. Thank you all for taking all those questions. I appreciate it.

Perfect. Have a nice evening, Dan. Yeah.

Your next question comes from the line of Steve Marasha from Capital Securities. Your line is open. Please go ahead.

Thank you. Good afternoon, everybody. Good afternoon. And I asked a couple questions I was going to ask, but I do have a couple follow-up. What do you – just adding some flavor to the whole high cost of shipping currently out of Asia, what scenario would it take to drive down the costs in your view? And theoretically, if that were to occur – When would it start to impact your results? Would you say it would be four quarters out from now or would it be sooner?

No, it's certainly this.

I expect it to hit this fiscal year, probably the latter part of this fiscal year, depending on when the product is coming in and everything. But again, containers were available pre-code with certainly less than $5,000. Now you're at $15,000 plus, and it's just passing along those costs. It will be difficult. So that's where we see some of those headwinds.

Have any of your shipping folks given you any idea what type of timeline we might see in terms of decline in the race potentially?

No. We were hoping that come fall it would normalize. At the beginning of COVID, we saw that some of the shipping lines were taking vessels out of rotation. I think most of those vessels have come back in. However, they are putting them on their most profitable lines sure and then their most profitable lanes so you know as some of some of the areas they're they're still as as i pointed out the end you know they were skipping ports early on you know what we saw in march and we're now seeing that that still is occurring in certain areas so again it's going to take a little bit of time for this thing to work itself out and you know hopefully by the end of the year you know at least we can see light at the end of the tunnel okay

Thank you very much, and congrats on a good quarter.

Appreciate it. Thank you. Thank you. Wonderful evening.

Again, if you would like to ask any questions, please go ahead and press star 1 on your telephone keypad. If there are no further questions, presenter, please go ahead.

Thank you so much, and thank you all for joining us on our call today. We'll speak with you again next quarter.

This concludes today's conference call. Thank you all for joining. You may now disconnect. Thank you. Thank you. Music. Thank you. Thank you. you you Good day and thank you for standing by. Welcome to the Universal Corporation first quarter fiscal year 2022 earnings call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, you may press star 0. I would now like to hand the conference over to your speaker for today, Ms. Candice Formacek. Please go ahead.

Candice Formacek Thank you, Erica, and thank you all for joining us today. George Freeman, our Chairman, President, and CEO, Ayerson Henchke, our Chief Operating Officer, and Johan Kroener, our Chief Financial Officer, are here with me today and will join me in answering questions after these brief remarks. This call is being webcast live and will be available on our website and on telephone taped replay. It will remain on our website through November 4th, 2021. Other than the replay, we have not authorized and disclaim responsibility for any recording, replay, or distribution of any transcription of this call. This call is copyrighted and may not be used without our permission. Before I begin to discuss our results, I caution you that we will be making forward-looking statements that are based on our current knowledge and some assumptions about the future. and a representative as of today only. Actual results could differ materially from projected or estimated results, and we assume no obligation to update any forward-looking statements. This is a particular note during the current ongoing COVID-19 pandemic, when the length and severity of the crisis and resultant economic and business impacts are so difficult to predict. For information on some of the factors that can affect our estimates, I urge you to read our 10-K for the year ended March 31, 2021, and form 10-Q for the most recently ended fiscal quarter. Such risks and uncertainties include, but are not limited to, the ongoing COVID-19 pandemic, customer mandated timing of shipments, weather conditions, political and economic environment, government regulation and taxation, changes in exchange rates and interest rates, industry consolidation and evolution, and changes in market structure or sources. Finally, some of the information I have for you today is based on unaudited allocations and is subject to reclassification. In an effort to provide useful information to investors, our comments today may include non-GAAP financial measures. For details on these measures, including reconciliations to the most comparable GAAP measures, please refer to our current earnings press release. We are off to a good start for fiscal year 2022. Results for our tobacco operation segment improved on higher African carryover tobacco shipments and a favorable tobacco product mix in the three months ended June 30, 2021, compared to the three months ended June 30, 2020. Our ingredients operation segment, which includes our October 2020 acquisition of Silva International, delivered very strong performance in the three months ended June 30, 2021. It is exciting to begin to see the positive outcome from our capital allocation strategy, which we put in place in May 2018 with the goal of ensuring that we are well positioned for the future. Investments in our tobacco business have enabled us to expand the supply chain services we provide our customers and to create footprint rationalization efficiencies, and we are seeing the returns from those investments in our results. Our plant-based ingredients platform is coming together nicely. We continue to believe we are on track for our ingredients businesses to meet our previously announced goal of representing 10 to 20% of our results in fiscal year 2022. We are excited about the performance of our investments thus far and will continue to seek prudent strategic opportunities to enhance our businesses and return value to our shareholders. Turning to our results, Net income for the quarter ended June 30, 2021 was 6.4 million or 26 cents per diluted share compared with 7.3 million or 29 cents per diluted share for the quarter ended June 30, 2020. Excluding restructuring and impairment costs and certain other non-recurring items detailed in other items in today's earnings release, net income and diluted earnings per share increased by 6.8 million and 28 cents respectively. for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020. Adjusted operating income, also detailed in today's earnings release, of $12.6 million, increased by $8.3 million for the first quarter of fiscal year 2022 compared to adjusted operating income of $4.4 million for the first quarter of fiscal year 2021. Consolidated revenues of $350 million for the first quarter of fiscal 2022 increased by $34.2 million compared to the same period in fiscal year 2021. The increase was mainly due to the addition of the business acquired in October 2020 in the ingredients operations segment, partly offset by modestly lower comparative leaf tobacco sales volumes. Turning to the segments, Tobacco operations, the first fiscal quarter is historically a slow quarter for our tobacco businesses. Operating income for the tobacco operations segment increased by 3.8 million to 8.9 million for the quarter ended June 30, 2021, compared with the quarter ended June 30, 2020. Although tobacco sales volumes were down modestly, segment results improved on carryover shipments, product mix, and increased supply chain services to customers in the quarter compared to the same quarter in the prior fiscal year. Carryover crop shipments were higher in Africa in the quarter ended June 30, 2021 compared to the same quarter in the prior fiscal year in part due to some shipments that were delayed from fiscal year 2021. Brazil experienced an improved product mix on lower volumes in the quarter ended June 30, 2021 compared to the same period in the prior fiscal year when high volumes of lower margin carryover crops shipped. Carryover tobacco crop shipments were lower and product mix was less favorable in Asia in the first quarter of fiscal year 2022 compared to the same quarter in fiscal year 2021. And in the first quarter of fiscal year 2022, we also provided increased supply chain services to customers for wrapper tobacco compared to the same quarter in the prior fiscal year. Selling general and administrative expenses for the tobacco operations segment were lower in the quarter, ended June 30, 2021, compared to June 30, 2020, primarily on higher recoveries of value-added taxes and advances to suppliers. Operating income for the ingredients operations segment was $4.3 million for the quarter, ended June 30, 2021. compared to an operating loss of $0.7 million for the comparable quarter in the prior fiscal year. Results for the segment improved year over year on the inclusion of the October 2020 silva acquisition. For the first quarter of fiscal 2022, our ingredients operations saw strong volumes in both human and pet food categories, as well as some rebound in demand from sectors that have been suffering during the ongoing COVID-19 pandemic. Selling general and administrative expenses increased in the quarter ended June 30, 2021, compared to the same quarter in the prior fiscal year on the addition of the acquired business. Our tobacco and plant-based ingredients businesses are both currently performing according to our plans. Like other industries, we are seeing some logistical constraints around the world with regard to vessel and container availability stemming from the ongoing COVID-19 pandemic. However, at this time, we do not know what significant such constraints may have on shipment timing or our results. We are continuing to monitor these and other pandemic-related conditions which affect our operations. And lastly, as part of our ongoing efforts to set high standards of social and environmental performance to support a sustainable supply chain, we have developed targets to reduce greenhouse gas emissions. which are consistent with the levels required to meet the goals of the Paris Agreement, limiting global warming to well below two degrees centigrade above pre-industrial levels. Our targets were recently approved by the Science-Based Targets Initiative and reflect our commitment to reduce our global greenhouse gas emissions by 30% by 2030. At this time, we are available to take your questions.

The floor is now open for questions. If you have any questions, please press par 1 on your telephone keypad. Again, that's par 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Anne Gherkin from Davenport & Co. Your line is open. Please go ahead. Good evening, everybody.

I have a couple of questions. Congrats on a terrific start to your fiscal year. Beginning with tobacco, you talked about some carryover in Africa. Can you quantify what that contributed to the first quarter?

No, and we don't normally go into the details because we always have some carryover here and there, but we did tell you in the fourth quarter that there were some shipments that got hung up due to COVID primarily because some of the vessels just bypassed some of the Africa ports, and we saw that come into the first quarter this year.

And should we think about any kind of timing of shipment changes for the balance of the year? Is there anything to call out at this point, or is it too early?

No, it's too early. And it really, as Ken pointed out, really the constraints are there. Certainly, we had hoped that, you know, we could see the light at the end of the tunnel. We can't see that just yet. Depending on what shipping lanes you're looking at, you know, it's rougher in Asia, the shipping lane out of Asia, as compared to some of the others. But still, you know, there are certainly some headwinds with regard to logistics.

Okay. Okay. And then in terms of the leaf update, it looks like Burley numbers went up. Can you comment on how both flu cured and Burley looks in terms of supply and demand?

Yeah, we do see on the barley side, we do see that the last two years, the crops have declined around the world, and we do see the barley in an undersupply situation. And when we look forward, we see that there's going to be an increase in production in the barley. On the flukyard overall, it is in balance, but we also have seen some pressure on some specific styles and qualities and also plant position. Oriental, overall, we see balance, and for the dark and the rapa, we see increased demand.

Okay. Candice, do you have a worldwide uncommitted leaf inventory number?

Yes, ma'am. We have 73 million kilos for the unsold flu cured in Burley as of 6-30-21, which is down 21 million from 3-31-21, the last number we gave you.

Okay. And then I ask this question, I think, every time, but Philip Morris, or one of your large customers, is out talking about discontinuing cigarette sales. Now they're out saying they want to discontinue cigarette sales within a decade in the UK. So how do you plan your business? How do you address that scenario? And I don't think it's just going to be the UK market. I think it's going to move around globally. Okay.

Well, we believe that that is not going to be one solution that's going to be for every market. And when we see what happened recently with the reports from our major customers, compared to the past few years where there was a decline between 2% to 3%, right now we see the overall international market fletch or almost fletch. I think what is important also to consider here is the growth in the non-combustible section that segment of the market that I referred to some time ago because we participated. We see some important increases in the heat not burn, in the vaping, in the smokeless, and we are participating in all these different categories, and we are also expanding our services into the supply chain. So that's the way we look at it.

Okay, so that segues into one of my questions from your investor presentation that's on your website. continue to be part of the supply chain for next generation tobacco products. So is that what you're referencing in that latest comment?

Yes, that's correct.

Okay. Okay, great. And then ingredients, it's nice to see the business recover versus last year. In terms of customer orders, were there any accelerated orders or any kind of unusual order patterns in the quarter? Or is this kind of a run rate we should think about? for the ingredients.

The quarter one. No, and just, again, keep in mind, of course, this is the first quarter that we have salt spillway in there, so that's important. And then on top of that, those logistical constraints will have an impact, I think, later on this year on margins. When you look at freight rates out of Asia, five times what they were pre-COVID, and our guys are trying very hard to pass along those costs. But that will be next to impossible. So you will see a bit of pressure on the margins going forward. We're certainly talking to our customers about it, and some of them certainly will share in those costs. But, you know, there will be, again, some headwinds there.

Do you contract with customers on an annual basis, or do you have a pass-through process? for higher freight costs or input costs for customers? How does that work?

It depends on the customer. Certainly, a large group does have annual contracts. But again, you have outs with regard to freight and things like that, unusual circumstances. But again, when the freight rates are as they are today, There is just a difficulty, and we're bringing products out of Asia our way, so we're actually paying for those costs. So as compared to the tobacco, where most of the tobacco we sell on an FOB basis, so those costs are for the account of the customer. So that's where there's a bit of a difference. But on the ingredient side, when we bring those products over, those costs are ours.

So it looks to me like there's a margin of 7.7% in the first quarter. I don't know how to think about the margin for this segment long-term. How should I think about that?

Don't exactly know how you got back to those numbers, but again, I think you need to wait a couple of quarters so you have some comparisons there, Ann. Because again, we will slowly go through it and you will see the full year come out and it will be a whole lot easier to take a look at it that way. Keep in mind that you have amortization in there and some other things. So just give us a couple of quarters and you will see. We're very, very happy with the results at the moment and it's really developing into the platform that we were looking for.

In terms of acquisitions, I thought you all were kind of at your target for the near term in terms of investments. Are you still actively out there looking for businesses to acquire or add to the platform?

Yeah, the pipeline certainly is active, and we will continue to look at any target that comes across the board that will help us develop this platform into what we are looking to be for the future.

All right, and then going back to your investor presentation on slide 20, you put out average operating margin. Can you get back to that average operating margin in that presentation? You've been running below it since like 2013, 14. Can you get back to that number, 200 million operating income number?

We are certainly trying to get there, Ann. Again, With regard to the reason in 2018 we embarked on this capital allocation strategy is to offset some of the decline that we see in the future in tobacco. We have done a very good job on gaining market share and trying to keep it up. And, you know, you have seen in the quarter that, you know, with regard to services and everything, you know, we're making gains there. So, you know, we're certainly striving to achieve those numbers. But, again, there are some headwinds, and we just, you know, need to take it one step at a time.

Okay. And then, sorry, one more thing. On slide 23 in that presentation, CapEx has ramped up 20 to 21. How should I think about CapEx for fiscal 22? Yeah.

For 22, the number is between 35 and 45. That's what we have put in the filings. You know, last year it was off a bit. We bought some warehousing related to the green businesses, and we certainly made some very good investments on the tobacco side to perform services that we're seeing the fruits of right now.

Okay. That's great. Thank you all for taking all those questions. I appreciate it.

Perfect. Have a nice evening, Nan. Sure.

Your next question comes from the line of Steve Marasha from Capital Securities. Your line is open. Please go ahead.

Thank you. Good afternoon, everybody. Good afternoon. And I asked a couple questions I was going to ask, but I do have a couple follow-up. What do you – just adding some flavor to the whole high cost of shipping currently out of Asia, what scenario would it take to drive down the costs in your view? And theoretically, if that were to occur – When would it start to impact your results? Do you say it would be four quarters out from now or would it be sooner?

No, it's certainly this.

I expect it to hit this fiscal year, probably the latter part of this fiscal year, depending on, you know, when the product is coming in and everything. But, again, you know, containers were available pre-COVID, you know, certainly less than $5,000. Now you're at $15,000 plus, and it's just, you know, passing along those costs, it will be difficult. So that's where we see some of those headwinds.

Have any of your shipping folks given you any idea what type of timeline we might see in terms of decline in the race potentially?

No. We were hoping that, you know, come fall it would normalize. You know, at the beginning of COVID, we saw that some of the shipping lines were taking vessels out of rotation. I think most of those vessels have come back in. However, you know, they are putting them on their most profitable lines Sure. And they're most profitable lanes. So, you know, some of the areas, they're still, as I pointed out at the end, you know, they were skipping ports early on, you know, what we saw in March. And we're now seeing that still is occurring in certain areas. So, again, it's going to take a little bit of time for this thing to work itself out. And, you know, hopefully by the end of the year, you know, at least we can see light at the end of the tunnel.

Okay. Okay. Thank you very much, and congrats on a good quarter.

Appreciate it. Thank you. Thank you. Wonderful evening.

Again, if you would like to ask any questions, please go ahead and press star 1 on your telephone keypad. If there are no further questions, presenters, please go ahead.

Thank you so much, and thank you all for joining us on our call today. We'll speak with you again next quarter.

This concludes today's conference call. Thank you all for joining.