Universal Corporation

Good afternoon, ladies and gentlemen, and welcome to the Universal Corporation First Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. I would now like to turn the conference over to Jennifer Rowe. Please go ahead.

Thank you for joining us. George Freeman, our Chairman, President, and CEO. Ayrton Henschke, 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 2nd, 2023. Other than the replay, we have not authorized and disclaimed 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 are 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. For information on some of the factors that can affect our estimates, I urge you to read our 10K for the year ended March 31, 2023. Such risks and uncertainties include, but are not limited to, impacts of COVID-19, customer mandated timing of shipments, weather conditions, political and economic environment, government regulation and taxation, changes in interest rates and exchange 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 unauded 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. Our tobacco operations performed well and are off to a good start for our fiscal year 2024. Segment operating income was higher for our tobacco operations segment in the quarter ended June 30th, 2023, compared to the quarter ended June 30th, 2022, even though we did not have the benefit of large shipments of carryover tobacco from certain origins that we had in the first quarter of fiscal year 2023. Demand for leaf tobacco from our customers remained strong. and our level of uncommitted tobacco inventory was 16% of tobacco inventory at June 30th, 2023. We are forecasting increased leaf tobacco production in fiscal year 2024 compared to fiscal year 2023 and believe that even with the increased production, leaf tobacco will remain in an undersupply position. We are pleased with the ongoing progress we are making to integrate our plant-based ingredients platform. And we continue to execute on our strategy to invest in and expand the platform's capabilities for future growth in existing and new products. For the quarter ended June 30th, 2023, the platform faced off demand due to high customer inventory levels and our earnings for the platform were below our expectations. We believe that many of our customers are continuing to draw down on the raw material inventories after building inventories to protect against prior supply chain uncertainties. The inventory challenges have been more extensive and persistent in duration than we had forecast. In addition, the expansion of the platform's capabilities added to our costs, while a sharp drop in certain new raw material prices resulted in inventory write downs in the quarter ended June 30th, 2023. We continue to believe the inventory challenges are temporary and expect excess inventory levels held by our customers to eventually work down. One of the main objectives of our current investment in our plant based ingredients platform is to expand our portfolio to include more value added products for our customers. We believe that we are well positioned to capitalize on demand from our customers and that with the investments we are making, we are a stronger partner for current and future customers due to the expanded range of capabilities and products that we can offer them. We are encouraged by ongoing customer engagements regarding existing business and new business opportunities. Some financial highlights for the quarter ended June 30th, 2023. Net loss for the quarter ended June 30th, 2023 with 2.1 million or eight cents per diluted share. Excluding certain non-recurring items detailed in today's press release, net income and diluted earnings per share decreased by 8.2 million and 33 cents respectively for the quarter ended June 30th, 2023 compared to the quarter ended June 30th, 2022. Operating income of 11 million for the quarter ended June 30th, 2023 decreased by 2.2 million. Segment operating income for the tobacco operations segment was up 0.8 million, while segment operating income for the ingredients operations segment was down 6.6 million for the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022. Selling, general, and administrative expenses were up 9 million in the first quarter of fiscal year 2024, compared to the first quarter of fiscal year 2023. Our cost, notably interest costs and prices for green leaf tobacco, remained high in the quarter ended June 30th, 2023 compared to the quarter ended June 30th, 2022. Interest costs were more than double on higher interest rates in the first quarter of fiscal year 2024 compared to the same quarter of fiscal year 2023. Our debt balances, the sum of notes payable in overdrafts and long-term obligations, We're relatively flat in the quarter ended June 30th, 2023 compared to the same quarter in the prior fiscal year as working capital requirements to fund larger tobacco crops and higher green tobacco prices were partially offset by increased customer deposits. We continue to make transparency around our sustainability efforts and goals a priority. We recently completed our annual submission to the global nonprofit organization, CDP, regarding climate change, forestry, and water risk to provide more information on our achievements in these areas to our stakeholders. We continue to work with third parties to verify our mission and establish our pathway to net zero through the identification and prioritization of high impact projects throughout our footprint. At this time, we are available to take your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star followed by the number one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you would like to cancel your request, please press star two. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. Your first question comes from the line of Anne Gherkin from Davenport. Your line is now open.