Universal Corporation

Good day, everyone, and welcome to today's Universal Corporation first quarter fiscal year 2025 earnings call. At this time, all participants are in a listen-only mode, but later you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. Please note this session is being recorded. I'll be standing by should you need any assistance, and it is now my pleasure to turn the floor over to Jennifer Rowe. Please go ahead.

Thank you, Jim. Thank you for joining us. George Freeman, our Chairman, President, and CEO, Ayrton Henshke, 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 7, 2024. 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 10-K for the year ended March 31, 2024. Such risks and uncertainties include, but are not limited to, customer mandated timing of shipment, weather conditions, political and economic environment, government regulation and taxation, changes in exchange rate and interest rate, industry consolidation and evolution, and changes in market structure or sources. Finally, some of the information that I have for you today may be based on unaudited allocations and is subject to reclassification. In an effort to provide useful information to investors, our comments today may also 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. Universal Corporation is off to a strong start for our fiscal year 2025. For the quarter ended June 30, 2024, revenue was $597.1 million, up approximately 15% for both our tobacco and ingredient operations segments, while operating income was $17.2 million, up $6.2 million, or 56%, compared to the same quarter last fiscal year. Our revenue increase in the tobacco operations segment was driven by higher sales volumes and prices. Coming out of an exceptional fiscal year 2024, we benefited from continued strong demand from our tobacco customers. We believe this demand will continue to support solid results for the segment for fiscal year 2025. Our strategic decisions to accelerate tobacco crop purchasing allowed us to secure our contracted tobacco in certain dynamic markets, which has positioned us well to meet customer demand. As in previous fiscal years, we expect that tobacco shipment timing and related revenue recognition will be more heavily weighted towards the second half of fiscal year 2025. Our uncommitted tobacco inventory levels at June 30, 2024, remained low at about 13%, and we believe that global leaf tobacco remains in an undersupply position. Looking ahead, we expect that recent elevated green tobacco prices will incentivize farmers to increase planting for the next season, potentially leading to more balanced markets in the coming years. We work closely with our contract farmers to provide guidance and support to promote increased production. During the quarter ended June 30th, 2024, our ingredients operations segment also delivered improved performance, primarily based on increased sales volumes. New product sales have increased across our ingredients platform, contributing to positive results. These increased sales, combined with general improvement in certain markets and recovery of demand for our core products, drove the 15% increase in sales revenue for the segment as compared to the same quarter last fiscal year. As expected, our debt level remained elevated at June 30, 2024. As our committed tobacco inventories, which represented 87% of total tobacco inventories at June 30, 2024, are processed and delivered to customers, We anticipate working capital to unwind during fiscal year 2025. Some financial highlights for the quarter ended June 30th, 2024. Net income for the quarter was 0.1 million dollars or one cent per diluted share. Net income increased by 2.2 million dollars and diluted earnings per share increased by nine cents for the quarter ended June 30th, 2024 compared to the quarter ended June 30th, 2023. Operating income of $17.2 million for the quarter increased by $6.2 million. Selling, general, and administrative expenses were up $3.2 million in the quarter ended June 30, 2024, largely on unfavorable foreign currency comparisons. Some highlights for our operating segments. Operating income for the tobacco operations segment increased by $5.6 million to $14.5 million for the quarter ended June 30th, 2024, compared to the quarter ended June 30th, 2023. Tobacco operations segment operating income was up in the quarter ended June 30th, 2024, largely on higher carryover crop shipments, as well as higher earnings from our oriental tobacco joint venture. Operating income for the ingredients operations segment was up $4.9 million for the quarter ended June 30, 2024. Results for the ingredients operations segment for the quarter were up primarily due to increased sales volumes, which included higher sales of new products as well as some increases in sales of core products, notably fruit juices. Accelerated purchasing by certain customers and lower inventory write-downs also increased results for the segment in the first quarter of fiscal year 2025 compared to the same period last fiscal year. Test runs and certifications of the processing lines for our Lancaster, Pennsylvania expansion project are progressing well, and the facility remains on track to become fully operational in the second half of this fiscal year. Along with the expansion project, we continue to focus on our commercial and research and development teams To enhance the capabilities and specialized products, we are able to offer Universal Ingredients' customers. We continue to expect the project to meaningfully contribute to our ingredients operations segment results in fiscal year 2026. Reducing our environmental impacts remains a key business goal for Universal. Setting Scope 1, 2, and 3 greenhouse gas emission targets with the Science-Based Target Initiative in 2021 and committing to publicly disclosing our progress towards meeting those targets by 2030 are some of the ways we demonstrate our commitment to sustainability. The credibility of our disclosures is contingent on the accuracy of our emissions data and the methods we use to calculate them. We are pleased to announce that we received independent third party verification of our scope one and two admissions data as well as our scope three admissions data associated with tobacco purchased through our supply chain and the methods we use to calculate our emissions. These important milestones reinforce our dedication to the public and transparent disclosure of our progress towards our goals and the importance of sustainability to universal. For over 100 years, Universal has successfully managed our business and generated strong cash flows over time under a wide range of market conditions. We continue to leverage our global footprint to alleviate the impact of localized disruptions such as adverse weather. Our proactive approach to understanding and responding to the changing world in which we operate and our deep understanding of our customers' needs will serve us well as we continue our endeavor to deliver consistent results year over year. At this time, we are available to take your questions.

And to our phone audience joining today, if you would like to ask a question at this time, simply press star and 1 on your telephone keypad. Pressing star and 1 will place your line into a queue, and I will open your lines one at a time. A friendly reminder that if you're joining today on a speakerphone, please return to your handset prior to pressing star and 1 to ensure that your signal does reach our equipment. Once again, ladies and gentlemen, that is star and 1. We'll hear first from Anne Gerken with Davenport & Co.