Image source: The Motley Fool.

Date

Thursday, Aug. 7, 2025, at 10 a.m. ET

Call participants

  • Chairman, President, and Chief Executive Officer — Preston Wigner
  • Chief Financial Officer — Johan Kroner
  • Vice President, Corporate Communications — Wushuang Ma

Need a quote from a Motley Fool analyst? Email [email protected]

Takeaways

  • Consolidated operating income-- $33.8 million operating income for fiscal Q1 2026 (period ended June 30, 2025), a $16.6 million increase, driven by a favorable product mix in tobacco operations.
  • Total revenue-- $593.8 million sales and other operating revenues for fiscal Q1 2026, slightly down by $3.3 million, mainly due to lower carryover crop tobacco sales.
  • Net income attributable to Universal Corporation-- $8.5 million, or $0.34 per share diluted (GAAP) for fiscal Q1 2026, up from $100,000 or $0.01 per share (GAAP) in fiscal Q1 2025.
  • Adjusted net income-- $9.6 million, or $0.38 per share diluted (adjusted, non-GAAP) for fiscal Q1 2026, compared to $100,000 or $0.01 per share in fiscal Q1 2025, excluding nonrecurring items.
  • Tobacco operations segment operating income-- $35.7 million operating income for the tobacco operations segment in fiscal Q1 2026, an increase of $21.2 million, attributed to improved product mix in Asia.
  • Ingredients operations segment operating income-- $1.7 million for the quarter, compared to $2.9 million for the same period last year, affected by less favorable product mix, tariff-driven demand changes, and higher fixed costs from expanded production capacity.
  • Ingredients operations revenue and volume-- Both increased in fiscal Q1 2026, despite a decline in segment operating income.
  • Net debt-- Net debt was $1.1 billion as of June 30, 2025, $47 million lower than the prior year, reflecting efforts to maintain conservative leverage.
  • Uncommitted tobacco inventory-- Approximately 11% of total tobacco inventory as of the end of June 2025.
  • Leadership transition-- Chief Financial Officer Johan Kroner plans to retire by July 1, 2026; search process for a successor has begun with no announcement yet.
  • Sustainability initiatives-- Completion of third-party assessment of scope one, two, and relevant scope three emissions; new biomass boiler in Zimbabwe expected to reduce future coal usage and contribute to net zero GHG emissions by 2050.
  • Share repurchase authorization-- The $100 million share repurchase program remains in place and was recently renewed; management clarified, "we just have it out there just in case the opportunity arises ... So currently, there are no big plans there."
  • Tariff management strategy-- Management emphasized diversified supply options and global customer base to shift product flows as needed, and highlighted, "tariffs are still fluid. They continue to be monitored. And we remain in very close contact with our customers both on the tobacco."
  • Crop outlook-- Large, high-quality U.S. tobacco crop anticipated; flue-cured and burley crop sizes are expected to move into oversupply by the end of fiscal 2026.
  • Ingredients facility expansion-- The recently expanded Universal Ingredients facility became operational in fiscal Q1 2026, with ongoing commercial efforts to convert customer interest into increased sales and margin contributions.

Summary

Universal (UVV -5.25%) reported significant year-over-year improvements in consolidated operating income and net profitability for fiscal Q1 2026, supported primarily by a favorable product mix in the tobacco operations segment. Management stated that carryover tobacco shipments declined due to the previous year’s accelerated shipments, impacting fiscal Q1 2026 sales volumes and revenue. Ingredients operations posted increased revenue and volumes in fiscal Q1 2026 amid margin pressure from tariffs, less advantageous mix, and higher fixed costs linked to facility expansion. Management outlined clear strategies for navigating tariff uncertainties and managing anticipated oversupply in core crop categories by year-end.

  • Plans for increased services and market share in tobacco operations were noted as a strategic objective, with management expressing satisfaction with early progress but acknowledging the need for ongoing execution throughout the year.
  • Preston Wigner emphasized a deliberate approach to inventory risk, stating, "we do not buy tobacco on a speculative basis." to mitigate consequences of market oversupply.
  • Ongoing investments in extraction, blending, and packaging at the Shanks facility are expected to further strengthen the commercial pipeline and margin profile of ingredients operations as customer projects progress.
  • Universal integrated a recently completed, third-party verified emissions assessment into broader sustainability reporting, with the newly commissioned biomass boiler in Zimbabwe highlighted as a material future contributor to emissions reduction targets, supporting Universal Corporation's goal of net zero greenhouse gas emissions in its value chain by 2050.

Industry glossary

  • Carryover tobacco: Inventory of tobacco from a prior crop year available for sale or shipment in the current period.
  • Uncommitted inventory: Leaf tobacco or finished product inventory not yet contracted or designated for sale to customers.
  • Flue-cured/burley: Major tobacco leaf types used globally in the production of cigarettes, differentiated by curing process and regional cultivation.
  • Scope one, two, and three emissions: Categories of greenhouse gas emissions included in sustainability reporting; scope one covers direct emissions from owned sources, scope two from purchased energy, and scope three from indirect activities across the value chain.

Full Conference Call Transcript

Wushuang Ma: Good morning, and thank you for joining us. With me today are Preston Wigner, our Chairman, President, and CEO, and Johan Kroner, 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. They 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 in 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 forward-looking statements, please refer to our reports we file with the ICC 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 may also include certain non-GAAP financial measures. For details regarding these measures, including reconciliation of the 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 7, 2025, and via telephone through August 21, 2025. This call is copyrighted and may not be used without our permission. Other than the reference to replay, we have not authorized or 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.

Preston Wigner: Thank you, Wushuang. Morning, everyone. Thank you for joining us today. We are off to a good start to our fiscal year. On a consolidated basis, operating income increased $17 million to $34 million for the first fiscal quarter, while revenue was down slightly to $594 million for the quarter. Our tobacco operations segment delivered improved results driven primarily by a favorable product mix, which offset lower tobacco sales volumes. Seasonally, our first fiscal quarter tends to be our smaller quarter. Tobacco sales volumes in the first quarter are generally driven by shipments of carryover tobacco from the prior fiscal year. Given strong customer demand last fiscal year, we shipped significant volumes of tobacco earlier in the prior year.

As a result, carryover tobacco shipments and tobacco sales volumes were lower in the first quarter of the current fiscal year compared to the same quarter last year. Blue currant and burley crop sizes are significantly larger this fiscal year, and green tobacco purchases are largely completed in Brazil and Africa. Although it is still early, we expect the flu cured and burley tobacco will move to more balanced positions during the fiscal year. Given the current expected crop sizes, we believe it is likely that flu cured and burley tobacco will be in oversupply positions by the end of the fiscal year.

Customer demand has remained firm despite larger crops, and we believe this is a result of several years of short tobacco supply. At the end of June, our uncommitted tobacco inventories were low at about 11% of total tobacco inventory. Turning to our ingredients operations segment, we maintained positive momentum in the first quarter of fiscal year 2026, with revenues and sales volumes both up in the quarter. Operating income was lower in the quarter. Segment results were impacted by a less favorable product mix, tariff uncertainty impacts on demand, and higher fixed costs associated with our recently expanded production facility. As we work to fill our new facility, we continue to see interest in our new value-added products.

Supported by a foundational customer for our expanded facility, we are focused on converting additional interest from both new and existing customers into increased volumes and margins. I will now hand it over to Johan to provide details of our financial and operational performance, after which I will offer additional thoughts and open the call for questions.

Johan Kroner: Thank you, Preston. Good morning, everyone. As Preston mentioned, we are off to a good start to our fiscal year 2026 with improved results from our Tobacco Operations segment and higher revenue and sales volumes in our ingredients operations segment. For 2026, sales and other operating revenues were $593.8 million as compared to $597.1 million for the same quarter last fiscal year. This was a slight decline of $3.3 million, mainly due to lower sales of carryover crop tobaccos. Operating income for the quarter was $33.8 million as compared to $17.2 million for the same quarter in fiscal year 2025. The increase of $16.6 million was due to a favorable product mix in the tobacco operations segment.

Compared to $78.7 million for the same quarter last year, an increase of $500,000 was primarily due to higher compensation and legal and professional fees, which were largely offset by favorable foreign currency comparisons and lower tobacco sales commissions. Net income attributable to Universal Corporation was $8.5 million for the first quarter, or $0.34 per share on a fully diluted basis, as compared to $100,000 or $0.01 per share for the same quarter in fiscal year 2025. Adjusted net income, which excludes certain nonrecurring items, was $9.6 million or $0.38 per share on a fully diluted basis for the quarter, as compared to $100,000 or $0.01 per share for the same quarter last year.

Segment operating income for the tobacco operations segment was $35.7 million in the quarter as compared to $14.5 million for the same quarter last year. The increase of $21.2 million was mainly due to a favorable product mix in Asia. Segment operating income for the Ingredients Operations segment was $1.7 million for the quarter as compared to $2.9 million for the same quarter last year. The decrease of $1.2 million was due to a less favorable product mix, some curtailed demand due to tariff uncertainty, and higher fixed costs, including depreciation, from our recently expanded Universal Ingredients production facility. The corporate overhead allocation to the segment was also higher in the quarter.

As of June 30, 2025, our net debt, which is defined as the sum of notes payable, overdrafts, and long-term obligations, including the current portion, plus customer advances and deposits, less cash and cash equivalents, was $1.1 billion, $47 million lower than as of June 30. We are focused on continuing to maintain a strong balance sheet and conservative debt levels. I would like to now turn it back over to Preston.

Preston Wigner: It is still early in our fiscal year. Uncertainties remain for the rest of the fiscal year, including our customers' procurement strategies and tariff impacts. We believe those challenges can present us with opportunities. Our global diversification, long-term customer relationships, and local expertise will position us well to capitalize on those opportunities. Our leaf tobacco team is experienced in managing changes in market conditions. We will continue pursuing opportunities to maximize and optimize our tobacco business, including offering and providing additional services to our customers. At the same time, we are dedicated to continuing our ingredient segment's momentum. We are focused on driving organic growth, capitalizing on our investments in Universal Ingredients, and converting customer interest into product sales.

Our expanded facility added an industry-leading combination of extraction, blending, aseptic packaging, and other capabilities to our segment. With our investment in sales, marketing, and product development teams, we are creating value across the entire Universal Ingredients business and delivering unique customized products to our customers. I also want to take a moment to acknowledge a recent leadership announcement. Johan will be retiring from his role as Senior Vice President and Chief Financial Officer after more than thirty years with Universal. He will remain with the company through July 1, 2026, to support a seamless transition. We thank Johan for his dedicated service, and we value the financial discipline he has instilled across the organization.

I look forward to working closely with Johan for the next year. Finally, I would like to highlight our ongoing commitment to sustainability. At Universal, we believe sustainability is good for business and it gives us a competitive advantage. It also represents good stewardship in the communities in which we operate. We recently completed our annual third-party assessment and verification of scope one, two, and relevant scope three emissions. This assessment is part of our broader emissions reduction efforts and ensures alignment with established standards, and provides transparency into our emission reduction efforts. It also helps us calculate the impact of projects like our newly commissioned biomass boiler in Zimbabwe.

Once operational, this new boiler will help reduce coal use over time and contribute to our goal of net zero greenhouse gas emissions in our value chain by the year 2050. Universal will continue integrating sustainability into our operational decision-making. Operator, please open the floor for questions.

Johan Kroner: Thank you.

Operator: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press 1 to join the queue. Our first question comes from the line of Ann Gurkin with Davenport. Your line is open.

Ann Gurkin: Good morning, everyone.

Johan Kroner: Morning, Ann.

Preston Wigner: Morning, Ann.

Ann Gurkin: Congratulations on a very solid start to your fiscal year. Nice to see.

Preston Wigner: Thank you.

Ann Gurkin: I was wondering if we could start with a conversation surrounding tariffs, both on tobacco and ingredients business. I guess starting with tobacco, leaf imported into the US from Brazil, I think, would represent maybe 5-10% of tobacco sales for you all. Is that in the ballpark? And how should I think about navigating the tariff situation, uncertainty, ability to pass along tariff costs to customers, any kind of insight you can share on the tobacco tariff situation?

Preston Wigner: Sure. And with respect to Brazil imports, you know, I think those imports over the years, let's say they are around 35,000 to 40,000 tons per year, which is a small portion of the total Brazil crop. And our portion of that is relatively small. You know, on the tobacco side, a large majority of our business is obviously outside the United States. So it is not a significant impact for imports in and out of the United States for us. In our diversified footprint, and our broad customer base, they provide opportunities for us and solutions for our customers with tariff impacts.

You know, for our US customers, we can provide them with options if they need to shift purchases from high tariff origins like Brazil, including selling them US tobacco. And where we have tobacco in high tariff origins, we have a very broad global customer base, and we move that tobacco to them. You know, tariffs are still fluid. They continue to be monitored. And we remain in very close contact with our customers both on the tobacco side and on the ingredient side. On the ingredient side, our ingredients business also has flexibility. You know, we evaluate and alter our buying strategies to account for tariffs.

And we import raw materials, for example, from China for one of our operations. And we did buy forward to mitigate the tariff impacts for those volumes that we bought. We also work with our customers on their buying strategies to mitigate tariffs. We have seen some tariff impacts when customers demand that are rising from challenges in their own supply chains. And we have worked with those customers to understand the impacts of those supply chains and timing when they can increase their purchases from us. And we work very closely with both our tobacco and our ingredients customers in those tariffs. If the tariff costs are included in the pricing, then they are included in the pricing.

But we certainly try everything we can to work with our customers to mitigate those impacts of tariffs to avoid those situations.

Johan Kroner: So overall, you know, global footprint and our customer base, broad customer base, and really solid customer relationships, they are going to help us pursue these opportunities. The tariffs are going to create, and we are really well placed to take advantage of that.

Ann Gurkin: Great. Thank you for all that detail. That is very helpful. I appreciate it. Speaking with tobacco, nice margin in the first quarter, understand the positive contribution from the mix from Asia. How should I think about margin projection in the second half of the fiscal year reflecting custom orders and pricing and mix? And how should I think about that margin, really for the full year for the tobacco segment?

Preston Wigner: Yeah. Of course. As we mentioned earlier in the call, you know, the first quarter is our seasonally low quarter. And so, you know, we certainly enjoyed an improved product mix for carryover sales for the quarter, but it is a small quarter for us. You know? Looking ahead, we have been very happy with how things have progressed. We have largely completed purchasing in Brazil and Africa, and those crops are very large. And we expect very large crops all around the world. And with that, we would expect pricing to come down despite that firm demand to date. So that could create margin pressure that we would monitor and work with our customers.

Additionally, if we are handling larger volumes through our factories, with those larger crops, that also helps reduce our per unit cost in our factory. So we are very happy with where we are today, with our uncommitted inventory levels, and with the more traditional buying patterns that we have seen, especially in Brazil, versus what we have seen in the prior season with the accelerated buying, everything all at one grade. You know, that gives us options to satisfy our customers' needs, while also protecting the margins that we recognize for the value that we bring to our customers. There is a value in doing business with Universal.

So it is still really early in the season, there is still a lot of tobacco to buy. There are markets that still are opening. And we are going to continue to monitor those dynamics in those markets and work hard with our customers to maintain good communication with them and to protect the value that we bring to them.

Ann Gurkin: Super. And have you been able to increase services or market share with customers?

Preston Wigner: Yeah. That is certainly a goal of ours. That is part of our corporate strategy is maximizing and optimizing tobacco is to increase volumes, increase market share, and take advantage of opportunities to increase services we provide for them. I am not going to talk about any customer in particular, but we are very happy with where things are going so far early in the year. And we see benefits. We still have a long way to go for the year. But we are on the right track, and we are optimistic.

Ann Gurkin: Super. And then may I get an update on the progress of the US tobacco leaf crop?

Preston Wigner: Yep. US tobacco crop is large. It is more of a traditional crop. Buying is really just beginning, so really sort of early in the process for that. They have had very good weather conditions, so it should be a really large crop and in pretty good quality.

Ann Gurkin: Super. Super. Switching to ingredients. So the margin was lower than we would have thought in the first quarter. And you have outlined the challenges faced by that segment in the first quarter. I guess, also the same question, if you look out to the back half, we had operating margin for the full year for Ingredients in the mid-single-digit range. And that seems aggressive given what we have seen in the first quarter, some customer challenges, specific customer challenges, maybe reduced purchases and forward purchases that shifted into Q4 last year. I guess, can you help me think about that margin progression, where it could end land at the end of fiscal 2026, please?

Preston Wigner: Yeah. There are certainly a lot of moving pieces with that. We are very happy with the momentum from increased revenue and volume. And we continue to make progress with our ingredient strategy. You know, we are focused on continuing to increase volume of the value-added products, especially through the new Universal Ingredients Shanks expanded facility, to increase sales and achieve returns on those investments. We did have those additional costs that impacted the first quarter performance and margin, and our goal is to keep increasing volume through the facility, as well as across the entire platform to reduce those per unit costs and provide us more opportunities to increase margins.

It is a similar story on the tobacco side with increasing volumes going through our factories.

Johan Kroner: We continue to see interest in the value-added products and capabilities, and we are absolutely converting them with existing and new customers from existing business, new business, pipeline business, to additional volumes and improved margins.

Ann Gurkin: And you have set a terrific investment in the new facility as you referenced Shanks. And then the new capacity at the Shanks facility and the investment in added sales force, so you have set a platform to drive these higher revenues. And that is very exciting. I guess, are you experiencing customer wins? Are you experiencing increased business that should help you leverage those investments?

Preston Wigner: And we certainly see those investments as key to our strategy. And yeah, in terms of what we saw in the first quarter, with those types of headwinds, there are some tariff impacts, for example. You know, we think we can work through with our customers. I believe some of that will end up being a timing issue for them if they have had tariff impacts in their supply chain versus tariff impacts with us, with our one facility where we are bringing in raw material from China. But we have built this platform and we have invested in those R&D commercial marketing resources and invested in expanding capabilities not just in the Shanks facility, but in others.

To give us that opportunity to provide platform products leveraging the entire platform for customized value-added products for our customers. We are well set up for that. And now it is a matter of executing on our plans, executing on our commercial strategies to increase those volumes, and get pipeline projects from the pipeline to the factory floor. And running volume for those factories. We are very pleased with our strategy, with our momentum, and we are going to continue pushing hard for the rest of the year and the years beyond to keep increasing volume.

Ann Gurkin: So do you think that margin can increase in the back half of the year for the ingredient segment versus Q1?

Preston Wigner: Yeah. We have work to do to continue to execute on our strategy, and to get things out of the pipeline. Some pipeline projects take months. Some might take a year. And they are all in different phases. I am optimistic for the rest of the year that we would continue to execute on our strategies and continue to drive volume growth and then have the margin opportunities as we continue to increase our volumes. It is a lot of work, but I feel like we have got the right investments and the right teams and the right relationships with the customers and the right strategies to make that happen.

Ann Gurkin: Okay. Great. Well, we will see how the year plays out. Best wishes to Johan and his retirement. That is fantastic. Any update on the announcement of a successor in terms of CFO?

Preston Wigner: No. We have initiated the process, but no announcements to date. We will keep everybody informed, of course.

Ann Gurkin: Great. And then always ask about the use of cash. Any updates there?

Johan Kroner: In what sense, Ann? Are you still there?

Technical difficulty. Give us one moment.

Operator: And we will proceed to our next question comes from the line of Daniel Harriman with Sidoti and Company. Your line is open.

Daniel Harriman: Hey, Wushuang, Preston, Johan. Good morning. Congrats on the quarter. I have got two questions this morning, and you already hit on both of these in the prepared remarks and then the prior questions. But just for educational purposes, as someone newer to the story, at a high level, could you just walk us through, you know, how seasonality and crop carryover typically affect results as the year progresses? Obviously, we know the impact from the first quarter.

And then with the oversupply expected in the market, I was just hoping you might be able to comment a little bit on how you are managing that risk of the oversupply while maintaining pricing and inventory discipline as the year goes on.

Preston Wigner: Sure, Daniel. You know, I think for carryover for us, you know, a lot of that is timing, a lot of that is mix. And it varies year to year. And, again, with the first quarter being our seasonally low quarter, you know, we are doing less selling and more buying. Small changes in mix, small changes in volume, for carryover can make a big difference for the quarter. For us, with these short crops for the past few years, you know, we have not had much carryover to carry over. It is just like last year, as I said in my remarks. You know, there was such high demand.

We shipped product earlier in the year and we just had less carryover to sell into the first quarter. In addition, because uncommitted inventories were so low, at the end of the year because it is an undersupplied situation. We did not have the flexibility that we like with additional uncommitted inventory to be able to make sales towards the end of a season or the end of a year. For opportunity purchases with our customers. And now as we move into a more balanced supply, and then as we said, you know, likely oversupply by the end of the fiscal year, the key for us is access to tobacco.

If we can access tobacco, we believe we can sell it. Given our strategies and our competitive advantages. Our diversified footprint gives us access to all the necessary crops to meet customer needs, and our strong relationships with our customers and our close communication with them help us to really mutually navigate market dynamics. Shifting from smaller crops and undersupplied to larger crops imbalanced or oversupplied, and those should logically reduce costs, create attractive opportunities, and they should reduce our working capital requirements. As I mentioned earlier, we also benefit from increasing volumes through our factories, which reduces our per kilo costs. We generally prefer balanced to slight oversupply markets for all of those reasons.

We believe we have competitive advantages that make us a really valuable partner for our customers. Especially in these changing market dynamics. It provides us more access and more flexibility to meet all of our customers' evolving needs, and what is also really key for us to remember is that we do not buy tobacco on a speculative basis. We buy it with an understanding of what we believe our customers' needs are that when you do get into oversupply markets, because we do not buy on a speculative basis. It mitigates that risk that we would end up a year with a lot of uncommitted inventory.

And as oversupply continues, you traditionally see prices, green prices to the farmer drop year over year until you get back into balance. And what we are very careful about is understanding what tobacco we have in inventory, how we are going to move it so that we do not end the year with large volumes of expensive tobacco going into another oversupply season. So there are some unique things for this current change in the market dynamics. You know, we are going from historically high green prices that we just have never seen before, but our teams around the world are very experienced in dealing with changes in dynamics.

These are not the first times we have seen shifts from undersupplied to oversupplied to balanced supply. And, again, based on our global diversified footprint, the advantages that give us the flexibility that gives us, our strong teams on the ground who are experts in buying tobacco, how to buy it, when to buy it, we think we are very well set up to take advantage of that. And to help our customers and also to retain the value that we see in doing business with us.

Daniel Harriman: Great. That is really helpful, and I appreciate your willingness to kind of take a step back there. But, congrats on the quarter, and best of luck moving forward.

Preston Wigner: Thank you, Daniel.

Operator: And we would like to call out Ann Gurkin for any additional questions. Your line is now open.

Ann Gurkin: Well, thank you so much. I just wanted to follow-up on the use of cash. I know you have an outstanding share repurchase program and the use for investing in working capital needs and ingredients business, although it sounds like you are going to grow that organically more at this point? That was my question.

Johan Kroner: Yeah. And the repurchase and the $100 million that we have out there, you know, just renewed that and, you know, we just have it out there just in case the opportunity arises in any of the situations that you just mentioned. So currently, there are no big plans there, but because we have lots of hollow things in to look at, it is out there just in case we need it.

Ann Gurkin: Okay. Great. Thank you.

Johan Kroner: Thank you.

Operator: There are no further questions at this time. I would like to turn the call back over to Preston Wigner for closing remarks.

Preston Wigner: Thank you, Desiree. Thank you all for joining our call today. And we look forward to speaking to you next quarter. Have a very good day.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.