Universal Corporation Q1 FY2026 earnings call

• Fiscal year 2026 started well with operating income up and revenue slightly down. - Tobacco Operations had improved results driven by favorable product mix despite lower sales volumes. - Ingredients Operations had higher revenue and sales volumes but lower operating income due to less favorable product mix, tariff impacts, and higher fixed costs. - Johan will retire as CFO after 30 years with the company, remaining until July 1, 2026, for transition. - Universal is committed to sustainability, having completed third-party assessment of emissions and commissioning a biomass boiler in Zimbabwe to work towards net zero emissions by 2050.

For the first quarter of Fiscal Year 2026, on a consolidated basis, operating income increased $17 million to $34 million while revenue was $594 million. The Tobacco Operations segment had operating income of $35.7 million in the quarter, compared to $14.5 million for the same quarter last year. This represents an absolute increase of $21.2 million, primarily due to a favorable product mix in Asia. The Ingredients Operations segment had operating income of $1.7 million for the quarter, compared to $2.9 million last year, a decrease of $1.2 million due to less favorable product mix, tariff uncertainty impacts, and higher fixed costs. In terms of revenue contribution, Tobacco Operations contributed approximately 6% (35.7 / 594 * 100) and Ingredients Operations contributed approximately 0.28% (1.7 / 594 * 100) of the total revenue.

• Uncertainties remain for the rest of the fiscal year regarding customers' procurement strategies and tariff impacts, but global diversification, long-term customer relationships, and local expertise present opportunities. - Focus on continuing momentum in Ingredients segment by driving organic growth, capitalizing on investments in Universal Ingredients, and converting customer interest into product sales. - Continue pursuing opportunities to maximize and optimize tobacco business, including offering additional services to customers.

• Tariff uncertainties impacting both tobacco and ingredients business. - Oversupply risk in tobacco expected by the end of the fiscal year, which could put pressure on pricing. - Impact of tariff uncertainty on customer demand in the Ingredients segment.

Q: Could you talk about tariffs on tobacco and ingredients business?

A: For tobacco, diversified footprint and customer base help navigate tariffs; for ingredients, flexibility in buying strategies and working with customers to mitigate impacts.

Q: How to think about margin projection for Tobacco segment in second half and full year?

A: First quarter is seasonally low; larger crops expected to cause price pressure, but increasing volumes through factories can reduce per unit costs.

Q: Update on progress of U.S. tobacco leaf crop?

A: U.S. crop is large, good quality, but buying is just beginning.

Q: Margin progression for Ingredients segment in back half?

A: Optimistic about margin improvement as they continue to execute strategy, increase volume of value-added products, and reduce per unit costs.

Q: Seasonality and crop carryover impact?

A: First quarter is seasonally low; transition from undersupplied to oversupplied markets should reduce costs and working capital requirements.

Q: Use of cash and share repurchase?

A: Share repurchase program of $100 million is renewed, with no immediate big plans but available for opportunities.