Universal Corporation Q2 FY2026 earnings call

• Tobacco Operations: Tobacco buying largely complete in key growing regions, crop sizes larger this year, green tobacco prices softened in certain regions, shipments progressing smoothly and earlier than last year, customer demand firm despite larger crops, uncommitted inventory levels low, expected to move to oversupply by year-end, team experienced in managing oversupply.
• Ingredients Operations: Maintained positive momentum with higher sales and volume in quarter and 6-month period, interest in new value-added products growing, active pipeline, but fixed costs, product mix, and external challenges impacted earnings, proactive in meeting customer strategic needs, focusing on organic growth and converting customer interest into sales.
• Sustainability: Made progress in transition to renewable and lower emission energy sources, expanded use of clean electricity, investments in clean energy at operations in Italy, Dominican Republic, and Philippines support sustainability goals.

Tobacco Operations Segment

• First half of fiscal year 2026: Consolidated revenue increased $40 million to $1.3 billion. Operating income rose $16 million to $101 million. Revenue increased $22 million due to higher third-party processing volumes. Segment operating income was up $9 million due to a favorable product mix. Overall tobacco sales volumes were slightly down (~1%), but higher and early shipments of current crop tobacco offset lower shipments of carryover crop tobacco.
• Second quarter 2026: Consolidated revenue increased $43 million to $754 million, driven by higher tobacco ingredients sales volumes. In Tobacco Operations segment, revenue rose $29 million on a 3% increase in tobacco sales volumes, but segment operating income declined by $12 million due to unfavorable foreign currency comparisons, higher inventory write-downs, and a less favorable product mix.

Ingredients Operations Segment

• First half of fiscal year 2026: Revenue was up 11% on increased sales volumes. Operating income was lower due to a less favorable product mix, higher fixed costs, and higher inventory write-downs.
• Second quarter 2026: Delivered higher revenues on increased sales volumes, but operating income was lower reflecting challenges in the consumer packaged goods industry, tariff uncertainty, higher fixed costs from expanded facility, and higher inventory write-downs

• Committed to continuing strong operational performance through the second half of fiscal year 2026.
• Tobacco Operations team focused on maximizing and optimizing business, offering additional services and navigating changing market conditions including expected oversupply.
• Ingredients platform continuing momentum, capitalizing on expanded facility capabilities, focusing on growth, strengthening and expanding customer engagement.

• Weakness in the consumer packaged goods industry impacts Ingredients Operations.
• Tariff uncertainty affects Ingredients Operations, both directly on raw materials and indirectly via impact on customers.
• Higher inventory write-downs in both segments pose risks.

Q: Congrats on the quarter. For Ingredients, give sense of utilization at Lancaster and how quickly fixed cost absorption will improve as scale is built. For Tobacco, thoughts on pricing discipline and margins through back half with larger crops and softer green leaf pricing.

A: For Ingredients, goal is to fill enhanced facility and build scale, pipeline conversion is a long process, confident in converting pipeline into volume to cover costs. For Tobacco, comfortable with year situation, confident in pricing as green pricing varied but demand firm, shipments to be monitored in third and fourth quarter.

Q: Surprised by loss in second quarter Ingredients. Pace of conversion from customer interest vs internal expectations.

A: All factors like end markets slower, customers challenged, inventory/sales alignment impact platform. Teams experienced in managing, project pipeline conversion is mixed, current environment impacts customers which impacts us.

Q: For year, anticipate uncommitted inventory number and stay within comfort range.

A: Think will stay within comfort range, currently in range, depends on shipping timing, but don't buy speculatively so comfortable with current levels.

Q: SG&A and interest expense for back half.

A: SG&A depends on variables like FX variances. Interest expense depends on tobacco shipment speed to bring down leverage.

Q: Worldwide uncommitted leaf inventory number and reason.

A: Worldwide estimated unsold flue-cured and burley stocks at 101 million kilos as of September 30, up 76 million kilos from June 30 due to large crops