Universal Corporation Q3 FY2026 earnings call

• Tobacco operations: Customer demand for most tobacco styles remained firm post undersupply, and the company leverages global footprint and customer relationships to optimize in the moving oversupply environment.
• Ingredients operations: Sales revenue of value-added products made up a significant portion of ingredients revenue, but higher fixed costs from investments compressed margins, with market headwinds like consumer packaged goods softness and tariff impacts affecting the business.
• Strategic moves: Refinanced, upsized, and improved corporate credit facility to expand liquidity and financial flexibility; appointed new CFO Steven F. Deal effective April 1.
• Sustainability: Released annual sustainability report showing increased renewable electricity consumption and progress on net zero emissions and farmer sustainability initiatives.
• Ingredients strategy: Diversified into food and beverage ingredients via acquisitions in 2018 - 2021, invested in capabilities, completed Lancaster facility expansion, and focused on leveraging resources to grow the segment.

Tobacco Operations Segment: For the nine months ended December 31, 2025, revenue was $1.94 billion compared to $2 billion in the prior year period. In the third quarter of 2026, revenue was $779.9 million compared to $853.9 million in the same quarter of last year. Ingredients Operations Segment: For the nine months ended December 31, 2025, revenue was $265.2 million compared to $249 million in the prior year period. In the third quarter of 2026, revenue was $81.3 million compared to $83.3 million in the same quarter of last year. The tobacco segment contributed a significant portion to the overall revenue, while the ingredients segment also had its own revenue figures during the periods mentioned.

The company is confident in its ability to execute on its strategy and continue creating long-term value for stakeholders during the final quarter of the fiscal year, as they have demonstrated resilience in managing market dynamics over the years.

• Market dynamics: Evolving market conditions, such as the transition from undersupply to oversupply in the tobacco market, pose challenges.
• Consumer packaged goods sector: Broader softness in the consumer packaged goods sector indirectly impacts the ingredients business.
• Tariffs: Pronounced tariff impacts during the quarter affected the business, both directly on product costs and indirectly on customer sales.
• Inflationary pressures: Inflationary pressures impact costs and customer purchasing power.

Q: Thank you, guys. I will start this afternoon with ingredients. And with the mention of the tariffs and, obviously, the overall market weakness within consumer packaged goods, I was hoping you could help us understand how those issues are affecting both the traditional business within ingredients and then also the newer solutions-based offerings. And then in tobacco, you know, you called out fiscal 2025. And while sales were down in the quarter, that is not necessarily a fair comparison considering the supply backdrop last year, and margins have been holding up pretty well. So given that last year was a high watermark for the segment, how do you view the underlying performance of the tobacco segment this quarter considering solid sales and the, like I said, the maintained margins?

A: Yeah, Daniel. I will start with ingredients. So last year, the third quarter was a good quarter for ingredients. We had revenues and volume both up over the prior year's quarter. And this year, we have been impacted by market headwinds, product mix, and the higher fixed costs. Now I will talk about all three. So on those market headwinds, which are affecting the industry and not just the sectors where our customers are, there is weakness in that consumer packaged goods sector and other food and beverage sectors. And those inflationary pressures are putting pressures on the consumer goods prices and therefore, from those customers, pressures on us on our pricing, and compressing our margins, as well as tightening demand. As their sales might decrease, then their orders from us will decrease. If it impacts them, it will impact us. And we have seen that, maybe in particular, with sales this quarter of our sort of traditional core products. On the tariff side, we have talked about this a little bit in the past. We have had direct tariff impacts. We have had indirect tariff impacts. Those impacts were just a little more pronounced this quarter than in the first half. On a direct tariff impacts, we have got tariff costs that are impacting the cost of the product that we import into the US and incorporate into the products that we sell. And so we have got tariff costs in those raw materials that having difficulty this past quarter capturing all of that in our sales to our customers. And then on the indirect impact, our customers have tariff impacts, which are impacting the sale of their products. Those tariffs might be impacting components of their products or packaging of their products, which has decreased their sales. And again, if their sales are decreasing, then potentially their orders to us are decreasing. On the product mix side, we had just a different mix of products with little higher margins in the third quarter last year than we did this year. Some of those could be attributed, for example, to customer ordering based on forecasts of how they think their products were going to perform last year. So they might have ordered higher margin products from us last year ramping up for their sales into the market. And if those sales did not turn out the way they had forecasted, then potentially this quarter, they would have had fewer of those sales or different products that they would be ordering from us with slightly different margins. So it is a little bit of a margin mix. And then lastly, on the higher fixed costs, we have been talking about that for a while. We are still focused on scaling the business to absorb the costs and the investments we have made to grow the ingredients business, including the expansion of our capabilities of the Lancaster extracts facility. We continue to try to absorb those costs, which are impacting our margins and impacting our earnings. So we are positioned to offer innovative solutions-based products to our customers. And our sales are up 7% year to date, versus last year, despite this challenging market. And our goal is to maintain that momentum. Sales of our new products have contributed to our increased sales, and we are focused on continuing to increase those sales and increase new and existing customer interest in Universal Ingredients. We continue to add to our active product development pipeline that leverages our broad product portfolio across the full Universal Ingredients foundation. And we think those capabilities and the products that we offer can help our customers deliver new or improved or unique products to navigate the existing headwinds that are impacting them. So our focus on the ingredient side every single day is to convert that customer interest and the product portfolio into increased sales and volume across the factory floor. So I am really encouraged by the dedication of the team who is putting in the hard work on a daily basis. I am really pleased with the progress that we have made and how far we have come since our early days of 2018. So on the tobacco side, as you mentioned, this has been a solid quarter and year to date for our tobacco business. Last year was an extraordinary year for us, and last year's third quarter was really robust. We had very strong demand in the undersupply market last year. We moved a lot of tobacco in the third quarter, including accelerated shipments in the third quarter. And pricing both for our farmer pricing, green pricing, as well as our sales prices, were high, resulting in high dollar margins. And we also shipped more of certain higher margin dark tobaccos last third quarter, which supported the high operating margin last third quarter. You know, this year, year to date, our tobacco segment revenues and operating income were only down slightly from last year's extraordinary results. Quarter to quarter, tobacco segment revenues and operating income are good, except in comparison to such a big third quarter last year. Last year's year to date in third quarter numbers were the highest that we have seen in a number of years. And just looking at the last four years for us, which were all solid years, our current year to date tobacco numbers are the second highest during that period. And our third quarter tobacco segment revenues were second highest, our tobacco segment operating income is within $4 million of being second highest for that period. So last year cast a big shadow, but we are still performing well this year and this quarter. This year's large crops, especially in Brazil and Africa, and still firm customer demand have given us opportunities to keep up with last year's sales. And we have also increased our third-party processing based on the size of those crops. But pricing is down slightly from last year, and we have had additional write-downs in certain dark air-cured tobacco that impacted results. And the comparative mix of products, which I just mentioned a second ago, that we sold this quarter, third quarter versus last year's third quarter also had an impact, with some higher margin styles shipped at higher volumes last third quarter versus this third quarter. And then there is also some shipment timing impacts to the quarter to quarter comparison. So we have leveraged our tobacco expertise, our diversified footprint, and our strong customer relationships to navigate what has been a really complex year. And we are moving from undersupply to oversupply. And with all of that, I am really proud of the job we have done around the world to deliver the results we have delivered and to support all of our stakeholders.

Q: Good evening, everybody. Hi, Ann. I would love to pick up with the conversation around the tobacco segment. Do you think you would be able to exit fiscal '26 with margins relatively in line with what you delivered in fiscal 2025? I thought Q3 was better than I would have expected, and it is very impressive. So I was just curious if you can give me any kind of direction as to the full year tobacco segment margin.

A: Yeah. I would say, you know, we are still working hard on the quarter. We have got some tobacco to ship. Some of that tobacco is higher margin tobacco that may have otherwise shipped in the third quarter. It is really going to come down to mix and to timing of shipments. Yeah. Can we get all that tobacco out in the fourth quarter?

Q: Okay. And any comments on the customer's inventory level or duration positions? With your key customers? Any comments, any insight you can share there?

A: Yeah. We are in near constant communication with the customers. And I think with customers, it is a little bit of a mix. You know, some of those customers last year and into this year, they have been buying what they need and maybe restoring some of their durations. And looking at their duration policies. Some still have lower durations and you know, they will decide in the upcoming years whether they will return to those historically high duration levels or try to maintain a tighter duration and assume some of that risk as we go into oversupply.

Q: Okay. And then do you have a worldwide uncommitted lease inventory number?

A: Yep. So estimated unsold, secured, and burly stock was about 102 million kilos at December 31, 2025. It is about the same as it was on September 30, 2025.

Q: Right. Switching over to the ingredient segment, I would be curious what your biggest surprise was from the Q3 results versus Q2 on a sequential basis.

A: You know, I think the market headwinds and the impacts and the length of those impacts we have seen in the third quarter on our customers, I think that has had a bigger impact than maybe I would have thought a year ago. We are hearing and we are seeing lots of customers trying to keep up sales, trying to keep up volumes and their own margins and results through the third quarter. But, you know, that will be cyclical, and we will continue to perform, continue to get in front of our customers, and get our products sold. But I would say that is to me, that is probably the biggest surprise.

Q: Okay. And if you break out the revenue component, can you break it out in volume, price, and new customer wins?

A: No. We do not have that breakdown for public disclosure. It is and it is also a little bit of mix, you know, the mix this quarter versus same quarter last year.

Q: Anticipate in the next several quarters pricing catching up with the higher tariff costs or input costs?

A: I think we are optimistic with continuing sales that maybe the higher cost inventory we have that is carrying those additional tariffs, we can get that through the system in the coming quarters. And then get that behind us, that will certainly help.

Q: Okay. And then can you quantify the amount of inventory write-down in the ingredients that occurred in the quarter?

A: We had some, Ann, but that is, like, standard, you know, the methodology that we use. We just looked at some of the at the end of the quarter and determined whether or not the net realizable value was below the cost. So we took a little bit, but it was primarily in the dark air-cured space where we had to take some write-downs.

Q: So it is more write-down in the tobacco space than it was in the ingredient space?

A: Oh, yes. Yes.

Q: Okay. Okay. And then I am just curious. With the CFO announcement, congratulations, but I think you put out a press release in January of a CFO, and then now you have another announcement today. I am just kind of curious if you can walk me through what is going on.

A: Yeah. We filed an 8-K announcing that we withdrew our offer from Mr. Mattel to become our CFO, and our 8-K really speaks for itself. Instead, we were thrilled to have our press release this morning. And Steve cannot wait to join these calls and talk to you.

Q: I cannot. That is great. Preston, I also want to tell you how much I enjoyed your presentation at ICR. I am so glad you all participated in that conference.

A: Oh, good. Thank you. Terrific presentation. I have a couple of questions if I can still ask questions.

Q: Alright. In relation to that presentation, you talked about participating in the next generation supply chain for tobacco companies. Can you just flush that statement out a little bit for me?

A: Yeah. As part of our strategy, we want to make sure that we have opportunities to participate in some way in that supply chain. Some of that we do today. So if they have got tobacco-based products, like heat-not-burn, for those customers, we want to make sure that that tobacco is coming from us. And then as they develop and expand other products, we want to have opportunities to be part of that supply chain for that as well. Whether it is liquid nicotine or going forward with our Universal Ingredients abilities with flavors. So all of that, we would like to have that as part of our strategy, part of our growth going forward.

Q: Okay. Great. And then you talked about investing in commercial sales and the platform and opportunities to cross-sell across the two segments. I was wondering if you can get an update on your ability to leverage that investment. And are you recognizing, realizing wins or cross-selling successes? Any kind of update there.

A: I think that cross-selling referred to products within the Universal Ingredients platform, I think. And that is a big part of what we are doing in terms of building that active pipeline, getting those commercial sales teams in front of existing customers selling new products, in front of new customers, selling new products, getting those in the pipeline, back through. And we do not have them broken out separately, but that is a big part of the increased sales and also on the flavor side as well.

Q: Okay. Great. And then just one more question. What tax rate should I use for the year?

A: It is a good question, Ann. As you could see in the filings, it ticked up a little bit. We had some a hard look at our taxes. There were some taxes implemented in certain countries by law that had an impact on this. So, you know, like I said before, you know, it is normally between 28-32%. We have been below that in the last couple of years, but we are ticking up slightly because of some of these changes. And, of course, it depends on the mix. Where do we make it? And the currency it is earned in. So all those things come into play in the next quarter.