Ann Gurkin

Ann Gurkin from Davenport asked about the Universal Corporation's Tobacco segment, specifically if fiscal year 2026 margins are expected to align with fiscal year 2025 levels, and inquired about customer inventory durations and worldwide uncommitted leaf inventory. For the Ingredients segment, she sought insights into the biggest sequential surprise from Q2 to Q3, revenue component breakdowns, and the outlook for pricing to offset tariff and input costs. Additionally, Ms. Gurkin requested clarification on the recent CFO announcement, an update on leveraging commercial sales investments for cross-selling, and guidance on the full-year tax rate.

Answer

Preston Wigner, Chairman, President, and CEO, indicated that Tobacco segment margins for fiscal year 2026 would depend on product mix and shipment timing in the final quarter. He noted customer inventory levels were mixed, with some restoring durations and others maintaining tighter positions. Mr. Wigner reported estimated unsold flue-cured and Burley stock at 102 million kilos as of December 31, 2025. For Ingredients, he cited the prolonged impact of market headwinds on customers as the biggest surprise and expressed optimism that higher-cost, tariff-affected inventory could be processed in coming quarters. He clarified that revenue breakdowns are not publicly disclosed and that cross-selling efforts are focused within the Universal Ingredients platform to build the product pipeline. Regarding the CFO, Mr. Wigner stated the company withdrew an earlier offer and announced Steven S. Diel as the new CFO. Johan Kroner, CFO, added that inventory write-downs were primarily in the tobacco segment (Dark Air-Cured) and that the tax rate, normally 28-32%, is ticking up slightly due to changes in certain countries.

Ann Gurkin asked if Universal Corporation anticipates exiting fiscal year 2026 with tobacco segment margins in line with fiscal year 2025, and for comments on customer inventory levels and worldwide uncommitted leaf inventory. She also inquired about the biggest sequential surprise in the ingredients segment from Q2 to Q3, the potential for pricing to catch up with tariff costs, and the amount of inventory write-down in ingredients. Additionally, she sought clarification on the recent CFO announcement, an update on the next-generation tobacco supply chain strategy, progress on cross-selling within Universal Ingredients, and the expected tax rate for the year.

Answer

Preston Wigner, Chairman, President, and CEO, indicated that tobacco margins for the full year depend on product mix and Q4 shipment timing. He noted that customer inventory levels are mixed, with some restoring durations and others maintaining tighter positions. Mr. Wigner identified market headwinds and their prolonged impact on customers as the biggest surprise for the ingredients segment. He expressed optimism that higher-cost inventory with tariffs would move through the system in coming quarters. He clarified the CFO announcement, stating the previous offer was withdrawn and Steven S. Diel was appointed. Mr. Wigner explained the next-generation supply chain involves participating in tobacco-based products like heat-not-burn and exploring opportunities in liquid nicotine and flavors. He confirmed cross-selling efforts are focused within the Universal Ingredients platform, contributing to increased sales. Johan Kroner, CFO, stated that inventory write-downs were primarily in dark air-cured tobacco, not significantly in ingredients. He advised that the tax rate, normally 28-32%, has ticked up slightly due to country-specific law changes and depends on the mix of earnings.

Ann Gurkin of Davenport & Company LLC inquired about the impact of tariffs on both the tobacco and ingredients segments, particularly concerning imports from Brazil. She also asked for the margin outlook for the tobacco segment for the remainder of the fiscal year, progress on gaining market share, the status of the U.S. tobacco crop, and the margin trajectory for the ingredients business. Additionally, she requested an update on the CFO succession plan and the company's use of cash.

Answer

Preston Wigner, Chairman, President & CEO, explained that Universal's global footprint helps mitigate tariff impacts by providing sourcing flexibility. He noted that while larger crops may pressure tobacco margins, increased factory volumes could lower per-unit costs. For the Ingredients segment, he acknowledged Q1 headwinds but expressed confidence in driving volume through the new facility to improve margins over time. He also confirmed the CFO search is underway. Johan Kroner, Senior VP & CFO, added that the share repurchase program is available for opportunistic use but there are no immediate large-scale plans.

Ann Gurkin of Davenport & Company LLC inquired about the impact of tariffs on both the tobacco and ingredients segments, the margin outlook for both segments for the remainder of fiscal 2026, progress on the U.S. tobacco crop, potential market share gains, customer wins in the ingredients business, the CFO succession plan, and the company's use of cash.

Answer

Preston Wigner, Chairman, President & CEO, explained that Universal's global footprint provides flexibility to manage tariff impacts by shifting sourcing for customers. He noted that while Q1 tobacco margins were strong due to mix, larger global crops could pressure prices later in the year, though higher volumes could offset this by lowering per-unit costs. For the ingredients segment, Wigner acknowledged Q1 margin pressure from higher costs and unfavorable mix but expressed optimism in driving volume growth through the new facility to improve margins over time. He confirmed the CFO search has begun. Johan Kroner, Senior VP & CFO, added that the share repurchase program was renewed and remains an option, but there are no immediate large-scale plans.

Asked for an outlook on fiscal year 2026, covering SG&A expenses, the end of Mozambique-related legal costs, tobacco segment margins and volumes, global and company inventory levels, the ingredients segment's profitability and tariff impacts, raw material prices, the share repurchase program, interest expense, and CapEx.

Answer

The company stated that Mozambique-related legal fees will not continue into FY26. Tobacco margins and volumes in FY26 will depend on customer inventory strategies as the market shifts from undersupply to balance. The ingredients segment is focused on growth and margin improvement by leveraging new investments. Share repurchases are a possibility but deleveraging and strategic investments are higher priorities. The goal is to lower interest expense, and FY26 CapEx is projected to be between $45M and $55M.

Ann Gurkin of Davenport & Company LLC inquired about the financial outlook for fiscal year 2026, focusing on SG&A expenses, tobacco segment margins and volumes amid a shifting supply market, and the profitability and growth prospects for the Ingredients segment. She also asked about capital allocation priorities, including the share repurchase program, interest expense, and CapEx.

Answer

CFO Johan Kroner provided context on SG&A components, noting the Mozambique investigation costs are complete, and projected FY26 CapEx between $45-55 million. He stated the goal is to lower interest expense and that strategic investments are a higher priority than share buybacks. CEO Preston Wigner explained that FY26 tobacco volumes depend on customer inventory strategies but demand remains strong. He also affirmed the goal to grow the Ingredients business by leveraging platform investments to improve margins and scale. VP & Treasurer Wushuang Ma provided specific uncommitted inventory figures.

Ann Gurkin of Davenport & Company LLC inquired about the outlook for fiscal 2026, focusing on SG&A expenses, tobacco segment margins amid a shifting supply environment, ingredients segment profitability, the impact of tariffs, and capital allocation priorities including share buybacks, interest expense, and CapEx.

Answer

CFO Johan Kroner provided context on SG&A components, noting the Mozambique investigation legal fees would not recur, and forecasted CapEx between $45M and $55M. CEO Preston Wigner discussed the tobacco market's transition to a more balanced supply, stating that customer inventory strategies will be key for volume and pricing. For the ingredients segment, both executives emphasized a focus on growing volume and margins through specialized products from their new Lancaster facility. Wigner also confirmed modest tariff-related buying in Q4 and outlined strategies to mitigate future tariff impacts. Regarding capital allocation, Kroner prioritized deleveraging and strategic investments over share repurchases at this time.

Ann Gurkin of D.A. Davidson & Co. inquired about a range of topics, including the fiscal 2026 outlook for the Tobacco segment's margins given the expected move toward a more balanced supply environment. She also asked about potential cost savings from consolidating European sheet production, shipping container availability, the performance of the oriental tobacco joint venture, and the potential impact of Hurricane Debby. For the Ingredients segment, Gurkin questioned the full-year outlook, margin potential, new product examples, and the impact of business pulled forward. Additionally, she sought clarification on full-year SG&A guidance, interest expense trends, and capital expenditure levels.

Answer

CEO George Freeman addressed the tobacco market, stating that a mild La Nina weather pattern is expected to produce bigger crops in 2025, leading to a more balanced supply. He anticipates a reduction in inflationary green tobacco prices but believes the company can maintain margins through higher processing volumes. Regarding logistics, Freeman noted some disruptions and increased costs due to the Red Sea situation but expressed confidence in managing the supply chain. CFO Johan Kroner commented on financials, expecting full-year SG&A for fiscal 2025 to be below the prior year's $311 million and noted that interest expense should decrease as working capital unwinds in the second half of the year. An executive added that the Ingredients segment's improvement was driven by new product sales and recovery in core products, with meaningful contributions from the Lancaster expansion expected in fiscal 2026. Executive Jennifer Rowe provided the uncommitted worldwide tobacco leaf number, which stood at 21 million kilos at the end of June.