UNIVERSAL CORP /VA/ (UVV Q1 FY2025 earnings call

• Universal is off to a strong start for fiscal year 2025 with revenue up 15% in both segments. Tobacco Operations benefited from strong customer demand and strategic crop purchasing, with uncommitted inventory low. Ingredients Operations saw improved performance from increased sales volume and new product sales. - Reducing environmental impact is a key goal; Universal received independent third-party verification of Scope 1, 2, and 3 emissions data. - The Lancaster expansion project for Ingredients is progressing and expected to contribute in FY2026. - The Turkish market had a good start for oriental tobacco, with better performance than the prior year.

For the quarter ended June 30, 2024, revenue was $597.1 million, with both Tobacco and Ingredient Operations segments up approximately 15%. The Tobacco Operations segment had operating income of $14.5 million for the quarter, an increase of $5.6 million compared to Q1 2023, driven by higher sales volumes and prices. Uncommitted tobacco inventory levels at June 30, 2024, were low at about 13%. The Ingredients Operations segment had operating income up $4.9 million for the quarter, primarily due to increased sales volume, including new product sales and recovery of core products. The Lancaster, Pennsylvania expansion project for Ingredients is progressing well and on track to be fully operational in the second half of fiscal year 2025, expected to meaningfully contribute to Ingredients Operations results in fiscal year 2026.

• Tobacco: Expect continued strong results with shipment timing weighted to the second half of FY2025, and looking ahead to more balanced markets from increased planting. - Ingredients: Expect continued improvement in the full year as new customer contracts ramp up, with benefits from the Lancaster expansion expected in FY2026. - SG&A: Expected to be below prior year, with interest expense expected to unwind as tobacco is shipped and sold. - CapEx: Moderated due to the nearly finished Lancaster investment.

• Supply chain issues: Disruptions in shipping containers and increased freight costs, related to the Red Sea and Middle East conflict. - Weather: Negative impact on small production areas in Georgia and Florida from Hurricane Debby, though U.S. represents less than 10% of tobacco segment results. - Other risks: Customer-mandated shipment timing, weather conditions, political/economic environment, government regulation, exchange rates, interest rates, industry consolidation/evolution.

Q: Talked about tobacco estimated lease production for 2025 and margin outlook.

A: Mild La Nina expected to produce bigger crops, leading to more balanced supply, expecting reduction in green tobacco prices and maintained margins.

Q: Consolidating sheet production in Europe, cost savings and timing.

A: Restructuring cost between $10M - $15M, mostly noncash, expected cost savings to flow through in FY2026.

Q: Shipping containers for lease in back half of FY2025.

A: Disruptions seen, increased freight/logistic costs, but proactive with customers to avoid supply chain constraints.

Q: Oriental tobacco performance balance of year.

A: Good start, better than prior year due to improved Turkish market conditions.

Q: Uncommitted worldwide tobacco leaf numbers.

A: Worldwide flue-cured and burley uncommitted stocks stood at 21 million kilos at end of June, down 7 million kilos from end of March.

Q: Ingredients segment full year margin outlook.

A: Continued improvement in full year as new contracts ramp up, benefits from Lancaster expansion in FY2026, volume up nicely with pricing down due to raw materials.

Q: SG&A full year guidance.

A: Expect to be below prior year, partially due to FX and expected unwind of leverage with tobacco shipment.

Q: Interest expense and leverage.

A: Expect interest expense to unwind with tobacco shipment, leverage to come down as tobacco is shipped earlier with earlier purchases in Brazil and Africa.

Q: CapEx moderation reason.

A: Hefty investments in Lancaster nearly finished, so CapEx expected to come down.

Q: Farmer programs and Ingredients test mode.

A: Farmer programs provide food crops and markets, Ingredients has test mode in certain origins for potential future products