Universal (UVV) - 2026 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the nine months ended December 31, 2025, consolidated revenue was $2.21 billion, a decrease from $2.25 billion in the prior year period. Operating income was $183.4 million compared to $190 million last year, and net income was $75.9 million versus $85.7 million last year [8] - For the third quarter of fiscal year 2026, consolidated revenue was $861.3 million, down from $937.2 million in the same quarter last year. Operating income was $82 million compared to $104.1 million last year, and net income was $33.2 million versus $59.6 million last year [9] Business Segment Data and Key Metrics Changes - In the tobacco operations segment, revenue was $1.94 billion compared to $2 billion in the prior year period, with segment operating income at $185 million versus $194.4 million last year [8] - In the ingredients operations segment, revenue was $265.2 million compared to $249 million in the prior year period, but segment operating income fell to $1.4 million from $7.9 million last year [8] Market Data and Key Metrics Changes - The tobacco market is transitioning into an oversupply environment, with customer demand remaining firm for most tobacco styles after years of undersupply [4] - The ingredients segment faced market headwinds due to broader softness in the consumer packaged goods sector, which affected sales and margins [5] Company Strategy and Development Direction - The company is focused on diversifying into food and beverage ingredients, having made three acquisitions in 2020 and 2021 to build a broad product portfolio and establish customer relationships [11] - Investments have been made in commercial sales, R&D, and production capabilities to support the growth of Universal Ingredients, with a focus on innovative solutions-based products [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the evolving market dynamics and emphasized the importance of maintaining strong performance under all conditions [11] - The company is optimistic about increasing sales to absorb fixed costs from growth investments in the ingredients business, despite facing inflationary pressures and tariff impacts [12][21] Other Important Information - The company refinanced and upsized its corporate credit facility, significantly expanding liquidity and improving financial flexibility [6][10] - A new CFO, Steven S. Diel, was appointed, effective April 1st, bringing strong financial and strategic expertise to the role [6] Q&A Session Summary Question: Impact of tariffs and market weakness on ingredients business - Management noted that market headwinds, product mix, and higher fixed costs have impacted the ingredients segment, with inflationary pressures affecting customer demand and pricing [17][18] Question: Performance of the tobacco segment - Management indicated that while sales were down compared to last year's extraordinary results, the current year's performance remains strong, with revenues and operating income only slightly down from last year [24][25] Question: Future margin expectations for the tobacco segment - Management stated that margins will depend on the mix and timing of shipments, with some higher-margin tobacco expected to ship in the fourth quarter [33][34] Question: Customer inventory levels - Management mentioned that customer inventory levels are mixed, with some customers restoring their inventory durations while others maintain tighter durations [35] Question: Inventory write-downs in the ingredients segment - Management confirmed that there were some write-downs primarily in the dark air-cured space, but these were standard practice [41][42] Question: CFO announcement clarification - Management clarified that the previous CFO offer was withdrawn, and the new CFO announcement was made to reflect the current leadership change [43][44] Question: Participation in next-generation supply chain for tobacco - Management expressed interest in being part of the supply chain for new tobacco-based products and leveraging Universal Ingredients capabilities [47] Question: Cross-selling successes - Management highlighted ongoing efforts to leverage investments in commercial sales and cross-sell products within the Universal Ingredients platform [49] Question: Tax rate guidance - Management indicated that the tax rate is expected to be between 28% and 32%, slightly higher due to recent changes in certain countries [50]