Hello, everyone. Thank you for joining us and welcome to the Universal Corporation First Quarter Fiscal Year 2027 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Woosh Ma, Vice President and Treasurer. Woosh, please go ahead.

Good morning, and thank you for joining us. With me today are Preston Wigner, our chairman, president, and CEO, and Steve Deal, our chief financial officer. During the course of this call, we will be making four looking statements that are based on our current knowledge and some assumptions about the future. These are representative as of today only. Actual results, performance, or achievements could differ materially from the anticipated results, prospects, performance, or achievements expressed or implied by such forelooking statements. We assume no obligation to update any forelooking statements except as required by law. For information on some of the risks and uncertainties related to these forelooking statements, please refer to the reports we filed with the ICC and under cautionary statements regarding forelooking statements in our current earnings price release. Finally, some of the information we have for you today may be based on unaudited allocations and may be subject to reclassification. Our comments today may also include certain non-GAAP financial measures for details regarding these measures, including reconciliation of these non-GAAP measures to the most comparable gap measures. Please refer to our current earnings price release and other public materials. This call is being webcast live and will be available for replay on our website through November 6, 2026. This call is copyrighted and may now be used without our permission. Other than the referenced replay, we have not authorized and disclaimed responsibility for any recording, replay, or distribution of any transcription of this call. I would like to now turn the call over to President.

Thank you, Wux. Good morning, everyone, and thank you for joining us today. As we begin fiscal year 2027, our first quarter results reflect the market and operating conditions we anticipated. First quarter results for our leaf tobacco business followed a seasonal pattern more consistent with historical trends than what we experienced in our exceptional first quarter of last year. The fluke here in Burley markets are in an oversupply position, and as expected, customer buying activity has been slower. We have managed through these types of market cycles before, and our global footprint, experienced teams, and longstanding customer relationships give us a strong foundation for doing so again. Our focus is on buying with discipline, anticipating and monitoring green tobacco trends carefully, and maintaining the right inventory position. Against that backdrop, our expected customer demand remains consistent with our fiscal year sales plan. In line with historical patterns, we expect shipments to be weighted more heavily in the second half of the fiscal year turning to ingredients first quarter results continue to reflect persistent consumer market headwinds tariff volatility and longer than anticipated product development cycles despite these challenges we continued efforts to improve performance across the ingredients platform leveraging the investments we have made and focusing on stronger commercial execution, improved facility utilization, and increased financial and operational efficiency. I will now turn the call over to Steve to review our financial results, after which I will share a few additional thoughts.

Thank you, Preston. Good morning, everyone. I will start by reviewing our segment, Financial Summary. For our tobacco operations segment, revenue was $437 million for the first quarter of fiscal year 2027, down 13% versus the same quarter of last year. Segment operating income was $3.5 million as compared to $35.7 million for the same quarter of last year. As Preston mentioned, in general, our fiscal first quarter tends to be a slow quarter due to the seasonality inherent in our leaf tobacco business model. During the first quarter of fiscal year 2027, such seasonality was even more pronounced as customers delayed timing of purchasing decisions with the recent market shift to an oversupply dynamic. I should note that we see this as a timing issue and our customer demand expectations for the full fiscal year are consistent with our initial sales plan. Prior year comparisons were also negatively impacted by lower tobacco carryover crop sales, which were closer to historical normalized levels in the current first quarter and a less favorable product mix. Additionally, our tobacco segment experienced $4.4 million of negative operating income variance in the first quarter of fiscal year 2027 versus the prior year due to foreign currency movements. For our ingredients operations segment, revenue was $87 million for the first quarter of fiscal year 2027, down 3% as compared to the same quarter of last year. The segment generated an operating loss of $700,000 for the quarter as compared to operating income of $1.7 million for the same quarter of last year. During the quarter, our ingredients segment continued to work through persistent consumer market headwinds and high fixed costs related to growth investments. While we're confident in our plan to improve segment performance, given the relatively long product development cycle in the ingredient space, we expect that tangible improvements will take some time to materialize. On a consolidated basis, for the first quarter of fiscal year 2027, revenue was $524 million, down 12% from the same quarter of last year. Operating income was $2.3 million, as compared to $33.8 million for the same quarter of last year. And the net loss attributable to Universal was $5 million, as compared to a net income of $8.5 million for the same quarter of last year. And regarding liquidity and capital structure, as of June 30, 2026, our net debt was slightly over $1 billion, approximately $52 million dollars lower relative to the same point last year. This decrease was mainly due to lower working capital usage as a result of tobacco crop purchase timing and lower green tobacco prices. Our liquidity availability which includes cash and availability under our committed and uncommitted credit lines totaled approximately 1.1 billion dollars. I'll now turn the conversation back to President.

Thank you, Steve. Looking ahead, we're approaching fiscal year 2027 with strategic focus and operational discipline, while keeping long-term value creation at the center of our work. We're guided by the three pillars of our corporate strategy, maximizing and optimizing tobacco, growing ingredients, and strengthening universal for the future. Across each of our strategic pillars, we will be disciplined in our approach and focused on execution. For tobacco, we will continue to navigate current market conditions by leveraging our global footprint and deep market experience, strategic focus on sustainability, and long-standing customer relationships. As we plan for the next crop cycle, we're also evaluating how forecasted El Nino conditions could affect crop supply in certain regions. Universal has a long history of operating through complex agricultural, economic, and geopolitical cycles, and our proven sourcing capabilities, supported by local expertise in our operating regions, remain an important competitive advantage in that work. For ingredients, we are strengthening performance across the platform through greater commercial focus, improved facility utilization, and financial discipline. while remaining focused on the long-term opportunity we see in the business. Realizing the benefits of these strategies will take time, and we expect some of the improvement efforts to continue through the next fiscal year. We are optimistic about our ability to make steady and incremental advancements towards our goal. To strengthen for the future, we will identify ways in which we can advance progress in foundational areas such as efficiencies in financial management, human resources, and human capital management as a strategic business function, and using technology like AI to innovate and enhance how we perform our work and operate our business. We have entered this fiscal year clear on our priorities, confident in our strategy, and focused on executing with discipline. Thank you again for joining us today. We will now open the call for questions.

We will now begin the question and answer session. To make a question, press star one. And to withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Daniel Harriman with Sudodi. Daniel, please go ahead.

Hey, good morning, guys. Thank you so much for taking my questions. I'll start out with two this morning, both on tobacco. In the release, you mentioned customer indications and commitments are consistent with your fiscal year sales plan, despite performance in the first quarter compared to last year. Can you give us a little bit of a sense of the visibility you have into the back half of the year that gives you confidence to reach the full-year sales plan? And then regarding dark air-cured tobacco, you called out that as a headwind in the fourth quarter of fiscal 26. Could you provide us with a bit of an update on current market conditions in that brand and for that tobacco style and whether you see additional write-down risk as we move through fiscal year 27? Really appreciate it, guys. Thank you.

Sure. Thank you, Daniel. Let me start with tobacco overall. Early in the season, but so far based on how we've executed in a very disciplined way, our buying strategies in the fields, how we're procuring tobacco, getting the right grades at the right price, and having access, given the large size of the crops, we're off to a good start getting the tobacco we need to satisfy our customers' demands. And we're, of course, in close communication with our customers, understanding what they need, when they need, and where they need it. Given our global footprint and the diversity that gives them options, if you have issues of one origin versus another, We've got full complement to satisfy their needs in an oversupply market in both FluCurid and Burley. As the largest global leaf tobacco supplier in the world, we're well positioned to navigate these market dynamics. Deep experience and strong regional teams are really key around the world, And they've given us those opportunities to navigate the large oversupply market and to find those opportunities with our customers. We've got the access that we need. We've got the large portfolio of customers. They all need something from everywhere we are. And we've seen the lower farmer pricing, which is what we would have expected in the large oversupply in most of those markets. and we expect to see those energy stocks rise through the year for us with our stocks in mind you know it's critical that we utilize that expertise and that we really do follow those disciplined buying strategies that gives us the ability to succeed and to give the customers the quality and quantity of tobacco that they haven't been accustomed to expect from us and you add that to sustainability practices, our agronomy and logistics expertise, our financial stability, and it's all key components to our competitive advantage. And it gives us those opportunities to maintain and gain market share in this oversupply market. So today, even though it's early uh the year is going the way we expect there's still nine more months to go and a lot of work to do but we're pleased where we are with our communications with customers with customer demand being consistent with our our fiscal year sales plan say on the dark side to your second question. I'll pick up really where we left off in the fourth quarter. We see wrapper demand is still strong and non-wrapper, which is a broad group of styles, but I'll just generally say non-wrapper is generally still an oversupply. We talked about initiatives that we were putting in place to improve performance and how we manage that non-wrapper business. And we've put those in place we're implementing those and i'm pleased with the progress there those primarily involve sales strategy and inventory management strategy on the sales strategy side we support a large number of customers and core to that sales strategy is to maintain close communications with them to align these current market conditions with their sales expectations We've enhanced our communications and planning so we can better understand and plan for their needs this year. Close communication and customer indications of what they need shape our tobacco purchasing plans also, as well as our sales plans for the tobacco that we hold in inventory. On that inventory management strategy side, with the sales strategy that aligns with customer indications and accounts for the required tobacco and inventory, we can more accurately set our new crop purchase strategy. That will help ensure that we're buying the right quantities and the styles of the tobacco that we need. Our objective is to reduce inventory levels by converting wrapper and non-wrapper to cash and to reduce new crop volumes to obtain the high demand wrapper that we need, but to minimize the non-wrapper volumes that come with that runoff crop purchase from our farmers. So those initiatives, they're all designed to drive margin optimization, cost alignment, working capital efficiencies. So it's early in the year for them as well, but we expect to see the benefits from those initiatives this fiscal year and beyond. And with those initiatives and discipline and execution and those strategies, we're comfortable with our inventory levels, we're comfortable with our sales plan, and I would not expect to see the large inventory write-downs that we had last year.

Your next question comes from Anne Gerken with Davenport. Please go ahead.

Good morning, everybody.

Good morning. Good morning, Anne.

I'd love to continue with discussion about the tobacco so i've never seen the tobacco margin down this low i realize it's a seasonally low recorder and i understand the oversupply but i was curious if you could flesh out any expectations for the margin tobacco margin in the second half of the year and expectations for universal's uncommitted tobacco leaf inventory levels as the year progresses as well.

Sure, Ann. As far as the uncommitted levels go, as Preston was talking about earlier, as far as us getting comfortable with our plan for the full year, we saw coming out of the gate, it was in different pockets, you know, the velocity through in different markets, say South America or pieces of Africa and Malawi, things were pretty slow. And that's what drove the higher uncommitted levels early. Areas like Zimbabwe were moving pretty quickly. Just over the last few months, we've seen a pickup in the pace, even in those slower markets. So we've seen our uncommitted inventories come down even from where they were on June 30, from what we've reported. So we fully expect to get those levels back down to our 20% target as the season progresses, and we're pretty comfortable with that. As far as margins, going through the next few quarters, we expect margins to be pretty normalized from a percentage basis on where they were before. Our plans aren't seeing any deterioration.

The first quarter was really about product mix last quarter versus this quarter and sales of some carryover crops so I don't see any concerns with margin as we progress through the years that's great that's super and then I was curious if we could talk about working capital for the year I guess in the release I'm a little confused you talk about working capital outlays for tobacco purchases but then you talk about on the balance sheet lower working capital usage on timing of crop purchases so can i just get a better understanding of expectations for working capital for the full year i think working capital

should be reduced from where you've seen the last few years as far as the price impact goes because we're buying green tobacco at lower prices now when you look at quarter in levels it's really going to depend on the pace of sales and as we go through shipping timing and customer orders so it's hard to say how the working capital is going to fluctuate through the year and where we end up with with carryover crops at the end of the year so again kind of fundamentally you see we see a reduction due to lower pricing but that's going to fluctuate as as timing of shipments progresses.

Some of it's also driven by volume. Based on sales plans, some of it will also depend on the volume that we're buying. If we're picking up market share, if we're picking up opportunities, we will be looking for those additional volumes to satisfy those customers. But as Steve said, we would expect benefits from the lower green pricing, but really how we're buying and our ability to buy the right grades at the right price and then move that tobacco with an emphasis on trying to convert that inventory to cash and try to ship as quickly as we can. Great.

And do you anticipate volumes for tobacco to grow in fiscal 27 versus 26, given the oversupply?

I would say it's early in the year, but we have those opportunities. Like I said, given our competitive advantages and all the things we do for our customers in supporting them and coordinating with them, we would have opportunities. It's a little bit going to depend on the year. And some of it, you know, I mentioned El Nino. We're communicating with our customers about El Nino. And as the year goes on, it's still a little early to have an accurate prediction on that in terms of the exact timing and the exact way El Nino is going to manifest in our origins. But customers are factoring in El Nino impacts on next season's crops as they're thinking about what's available this season. And so we could see, given the opportunities we've got, if there are concerns about that, we could see potentially additional volumes this year to hedge against risks that could occur next season.

That's great. That's great. Great. And then can we just review capital allocation priorities for the company? You raised your dividend, I think, back in May. You bought back some stock in the quarter. What's the reason for that? It looks like cash flow is pretty tight given the lower earnings. Working capital may be down, but may be flat versus last year. CapEx, $55 million, $65 million. Ian, I know you have adequate liquidity using credit lines, but can we just kind of walk through the cash flow, the capital allocation, the reason for buying back the stock last quarter, this past quarter, anything else you can share would be great.

Sure, Anne, I'll take that. On the share repurchases, that was mainly just to offset dilution for equity compensation. We hadn't repurchased in a couple of years. typically we would buy enough to offset that dilution and keep our diluted shares around 25 million outstanding so that's what that program was about from a capital allocation standpoint our priorities still remain as we have stated them before as far as investing in tobacco operations supporting the dividend growing the ingredient segment and then last on the priority list is is returning capital to shareholders through those share repurchases. Our cap X is estimated to be above maintenance levels this year. So, and if you look back over the last couple of years, we, we made the investment in ingredients. Okay. So that's where the higher levels of growth investment came from was on the ingredient side, particularly up at our Lancaster campus. This year it's more about investing in the tobacco side and it's spread across multiple regions for us, South America, Africa, Asia. It's a mix of growth investments, facility efficiencies, automation. So, we're investing in the tobacco business this year on the CapEx side with some really exciting projects that we expect to provide very good returns.

Yeah, and I guess I'd say to add to that, you know, our focus and our goal is to grow this company want tobacco in on ingredients and on the tobacco side you know in addition to growing market share we also want to find opportunities to support our customers through additional services additional other opportunities and that's the focus throughout the year and we think we're in a position given how we support our customers our relationship with our customers, our financial strength. If we have opportunities to grow and require additional investment, we'll make them because we get such a good return on tobacco and it's stable and we have such good relationships long-term with our customers. So we do think of those throughout the year as we're looking at our management of cash and investment levels.

Great. That helps. Any help on SG&A for the year or interest expense for the year?

SG&A, if you look back, I think last year we were around $300 million. If you look back the last few years, we've kind of been in that $300 to $310 million band. I think that's a pretty good way, a good point to use to start to think about SG&A. And then interest expense, Again, due to the slower pace of purchasing and potential lower working capital from lower green pricing, we expect interest expense to be down a little bit from last year.

Okay, great. Have you gotten any tariff refunds?

We have. We are working through those now. We have started to see some movement of getting refunds in and the affected businesses have been in discussions with customers on on how best to manage what could flow back to them but it's a it's early in the process and and it's a working process okay great um and then worldwide uncommitted leaf number yeah estimated unsold, flu-cured, and burly stocks, or about 180 million kilos, at June 30th, which is an increase of approximately 11 million kilos from March 31st.

And March 31st was 57 million over December 31st.

And then lastly, ingredient segment, you announced a leadership change in that business, I guess, can we just have a conversation about target margin, target pace of recovery? Obviously, customers still are facing weak volumes and challenging environments, and you have fixed cost issues in Lancaster just due to the overall macro challenges. How should I think about that business and pace of recovery? And what is your level of commitment to that segment long-term. Preston and Steve, I think you were the architects of a lot of that investment, and I'd just be curious your kind of level of confidence, timeline, expectations. That would be very helpful.

Yeah, that's – well, first, we are absolutely committed to universal ingredients as a growth engine for the company, and we're committed for the long term. making the investments we need to make as we've shown in the past in the last six years giving them the tools they need to grow the resources they need to grow I guess a lot of that starts with where we left the fourth quarter talking about initiatives that we were implementing to improve performance and particularly as you mentioned at our Lancaster Pennsylvania campus you know our objective is to ensure that those operations are fully utilizing those growth investments we've made in capacity in capabilities and in the resources related to commercial sales research and development and marketing by leveraging that platform we can see increased volume we can obtain increased volume through our product portfolio with an emphasis on solutions-based value-added products the commercial execution initiatives those are designed to improve the business flow and facilitate growth of the business and that complements our initiatives to improve facility utilization with a specific focus on our Lancaster campus you know it's the same the same goal that I've been talking about last year as well that increasing volume across the factory floor but making sure that that volume is more profitable so within those operations our initiatives are also designed to advance gains in operational and financial efficiencies the goal there is to ensure that we're running the facilities efficiently we were responsibly managing and reducing costs and we're increasing margin our leadership enhancements that we had mentioned previously, which include additional organizational alignment across the company, those support all those initiatives. So we're working tirelessly to increase the profitability of our business, provide those products and services to our existing and new customers that they need to succeed in the marketplace that's challenging, and to grow universal ingredients and universal as a whole so those initiatives are prioritized and they're going to take time so we're dedicated to making the steady incremental advances that we need to make and we're excited to see the benefits over time with those initiatives with that progress and still day after day year after year looking at entering new markets gaining new customers growing with existing customers the volume will come the margins will come uh it will grow but it's it's a it's a steady incremental progress with universal ingredients as as i see it as a natural evolution of growth of a new company that we've created you know just over the six-year period. And with Pat's announcement, as we mentioned in the announcement, we've made a lot of progress in six years. Now we've got an opportunity where we are in six years to now find a new leader to come in with a real growth mindset to take us from where we are today to where we want to be in the future. So there's a lot going on. I'm really excited about where we are the direction we're going i'm very happy with the strategies that we have but we must execute and we have to have strategic focus we've got to have operational discipline and we need to execute and that's for ingredients that's number one focus for this year is is to implement these initiatives get them to work and start to see the benefits what is capacity utilization at Lancaster right now at Lancaster we don't have a public number it's it is relatively low because it's still relatively new and I'm talking about I mean it's a it's a large campus I'm really talking about the expanded campus where we've cut the ribbon a little less than two years ago that is not as high as we want it to be or that it needs to be but in executing especially operational financial efficiencies and the commercial strategies we can increase that volume increase capacity you 60 70 lower and i'm not going to give you a number but it's it's not as high as i want okay okay it's great great opportunity very exciting thank you

That's super. Thank you for taking all my questions. I appreciate it very much.

Sure. Thank you very much.

This concludes the question and answer session. I will now turn the call back to Preston Wigner for closing remarks.

Thank you, Rebecca. Thank you all for taking time to join us today. We look forward to speaking with you again for our second quarter fiscal year 2027 earnings call.

This concludes today's call. Thank you for attending. You may now disconnect.