Universal Corp Aktie

Thank you for standing by. My name is JL, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Corporation's Fourth Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to Wush Ma, Vice President and Treasurer. You may begin.

Good morning, and thank you for joining us. With me today are Preston Wigner, our Chairman, President and CEO; and Steven Diel, our recently appointed Chief Financial Officer.

During the course of this call, we will be making forward-looking statements that are based on our current knowledge and some assumptions about the future. They 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 forward-looking statements, and we assume no obligation to update any forward-looking statements, except as required by law.

For information on some of the risks and uncertainties related to these forward-looking statements, please refer to the reports we file with the SEC and under cautionary statement regarding forward-looking statements in our current earnings press release. Finally, some of the information we have filed 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 a reconciliation of these non-GAAP measures to the most comparable GAAP measures, please refer to our current earnings press release and other public materials.

This call is being webcast live and will be available for replay on our website through August 29, 2026, and by telephone through June 12, 2026. This call is copyrighted and may not be used without our permission. Other than the reference replay, we have not authorized and disclaim responsibility for any recording, replay or distribution of any transcription on this call.

I would like now to turn the call over to Preston.

Thank you, Wush. Good morning, everyone, and thank you for joining us today. Our fiscal year 2026 performance reflected solid execution across much of our business, operating in a market environment that shifted meaningfully from the prior year. We saw oversupply in certain tobacco styles and continued market headwinds in our ingredients business, which impacted volumes and margins.

Amidst these challenges, our teams around the globe demonstrated the resilience of our tobacco operations, and we continue to focus on the progress we are making to support the long-term growth of our ingredients operations. However, our financial results for the fourth quarter and fiscal year were impacted by a noncash goodwill impairment related to our Universal ingredients Shank's operation and by inventory write-downs primarily related to non-wrapper, dark air-cured tobacco.

We remain confident in our tobacco and ingredients strategies and the steps we have taken to adapt to current market conditions and position the business for the future. With more than 100 years of operating experience and a market-leading position, our leaf tobacco business has demonstrated its durability across market cycles. At the same time, we believe our ingredient strategy, which focuses on innovation and solution-based products is well aligned with customer needs and long-term value creation.

We have invested over several years to build a scalable ingredients platform with necessary capacity and capabilities, and we believe the platform is well positioned for future growth. Supporting both these priorities is our continued advancements in sustainability, which remains an increasingly important expectation across our global value chain.

During the fourth fiscal quarter, Universal advanced from an A- to an A rating in the Carbon Disclosure Project's Supplier Engagement Assessment. In addition, we were recognized as a CDP supplier engagement leader and named to CDP's Supplier Engagement A list, underscoring the strength of our governance, emissions management and collaboration with suppliers. Strong financial discipline and leadership are critical to executing across both our operating segments.

In February, we announced the appointment of Steven Diel as our Chief Financial Officer, effective April 1. Steve has been with Universal since 2018 and has more than 25 years of experience across finance, corporate development and business strategy. He is a trusted Universal leader with significant financial expertise, a deep understanding of our operations and a proven record of strategic execution.

With that, I'll now turn the call over to Steve to review our financial results in more detail.

Thank you, Preston. Good morning, everyone. As Preston mentioned, during fiscal year 2026, our flu-cured and burley tobacco portfolio performed well, but results were significantly impacted by 2 areas of our businesses, which I'll discuss during a review of consolidated and segment results.

For the fourth quarter, consolidated revenue was $715 million, up 2% from the same quarter of last year. For the full year, consolidated revenue was $2.9 billion, down slightly from the previous exceptional fiscal year. For the quarter, operating loss was $15 million as compared to an operating income of $43 million for the same quarter of last year. And for the full year, operating income was $169 million, down $64 million as compared to fiscal year 2025.

Lower operating income was mainly driven by 2 areas. First, the Shank's business within our Ingredients segment experienced lower profitability and recorded a $41 million noncash goodwill impairment, and I'll address both of these items in more detail later. Second, higher inventory write-downs in our non-wrapper, dark air-cured tobacco business, combined with weaker performance.

For the fourth quarter, net loss attributable to Universal was $43 million as compared to net income of $9 million for the same quarter of last year. For the full year, net income was $33 million, down from $95 million for fiscal year 2025. Lower net income was again mainly the result of the noncash charges I just mentioned as well as weaker performance at Shank's and our dark air-cured tobacco business.

In terms of segment results, tobacco segment revenue was $632 million for the fourth quarter of fiscal 2026, up 3% versus the same quarter last year. For the full year, revenue was $2.6 billion, down slightly as compared to fiscal year 2025. Segment operating income was $27 million for the fourth quarter of fiscal year 2026 as compared to $46 million for the same quarter of last year. For the full year, segment operating income was $212 million as compared to $240 million for fiscal year 2025.

Lower segment operating income was mainly the result of lower profitability and higher inventory write-downs of non-wrapper, dark air-cured tobaccos. Specifically, for fiscal year 2026, total inventory write-downs for our tobacco operations segment were $43 million as compared to $19 million during fiscal year 2025 and an average of $14 million across the 5 years from fiscal year 2021 through 2025.

Now turning to the Ingredients operating segment. Segment revenue was $83 million for the fourth quarter of fiscal year 2026 as compared to $90 million for the same quarter of last year. For the full year, revenue was $348 million, up 3% as compared to fiscal year 2025. Segment operating income was $2 million for the fourth quarter of fiscal year 2026 as compared to $4 million for the same quarter of last year. And for the full year, segment operating income was $3 million as compared to $12 million for fiscal year 2025.

Despite significant industry headwinds, our FruitSmart and Silva businesses performed in line with expectations Lower operating income for the segment was mainly the result of Shank's performance and driven by higher fixed and operating costs related to the recent growth investments as we build our new product pipeline.

Regarding liquidity and capital structure. As of March 31, 2026, our net debt was $845 million compared to $817 million at the same point last year. The increase was mainly the result of higher working capital usage associated with purchasing and selling a significantly larger tobacco crop. Our liquidity availability, which includes cash and availability under our committed and uncommitted credit lines totaled over $1.2 billion.

Now I'll briefly shift to an introduction as Universal's new CFO. As Preston mentioned, I joined Universal in 2018, coinciding with the company's rollout of the enhanced capital allocation strategy. Since then, I've been closely involved in developing and executing that strategy, including the formation of Universal Ingredients platform through 3 acquisitions and the continued investment in its commercial and operational capabilities.

At the same time, I have led our financial planning and analysis function, supporting the company through a full supply-demand cycle in leaf tobacco, the complexities of COVID and the evolving macroeconomic environment that followed. Because of these experiences, I have a clear perspective on both the durability of our core business and the importance of financial discipline as we invest in growth. I am greatly honored to take on the role of Chief Financial Officer.

Universal combines a resilient, market-leading leaf tobacco business with an adjacent ingredients platform that has a strong core product and customer base, expanding capabilities and a long runway for growth. My priority is to deliver dependable free cash flow and balance sheet strength through disciplined capital allocation. This approach underpins our commitment to durable shareholder value across agricultural and economic cycles.

Now before I hand the call back to Preston, I would like to address the noncash goodwill impairment related to Shank's. When we acquired Shank's in October of 2021, we recorded approximately $41 million of goodwill. In accordance with U.S. GAAP, this goodwill was assessed periodically and no indications of impairment were identified prior to fiscal year 2026. Since acquiring the business, we have invested in growth, both in the form of capital expenditures to build new production capabilities and in commercial and R&D human capital.

During fiscal 2026, market conditions pressured revenues and profitability for both core products and new product development. As a relatively new player in this space, converting customer interest into sustained revenue and margin growth can be a lengthy process. And as of March 31, 2026, we were behind in executing our commercial strategy amidst the market headwinds. In response, management, together with a third-party consultant, conducted a valuation analysis and concluded that a noncash goodwill impairment was appropriate.

To improve execution, we have recently implemented a leadership level organizational realignment at Shank's. The focus is on strengthening commercial execution, improving facility utilization and enhancing financial and operational efficiency. Strategically, Shank's remains a key component of our ingredients platform, given its underutilized capacity, technical capabilities and role in supporting innovation and solutions-based offerings.

As CFO, I will focus on strengthening the execution and financial discipline across the company, ensuring we convert strategic intent into financial performance and on growing revenue and margins, controlling costs and deploying capital effectively to support growth, both organically and through future accretive acquisition opportunities.

I'll now turn the conversation back to Preston.

Thank you, Steve. As we look ahead to fiscal year 2027, our leaf tobacco business brings over 100 years of experience operating through complex and evolving global environments. Combined with our broad geographic diversification and long-standing customer relationships, this positions us well to manage ongoing oversupply and current market dynamics.

In Ingredients, our strategy is centered on clean label, healthy, organic and solution-based products and remains aligned with our customers' priorities. We will continue to support our customers as we work together to navigate the persistent market headwinds. Our ingredients focus remains on disciplined execution, including leveraging the investments we have made, strengthening commercial effectiveness, achieving operational efficiencies and improving financial performance.

We enter fiscal year 2027 focused on maximizing and optimizing our tobacco business, growing our ingredients business and strengthening our company for the next 100 years. This strategic approach strengthens the durability of our business and positions us to navigate market cycles and volatility while continuing to deliver long-term value to our shareholders, like our recent announcement of our 56th consecutive annual dividend increase.

Thank you again for joining us today. We will now open the call for questions.

[Operator Instructions] Your first question comes from the line of Daniel Harriman of Sidoti.

Steve, congratulations on the new role. I'll start with 2 questions today, and then I'll get back into the queue. But Preston, can you just talk about your confidence level that we'll get inventory normalization during fiscal 2027? I know uncommitted inventories were 27%, I believe. And then I wanted to see if there's any additional write-down risk in non-wrapper, dark air-cured tobacco.

And then if we set aside the impairment and the tobacco inventory write-downs, it appears that the overall business is operating at a high level. So I was just wondering if you could speak about the underlying trends in flue-cured, burley and the ingredients platform outside of shanks and kind of what that tells you about the setup for fiscal '27.

Thanks, Daniel. I'll start with the inventory. Yes. So that inventory number we disclosed, that's as of March 31, 2026. And leading into that, we've had some buying -- early days of buying, but buying in Brazil. So some of that is what we bought in Brazil. But we've already seen movement from March 31, just over the last 2 months. We're confident that we will be within our range for uncommitted inventory between 10% and 20% during the fiscal year. And we'll have a much better update and a much better view of things for our first quarter call in a couple of months. But at the moment, we're pleased with where things are going. And like I said, we're confident we'll be within that range during the fiscal year.

For the dark write-downs, we've taken those write-downs, in particular in the fourth quarter through sort of a thorough review of inventory on hand and market dynamics. All of that goes into sort of the accounting side of how we evaluate and determine write-downs to take. That was a thorough review at the end of the fiscal year based on current market dynamics. And going into this year, we feel comfortable that inventory positions are good, that we're working closely with our customers to make sure we have the volumes and the quality, in particular, that they need of non-wrapper and of wrapper tobaccos, and we'll monitor it throughout the year.

There's an accounting side to it where we always assess no matter what the tobacco style, we assess our inventory positions and values through the accounting rules, and we'll continue to do that during the year. But at the moment, given the extent of the fourth quarter write-downs, we're comfortable where we are right now with current market dynamics.

Yes. Just to follow on the -- from the accounting side of that, we record inventory at the lower of cost or what we estimate as net realizable value. And that's where, as Preston said, we did a deep dive into our inventories in Q4 to come up with the estimates that we did. So we feel good about going into this coming year.

I think your other question is a little more about view of fiscal year '27 and on both ingredients and the tobacco side, in particular, flue-cured and burley. So on the tobacco side, it's very early in the season for us. Markets are really just starting. In Brazil, we are buying in Africa and our footprint buying has started recently. The oversupply which carries over from the transition this past fiscal year '26 from undersupply to balance oversupply all in one time based on really large crops feeds into this year, where we also see large crops really across the world, flue-cured and burley.

Even though it's early days, we have a lot of experience with our strong local teams in managing crops in any type of market cycle, including oversupply. The key for us is our geographic footprint where we can mitigate risks from one origin to another based on current conditions, our really sort of broad portfolio of customers that require all the styles, flue-cured and burley and all the origins where we are, we're in all the strategic origins. And maybe most importantly, a lot of deep experience in knowing how to buy and how to buy the right grades at the right price.

And when we look at the undersupply years, there were places in the undersupply years where we were really forced and the market was forced to pay really high prices for practically all grades because it was such an undersupply. And oversupply, we have more flexibility. We have access to the tobacco we need. The larger crops give us also some additional benefits like third-party processing because of larger crops being handled by others. And we could be more, I'd say, more intentional, more strategic and more efficient in how we buy. So we know we're buying the right grades at the right prices. And then we can move them and try to protect margins with oversupply and with customers who have built up durations over the past few years with their large purchases.

It's very important that we're buying correctly. But we're also keeping in close contact with our customers. So we know their demands and know their needs, and we can plan accordingly. And that will continue throughout the year. But so far, that's been going well, and we are encouraged where we are despite lots of market dynamics, and it's early. So we'll continue that good work. But on the tobacco side, we feel good. We are experienced and we're entering it with the right strategies.

On the ingredient side, also encouraged. We're very happy with the strategy of ingredients and with shanks as an important part of that, as Steve had mentioned. We see inflationary pressure and some of the other market headwinds persisting into this year. So we will continue to navigate those. And I think for things example, like tariffs, I think we did a good job of navigating a lot of the direct impacts of tariffs this past year to minimize the costs that are going into our inventory and taking advantage of opportunities we had where maybe domestic sourcing gave us opportunities versus others who are sourcing overseas and paying those higher tariffs. with maybe more normalized tariffs this year, and it will also be fluid with tariffs.

But if tariffs remain lower this year or even go away, I am optimistic that, that will reduce some inflationary pressure that our customers feel with our own sales and products and certainly on the tariff side, impacts on their business from tariffs that are more direct to them. But that will give us opportunities to increase the volumes we would otherwise have sold to those customers this past year with those headwinds. And with the increased volumes focus on increased profitability and cost absorption.

So I'm happy with where we are, happy with our strategy. I'm really excited about what we're doing with Universal Ingredients and where it can go. And we're putting in the hard work and we're absolutely committed to growing our ingredients business, in particular, in Shank's, executing these initiatives so that we're operating as efficiently and as profitably as we can operate this year.

[Operator Instructions] We have a follow-up question from the line of Daniel Harriman of Sidoti.

I'm back. I guess I'll follow up with one more if there are no other questions. Sorry about that. problem. Steve, kind of like I mentioned, congratulations on the role. And I understand that you're not at all new to Universal and you're not new to financial management or really corporate development. But can you just kind of remind us of the company's capital allocation priorities and how you see the balance breaking down in the coming year, maybe between the dividend leverage and then continued investment in ingredients?

Sure. Thank you, Daniel. I really appreciate it. It's great to speak with you today. Yes. So our capital allocation strategy, which we announced right around the time I joined the company in 2018, it really has 4 pillars: strengthening and investing for growth in our leaf tobacco business, increasing our strong dividend, and exploring growth opportunities for our plant-based ingredients business. And then finally, returning excess capital through share repurchases. So that strategy hasn't changed. It's still consistent.

As far as the dividend goes, we are a strong cash-generating company and our dividend payout ratio on our reported net income this year is over 100%. But if you look back kind of over the last 5 years on an adjusted net income basis, it's been below 75%. So we feel really good about our positioning and our ability to continue to fund the dividend going forward. That said, our Board certainly reviews and management with the Board reviews our capital allocation strategy regularly and could make decisions based on new information that comes along. But as we sit here now, we see no change.

And from the ingredients kind of M&A strategy standpoint, no change there. We have not acquired any businesses since Shank's in 2021. We've invested in organic growth. We are now in kind of the phase of realizing the returns on that investment and earning the right for future growth.

And so as we kind of pull through this current expansion at Shank's and get new volumes through that facility to really leverage the cost structure that we have in place and the R&D and commercial people that we put in place, that's our focus now. And once we achieve that, we will be back in and investing in new opportunities for growth.

Daniel, if I can add on to that, in particular, the top of our priorities, which is investing in our tobacco business. We've got such a strong tobacco business. And even this year, if you take away the write-downs, primarily the dark air-cured non-wrapper write-downs, the rest of the business performed really well. And our tobacco business is so strong. We see lots of opportunities in terms of market share growth, volume growth, other opportunities for services that we see lots of opportunities to continue to invest in tobacco. At the same time, we're absolutely committed to investing in what we need to grow ingredients as well.

So we've -- our capital allocation strategy hasn't changed. I don't see it changing because I think it's the right strategy for us to grow the company as a whole. But both sides really have good opportunities going forward. I'm really happy with the priorities that we have in continuing to invest in tobacco.

Steve, seeing that you came to Universal at the beginning of the rollout with ingredients and where you are now, can you -- and you talked about this a little bit in the prepared remarks, but could you just kind of talk us through what that experience has shown you and prepared you and how you think you will use that in the CFO role? And then maybe how that -- how you incorporate that view into the long-term value proposition of the ingredients platform that some other people like us may not have a view on?

Yes. So I mean, coming into the role as a public company CFO, my #1 priority is to maximize long-term shareholder value by driving profitable growth, securing strict regulatory compliance and optimizing capital allocation. So I think achieving that falls into kind of 4 main categories, all that are underpinned by human capital management. First is on financial stewardship. So I must continue to build on the strong culture that we have here at Universal around compliance, financial reporting, tax, audit, all the nuts and bolts of finance.

Second is kind of taking that to the next level around financial excellence. So this is about continuous improvement. All the areas like budgeting, forecasting, capital structure optimization, tax strategies, cost management, capital decision-making. And in order to do all of this, we just need to make sure -- I need to make sure that we have the right people and the right systems and tools in place to achieve that.

Third is around supporting Preston and the Board on executing the strategy that we decided upon and maximizing in the 4 areas that I just talked about, maximizing and optimizing tobacco, growing ingredients, strengthening for the future and committing to the dividend. And so this includes not only ensuring that the strategy and vision flow through the finance organization, but partnering with the other resource groups and operations around the world to make that happen. And that kind of brings it to the fourth and final category of telling the story around the strategy.

So Universal, I believe, is uniquely positioned in the agri product space as a market-leading leaf tobacco processor. We have over 100 years of proven performance combined with developing an ingredients business positioned for long-term growth and value creation. And I'm excited to engage with potential investors and other external shareholders to tell that story.

With no further questions, that concludes our Q&A session. I will now turn the conference back over to Preston Wigner for closing remarks.

Thank you, JL. Thank you for joining our call today. We look forward to speaking with you during our fiscal year 2027 first quarter call in the coming months.

This concludes today's conference call. You may now disconnect.

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Universal Corporation Third Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions]. Thank you. I'd now like to turn the call over to Wushuang Ma, Vice President and Treasurer. You may begin.

Good evening, and thank you for joining us. With me today are Preston Wigner, our Chairman, President and CEO; and Johan Kroner, our Chief Financial Officer.

During the course of this call, we will be making forward-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 anticipated results, prospects, performance or achievements expressed or implied by such forward-looking statements, but we assume no obligation to update any forward-looking statements, except as required by law.

For information on some of the risks and uncertainties related to these forward-looking statements, please refer to the reports we filed with ICC and under cautionary statements regarding forward-looking statements in our current earnings press 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 may also include certain non-GAAP financial measures. For details regarding these measures, including a reconciliation of those non-GAAP measures to the most comparable GAAP measures, please refer to our current earnings press release and other public materials.

This call is being webcast live and will be available for a replay on our website through May 9, 2026, and by telephone through February 23, 2026. This call is copyrighted and may not be used without our permission. Other than the reference replay, we have not authorized and disclaim responsibility for any recording, replay or distribution of any transcription of this call. I would like to now turn the call over to Preston.

Good evening, everyone. Thank you for joining us today. Fiscal year 2025 was an extraordinary year for Universal. We're following the year with solid performance at the end of our third quarter of fiscal year 2026. I'm proud of our company's dedication and commitment to delivering results for all our stakeholders.

During the third quarter of our fiscal year, our team executed well and advanced the strategic priorities that support long-term value creation. I'll start with our Tobacco Operations segment, which generated solid quarterly results in comparison to a robust third quarter last fiscal year. Customer demand remained firm for most tobacco styles following several years of undersupply. We continue to leverage our diverse global footprint, long-standing customer relationships and deep local expertise to optimize results as the market transitions into an oversupply environment.

Turning to the Ingredients Operations segment. We continue to advance our strategy in order to build durable commercial and operational fundamentals that support sustained growth. Sales revenue for our value-added products has started to make up a significant portion of our overall ingredients revenue. However, our segment results reflect higher fixed costs from the significant investments we made which have compressed margins. Additionally, market headwinds, such as the broader softness in the consumer packaged goods sector weighed on our business directly and indirectly and tariff impacts were more pronounced during this quarter.

These headwinds reinforce the importance of our disciplined and deliberate approach to investing in the resources and capabilities needed to provide resiliency and grow our ingredients business for the long term. While our global commercial and operational teams focused on delivering strong results, we also took several meaningful steps to strengthen our company and position ourselves for the future. We refinanced, upsized and improved our corporate credit facility, which significantly expanded our liquidity and improved financial flexibility. And earlier today, we were excited to announce the appointment of our new CFO, Steven S. Diel, effective April 1.

Steve brings strong financial, business and strategic expertise to his new role, and I look forward to working closely with them to advance our company's strategies and deliver value to our stakeholders. I will now turn the call over to Johan to review our financial and operational performance in more detail, after which I'll share a few additional thoughts.

Thank you, Preston. Good evening, everyone. For the 9 months ended December 31, 2025, consolidated revenue was $2.21 billion compared to $2.25 billion in the prior year period. Operating income was $183.4 million versus $190 million for the same period last year. Net income was $75.9 million versus $85.7 million for the same period last year.

In our Tobacco Operations segment, Revenue was $1.94 billion compared to $2 billion in the prior year period. Segment operating income was $185 million versus $194.4 million for the same period last year. In our Ingredients Operations segment, revenue was $265.2 million compared to $249 million in the prior year period. Segment operating income was $1.4 million compared to $7.9 million for the same period last year. For the third quarter of fiscal year 2026, consolidated revenue was $861.3 million compared to $937.2 million in the same quarter of last year.

Operating income was $82 million versus $104.1 million for the third quarter of last fiscal year. Net income was $33.2 million versus $59.6 million for the third quarter of last fiscal year. In our Tobacco Operations segment, revenue was $779.9 million compared to $853.9 million in the same quarter of last year. Segment operating income was $84 million versus $102.6 million for the third quarter of last fiscal year. In our ingredients Operating segment, revenue was $81.3 million compared to $83.3 million in the third quarter last year. Segment operating loss was $0.1 million compared to segment operating income of $3.7 million in the third quarter of last fiscal year.

Turning to liquidity and capital structure. During the quarter, with strong support from our existing and new banking partners. We refinanced our senior unsecured credit facility and upsized the facility by $250 million. The new facility significantly expands our available liquidity, lowers our borrowing costs, enhances our financial flexibility and positions us well to advance our long-term strategic priorities. As of December 31, 2025, our net debt was $995 million compared to $945 million at the same point last year.

Our liquidity availability, which includes cash and availability under our committed and uncommitted credit lines totaled $917 million. I will now turn the conversation back to Preston.

Thank you, Johan. We are pleased with our solid results through the first 3 quarters of the fiscal year. As anticipated, the leaf tobacco market is moving into an oversupply environment. Managing evolving market dynamics is an area where Universal has demonstrated consistent strength for more than 100 years. We're proud of our resilience and our ability to deliver strong performance under all market conditions. Our long history of tobacco leadership motivates us to build and grow Universal Ingredients to support our long-term success. Back in 2018, we made the decision and developed a strategy to diversify into food and beverage ingredients.

As part of that strategy, we made 3 acquisitions in 2020 and 2021 to gain a broad product portfolio, established customer relationships and experienced management teams. These moves created Universal Ingredients and established the foundation for a scalable differentiated platform capable of delivering and offering new innovative solutions-based products to our customers. To support that strategy, we invested in building commercial sales, R&D and product development capabilities and in adding industry-leading production capabilities. These investments culminated in the completion of our Lancaster, Pennsylvania facility expansion just over a year ago.

Since completing the expansion, our focus has been on leveraging these new resources and capabilities to grow Universal Ingredients and convert customer interest into sales. We're excited about the progress we've made since those early days in 2018. While we continue to navigate inflationary pressures and the impact of tariff headwinds, we're focused on increasing sales to absorb fixed costs from our growth investments in Universal Ingredients. We're encouraged by the continued steady interest in our enhanced capabilities and the growing breadth of our solutions-based product portfolio.

We are committed to continuing the progress we've made to date and scaling the platform to support stronger earnings, improved resilience and enhanced margins. Before we conclude today's discussion, I want to highlight our continued progress in advancing our sustainability priorities. We recently released our annual sustainability report, which highlights significant progress across our environmental and social commitments. Notably, we increased renewable electricity consumption nearly sixfold year-over-year with approximately 17.7% of our global electricity sourced from renewable energy. These actions support our approved science-based emissions targets and our commitment to achieve net zero greenhouse gas emissions across the value chain by 2050.

We also further demonstrated our support for farming communities globally, advancing our good agricultural practices and agricultural labor practices programs to maintain momentum across our social responsibility and farmer sustainability initiatives. Our disciplined execution and clear strategic focus provide a strong foundation as we move into the final quarter of the fiscal year. We are confident in our ability to execute on our strategy and continue creating long-term value for our stakeholders. Thank you again for joining us today. We will now open the call for questions.

[Operator Instructions]. Your first question comes from the line from Daniel Harriman from Sidoti.

I'll 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 called out fiscal 2025. And while sales were down in the quarter, that's 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.

Daniel, I'll start with Ingredients. So last year, 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've been impacted by market headwinds, product mix and the higher fixed costs. And I'll talk about all 3. So on those market headwinds, which are affecting the industry and a lot of the sectors where our customers are, there's weakness in that consumer packaged goods sector and other food and beverage sectors and those inflationary pressures.

We're 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've seen that maybe in particular, with sales this quarter of -- or sort of traditional core products. On the tariff side, we've talked about this a little bit in the past. We've had direct tariff impact with that indirect tariff impacts. Those impacts were just a little more pronounced this quarter than in the first half.

On the direct tariff impact, we've got tariff costs that are impacting the cost of the products that we import into the U.S. and incorporate in the products that we sell. And so we've got tariff costs in those raw materials that we're 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 decrease their sales.

And again, if their sales decreasing, then potentially their orders to us are decreasing. On the product mix side, we had just a different mix of products with a 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 didn't turn out the way they had forecasted, then potentially this quarter, they would have had fewer of those sales or different products that they'd be ordering from us with slightly different margins.

So just a little bit of a margin mix. And then lastly, on the higher fixed costs, we've been talking about that for a while. We're still focused on scaling the business to absorb the costs and the investments we 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're 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're focused on continuing to increase those sales and increased 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'm really encouraged by the dedication of the team is putting in the hard work on a daily basis. And I'm really pleased with the progress that we've made and how far we've 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. In 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 kind of higher-margin dark tobaccos. Last third quarter, which supported a high operating margin last third quarter. 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 and third quarter numbers were the highest that we've seen in a number of years. And just looking at the last 4 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 are second highest and 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're 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've also increased our third-party processing based on the size of those crops.

But pricing is down slightly from last year. And we've had additional write-downs in certain dark air cured tobaccos that have 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's also some shipment timing impacts to the quarter-to-quarter comparison.

So we've leveraged our tobacco expertise, our diversified footprint and our strong customer relationships to navigate what's been a really complex year, and we're moving into undersupply, from undersupply to oversupply. And with all of that, I'm really proud of the job we've done around the world to deliver the results we've delivered and to support all of our stakeholders.

Your next question comes from the line of Ann Gurkin from Davenport.

Good evening, everybody. I'd love to pick up with the conversation around the tobacco segment. Do you think you'd be able to exit fiscal '26 with margins relatively in line with what you delivered in fiscal '25, I thought Q3 was better than I would have expected, and it's very impressive. So I was just curious if you can give me any kind of direction as to the full year tobacco segment margin?

Yes, I'd say we're still working hard on the quarter. We've got some tobacco to ship. Some of that tobacco is higher-margin tobacco that may have otherwise shipped in the third quarter. It's really going to come down to mix and to timing of shipments. Can we get all that tobacco out in the fourth quarter.

Okay. And any comments on the customers' inventory level or duration positions with your key customers? Any comments? Any insight you can share there?

Yes. We're in near constant communication with the customers. And I think with customers, it's a little bit of a mix. Some of those customers last year and into this year. They've been buying what they need and may be restoring some of their durations and looking at their duration policies. Some still have lower durations and they'll decide in the upcoming years, whether they'll 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.

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

Yes. So estimated unsold secured and Burley stock was about 102 million kilos at December 31, 2025, which is about the same as it was on September 30 2025.

Great. And then switching over to the Ingredients segment. I'd be curious what your biggest surprise was from the Q3 results versus Q2 on a sequential basis?

I think the market headwinds and the impacts and the length of those impacts we've seen in the third quarter on our customers. I think that's had a bigger impact than maybe I would have thought a year ago. We're hearing and we're 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 that will be cyclical, and we will -- we're going to continue to perform, continue to get in front of our customers and get our products sold. But I'd say that's -- to me, that's probably the biggest surprise.

Okay. As you break out the revenue component, can you break it out in volume, price and new customer wins?

We don't have that breakdown for public disclosure. It's -- and it's also a little bit of mix, the mix this quarter versus same quarter last year.

Do you anticipate in the next several quarters, pricing catching up with the higher tariff cost or input cost?

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

Okay. And then can you quantify the amount of inventory write-down in the ingredients side in this quarter?

We had some, Ann, but that's like standard, the methodology that we used. We just looked at some of the inventory at the end of the quarter and determine whether or not it was -- 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.

So it's more write-down in the tobacco space than it was in an ingredient space?

Oh, yes. Yes.

Okay. Okay. And then I'm 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'm just kind of curious if you can walk me through what's going on?

Yes. We filed an 8-K announcing that we withdrew our offer from Mr. Mittal to become our CFO and in 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.

That's great. Preston, I also want to tell you how much I enjoyed your presentation at ICR. I'm so glad you all participated in that conference. It was a terrific presentation. I have a couple of questions if I can still ask questions in relation to that presentation. In the presentation, you talked about participating in the next-generation supply chain for tobacco companies. Can you just flesh that statement out a little bit for me?

Yes. As part of our strategy, we want to make sure that we have opportunities to participate in some way in the supply chain. Some of that we do today. So if they've 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's liquid nicotine or going forward with our universal ingredients abilities with flavors. So all of that, we we'd like to have that as part of our strategy, part of our growth going forward.

Okay. Great. And then you talked about investing in commercial sales and the platform and opportunities to cross-sell across the 2 segments. So I was wondering if I could 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?

I think that cross-selling referred to products within the Universal Ingredients platform, I think. And that's a big part of what we're doing in terms of building that active pipeline, getting that 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 don't have them broken out separately, but that's a big part of the increased sales and also on the flavor side as well.

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

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

There are no further questions for the question-and-answer session. I'd like to turn the call over to Preston Wigner for closing remarks.

Thanks, Jordan. Thank you for taking the time to join us today. We look forward to connecting again on our next earnings call.

That concludes today's meeting. You may now disconnect. Have a great day.

Good afternoon. Thanks for joining us. Welcome to the Universal Corp presentation. We're thrilled to have them here. Presenting for the company, we have Preston Wigner, who is the CEO and President. I'll turn it over to you, sir.

Thank you, Reed. Good afternoon, everybody. Thanks for coming. We're thrilled to be here to tell Universal's story. Those of you in the room, thank you for attending. Those of you on the webcast, thanks for dialing in.

As Reed said, I'm Preston Wigner, I'm the CEO of Universal Corporation. Not to be confused with Universal Studios down the road, Universal Corporation.

We're a global business-to-business agro products company. We've been delivering innovative solutions and quality products to our customers for well over 100 years. We're actually getting close to our 100-year anniversary, one listed on the New York Stock Exchange coming up next year.

One of our strengths and our competitive advantages is our global footprint. And we operate -- there you go. We operate in 5 continents, over 30 countries around the world, all in the strategic markets where we need to be where our customers need to be. Our roots are in tobacco supply.

So we're the world's leading leaf tobacco supplier. We contract with growers. The majority of what we buy is contracting through growers, 200,000-plus growers around the world, and we process and sell that to our large portfolio of customers. That business has generated strong and consistent cash flows for us over the years, year-over-year.

And I'll talk a little bit about our financial performance towards the end of the presentation. It's an exciting time to be at Universal. I'm a relatively new CEO, about 1.5 years.

We've got a lot of exciting things going on, on the tobacco side as we proactively grow our tobacco business. And we've got a new segment for Food Ingredients. It's Universal Ingredients, a new -- really new for us, ingredients company selling into the food and beverage markets in the U.S. and around the world.

When we talk about Universal, we always talk about sustainability as well. It's also a strength and a competitive advantage for us, especially on the tobacco side.

And I'll just touch on sustainability a couple of times today, so you have some sense of how important that is to us and what it means to us and what we do with it. In simple terms, we're the vital link between international farmers and suppliers and international customers.

We link local growers to a global marketplace for their goods, and we link customers to the world's agri products that they need to meet their needs and objectives and to meet the evolving needs of their customers.

We're led by a simple but strong 3-pillar corporate strategy. First is to maximize and optimize our tobacco business. Second is to grow our ingredients business. And third is to strengthen our company for the next 100 years. When I talk about maximizing and optimizing our tobacco business, really talking about growing that business.

With all of our strengths and capabilities and leading position in the market, we want to increase volume with our customers, increase market share with our customers, perform more supply chain services for them and participate in their next-generation product supply chain.

When I talk about optimizing, we also look inward. We're making sure that we're -- our footprint is strategic to our customers and it's operating, giving us the returns that we expect and that we're operating efficiently, cost effectively.

For growing ingredients, which is a new section of our company, we've acquired businesses. We've invested in the tools and resources to grow. And now we're looking to grow that business, both organically as well as through acquisitions.

And for strengthening the company, we look at how we perform, and we think we're performing really well. We've been in business a long time. We do things really well, but there's always areas that we can improve. We always want to be better 1 year after the next.

So we want to look at our financial resources, how are we managing our financial resources. We're managing them effectively, efficiently to maximize our profits. We look at human capital management.

Are we empowering our employees and training them and developing them for the future. And we look at technology. How can we use technology to be more efficient, make better decisions, whether it's robotics, whether it's AI.

And we look at our 2 segments. And in the future, we figure out how we can find synergies between those 2 segments. How can they both work together, leverage their strengths and capabilities to improve our performance.

So I'll start with our tobacco operations and give you a kind of high-level overview of our tobacco operations. And the first thing to understand is for tobacco, tobacco is not a commodity, it's a varietal.

So the tobacco that's grown around the world, it's all a little bit different. There are different types, different styles. What's grown in the U.S. is different than what's grown in Zimbabwe or Brazil.

And on a plant, the plant might have 20 separate leaves on the tobacco plant. All those leaves, all those different positions are slightly different. And all those different leaves and positions, they satisfy our customers' needs.

And I'll talk about why that's important and what our role in this process is and why we're so valuable to our customers. If you think of buying all the leaf in the world ex China, China is a huge market. All of that leaf is primarily used domestically.

So for the rest of the world, the total leaf supply is purchased by essentially 3 groups of competitors of ours. One is global leaf suppliers like Universal. The second is vertically integrated customers and a number of our large customers are vertically integrated.

And the third is local and regional suppliers. They may be in one market, they may be in multiple small markets. And we've got competitive advantages and benefits over all of those 3 groups, which will allow us to continue to grow our business.

On the global leaf supplier side, there's only one other global leaf supplier, and they are similar to us. They're smaller. They're based in the U.S. They aren't invited to ICR, so I'm not going to mention their name. But we are larger. We think we've got programs a little bit better, and we're financially stronger.

So our financial strength gives us the ability to perform well, to invest in ingredients, to invest in growth in our tobacco business as well as provide value to our customers. So we're very proud of that.

The vertically integrated customers, they have operations in some of the key strategic markets, where we also operate. Remember, I talked about that plant. And one of the big benefits that we have that we provide to those customers is that those customers may only need certain types of leaf positions.

They don't need that whole plant. But when we buy that plant and when they buy that plant from farmers, they have to buy the whole thing. So for us, we buy the whole thing, we disappear it across our broad customer base.

When they buy it, they may have pieces that they can't use or they have to force into their blends. So it's not as efficient, not as cost effective.

We also operate, of course, at scale. We're a huge company in all the major markets around the world. So we think we can pick up additional business through our customers as maybe they decrease their vertically integrated operations.

And the third are the regional and local suppliers. They don't have very many of the same things that we have. They certainly don't have all of them. If you think about sustainability programs, which are critically important in the tobacco business.

You think about support for farmers, which is important, factories, multiple operations in multiple markets, so they derisk for weather or for geopolitical environments. They don't have any of that, and we've certainly picked up market share over the years through that group.

With that, you look at our segment operating income, we've gone up, and that's on the slide. We've gone up over the last 5 years, showing our performance on tobacco, which we're really excited about, and we think there's more that we can do.

Our strength as a supplier, in addition to all those advantages I just talked about, which are also barriers to entry for new entrants into the market, we really focus on how we source agronomy, processing and logistics. In sourcing, we source strategically in a diverse global market. It gives us the access to the tobacco that our customers need.

It also derisks some of the issues that have come up, weather, tariffs, whatever it might be. We have really strong local operating teams who are experts in the ground, and they really know those markets and those markets will be very dynamic.

And we have a broad customer base. So anything that we're buying around the world, we're buying it, making sure we have a place to sell to those customers. We don't buy on a speculative basis.

On the agronomy side, really important for Universal. We support those farmers. Farmer success is our success. So we want to make sure those farmers are following good agricultural practices.

So the quality and the quantity of what they grow is what's needed. And we also want to make sure those farmers are complying with our sustainability programs. We have strict sustainability programs. We expect them to follow, our customers expect them to follow. Some of our investors expect them to follow. So we have agronomists that work with those farmers to educate them on those programs, to help them comply with those programs and then to monitor their compliance and collect the data so that we can report transparently on their progress.

And on processing, we've got processing facilities in all the key markets. They're large processing facilities. They're built for volume, they're efficient, and they can meet our customers' demanding specifications. And finally, logistics. I talked a little bit a second ago about being the vital link between our growers and our customers.

On logistics, we're experts at logistics, in particular, places that are difficult to operate in rural areas around the world. We're experts at helping move tobacco from farm to factory, factory to port, port to customer. All of those strengths help defend our leading market position and has given us the ability to grow and perform as well as we have for over 100 years.

On the Ingredients side, a sort of a different story.

Long history on tobacco, market leader, everybody knows us. Universal Ingredients, new company on the block, new segment to our market, and we're really excited about what we're doing in Universal Ingredients. I'm really proud of what we've done just since 2018. 2018, we had a strategy. Now we've got a segment and a real operation, integrated acquisitions that we've made since 2018, we sort of thoughtfully, carefully acquired companies to give us the functions that we thought we needed for a platform.

We've invested in that platform to give them the tools they need to grow and succeed. And now they're operating. And now what we're looking to do is to grow organically while we think about our next acquisition for the group.

Those acquisitions, they gave us the ability to process fruit, so we can do fruit juices, fruit purees, essences, dry by products, all sort of functional ingredients on the fruit side.

On the vegetable side, we have dehydrated vegetable capabilities, so we can process dehydrated vegetables in practically any sort of form from granules to powders and everything in between and blends. And we acquired a company that had botanical extracts and flavors.

And with that company, the ability to -- through botanicals, green label plant-based extracts, produce extracts, produce flavors that have flavor profile, flavor library, and we bought that and added to that. To give them the tools and resources they need to grow, we invested in commercial sales and marketing.

So the commercial sales helps us sell products across that platform, instead of 3 separate companies selling 3 separate products. We've got commercial sales that can sell across the platform. In addition to existing customers, we can sell all 3 companies' products to one customer.

We can sell combinations to existing customers, and we can find new customers in new markets, where we're targeting. We've also invested in R&D and product development, so important on the ingredient side. So we understand the science behind the products that we produce, their functions and what they can do.

And on the product development side, we can be proactive with our customers and combine products and present products that are in their products to help solve their problems, help give them advantages and with our marketing group, understanding trends in the market, consumer trends, customer trends, market trends, we can help them stay ahead of the curve on those trends while they develop products with our ingredients included.

And finally, we've invested pretty heavily in expanding the capabilities of the group, including most recently a $30-plus million expansion into that extracts and flavor company. And that expansion gave them additional extraction capabilities, different types of extraction, bulk blending capabilities and aseptic packaging capabilities, all under one roof, which is relatively unique and that provides some logistical benefits and some sustainability benefits to some of our customers.

So now where we are with Universal Ingredients, we've built it, we've invested in it. Now we'd like to see a return on that investment. So now we're looking to scale up. We need scale, so we can generate the volume going across the factory floors, generate the margin and income coming in to cover our costs and start adding even more significantly to Universal's performance.

We are leveraging our diverse product portfolio, giving us flexibility to meet the changing trends with customers, changing trends in the markets.

So we want to have fruit, vegetable, extract, flavors, blending, tea, coffee, blending, extracts, all of that available to our customers.

In addition, we're looking at the research and development, always looking at how we can be better, more technically proficient, and we can produce what those customers need, understand the science behind it.

And being proactive. We want to co-create products with our customers. We want to -- we're always happy to take orders from their procurement group, and we'll fill those orders. But what we're looking at is value-added products with higher margins.

We want to work with the product development teams of our customers and co-create products that help them keep up with current trends. So there's a current trend for flavors. We want to show them how our products, our flavors can help them introduce products into their lines and make them profitable and achieve their own growth goals.

And finally, on packaging, I talked about aseptic packaging, an efficient, especially under one roof, some efficiencies, especially logistics efficiencies for our customers.

They can get extracts, they can do bulk blending and then instead of having to freeze that and move it or move it in refrigerated trucks for aseptic packaging somewhere else, it's all right there.

Once it's aseptically packaged is shelf stable and based on the packaging and the types of packaging varieties we've got, it's also reduced packaging usage for our customers on their shelves, a little more efficient.

I talked about sustainability, just a second there with aseptic packaging and all the benefits of aseptic packaging. Sustainability is important to us, and we're really focused on to date on sustainability of our operations, our actual factories, sustainability for our tobacco farmers.

Again, those sort of direct contracting with farmers, direct access to farmers, how they're performing. For those of you who speak sustainability, Scope 3 for emissions, for example, that's Scope 3 for us is our farmers and making sure they're operating the way we need them to operate, so we can meet our goals and also supporting the communities in which we operate around the world.

We set high standards for ourselves and our customers on the tobacco side also set high standards for us to meet. We take this very seriously. It's good business for us because our customers value it, but it's also good stewardship for the communities where we operate, and it makes our farmers better and more successful.

We also spend a lot of time collecting data, and we've got different forms and different systems we use to collect data. And we think it's important to report that data consistently and transparently. So we're very proud of our sustainability reports and the most recent sustainability report, I think, went out last week.

So visit our website, you can see our sustainability report and see our goals, our progress against those goals and the data for our sustainability.

And we think that, that's going to be very important for our tobacco customers. I also think sustainability is going to become more important on the ingredient side. Certainly, if I've been sitting in some of the conference presentations, I've heard a little bit about sustainability, but I think other than price to the consumer, once some of that's figured out, I think sustainability is going to become more and more important in the food and beverage markets.

And I think with our sustainability expertise from the tobacco side and what we've been able to accomplish in our systems, I think we can leverage that and tailor it to our ingredients company for Universal Ingredients and give us a competitive advantage there as well.

Financial overview. So I've talked a lot about how great Universal is. How have we done? So we've done well. If we look at the last 5 fiscal years, we made progress on all those 5 fiscal years. Adjusted EBITDA has gone up each of the last 5 years, 9% CAGR over those 5-year period.

Free cash flow has also gone up year-over-year over the last 5 years. Again, especially on the tobacco side, we generate strong cash. And we've been using those strong cash flows to invest in our company for growth, both on the tobacco side and on the ingredient side as well as paying down debt. We acquired those 3 companies.

We used our credit facility to buy them. And now we are paying that debt down. We're really fiscally conservative on our debt levels. It's around 2.5x adjusted EBITDA. And that will give us opportunities in the future as we pay down that debt.

So we're really focused on our debt level, keeping that down low, taking it down lower and also maintaining our credit grade -- our credit rating with rating agencies. And that's prudent -- just prudent management. Also not on the slide, but very important to us is our return to our shareholders. And this past year, we've had our 55th consecutive annual increase to our dividend.

We're very proud of our dividend history and our ability to generate the funds to reward our investors for investing in our company. And they'll only benefit in the future with where we can take Universal Ingredients, really exciting to see where that can go as well as our strong tobacco business that continues to perform well and should continue to perform well in the future.

So I'm going to wrap up and say the why Universal. I think it's a lot of excitement at Universal, certainly an exciting time for me to be in a position to lead a company that's so strong, doing so well, great strategy.

We're putting in the work to make this work, to make it profitable and to make it sustainable long term. We're building this for our next 100 years. So we're trying to build a really solid base to start from. We've got leading tobacco business. We're the leader in the industry.

And with all of our strengths and capabilities and those barriers to entry, we can go up with our business on the tobacco side. The ingredient side is really exciting. There's a lot of work to do. It's a lot of work getting our name out there so that customers, vendors, they know who we are. We partner with them. They trust us.

We can grow with them. So we're putting in the work. We're getting progress. And again, we're building scale, lots of excitement for the future for Universal Ingredients. And we're really proud of our sustained performance, both on the cash flows as well as returns to our shareholders. So thank you all very much for your attendance. And maybe we'll see you next year. Thank you.

Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Corporation Second Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Wushuang, Vice President and Treasurer. Please go ahead.

Good morning, and thank you for joining us. With me today is Preston Wigner, our Chairman, President and CEO; and Johan Kroner, our Chief Financial Officer.

During the course of this call, we will be making forward-looking statements that are based on our current knowledge and some assumptions about the future. They are representative as of today only. Actual results, performance or achievements could differ materially from anticipated results, prospects, performance or achievements expressed or implied by such forward-looking statements, and we assume no obligation to update any forward-looking statements, except as required by law. For information on some of the risks and uncertainties related to these forward-looking statements, please refer to the reports we file with the SEC and under cautionary statements regarding forward-looking statements in our current earnings press 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 a reconciliation of these non-GAAP measures to the most comparable GAAP measures, please refer to our current earnings press release and other public materials.

This call is being webcast live and will be available for replay on our website through February 6, 2026, and by telephone through November 20, 2025. This call is copyrighted and may not be used without our permission. Other than the referenced replay, we have not authorized and disclaim responsibility for any recording, replay or distribution of any transcription of this call.

I would like to now turn the call over to Preston.

Thank you, Wush. Good morning, everyone. Thank you for joining us today. We're pleased with our performance in the first half and second quarter of fiscal year 2026. We saw strong operational execution for both segments of our company, and we are working diligently to continue that performance through the second half of our fiscal year.

Let's begin with our Tobacco Operations segment, which continues to perform well. Tobacco buying is largely complete in most key growing regions, and crop sizes are significantly larger this year following several years of smaller crops due to weather. Green tobacco prices have softened in certain regions compared to the prior fiscal year. Shipments are progressing smoothly, and we are shipping tobacco earlier than we did last year.

Customer demand has remained firm following several years of undersupply despite significantly larger crops this fiscal year. As expected, carryover crop sales were lower for the 6-month period, reflecting significant shipment volumes earlier in the prior fiscal year. Uncommitted inventory levels remain low and well within our target range.

We believe that tobacco supply and demand are generally balanced at this point in the fiscal year, and we expect tobacco to move into an oversupply position by year-end. We have historically performed well in slight oversupply market conditions. It allows us to meet customer needs while also pursuing opportunity sales. Our team is experienced in managing oversupply markets, and we are confident in our ability to navigate the change in market dynamics.

Now turning to our Ingredients Operations segment. We maintained positive momentum with higher sales and volume in both the quarter and the 6-month period ended September 30. Interest in our new value-added products continues to grow, and we are maintaining an active pipeline. Universal Ingredients' enhanced production and operational capabilities are supporting this growth.

Demand for our new products remains solid, while fixed cost, product mix and external challenges, including weakness in the consumer packaged goods industry and tariff uncertainty, had a negative impact on earnings. We are taking a proactive approach to meeting our customers' strategic needs, focusing on organic growth and converting customer interest into product sales so we can continue to build scale and generate returns on our investments. We believe the Ingredients segment is well positioned to capitalize on those investments and drive future growth.

I'll turn it over to Johan to walk through our financial and operational performance in more detail. After that, I'll offer some additional thoughts and open the call for questions.

Thank you, Preston. Good morning, everyone. As Preston mentioned, we are pleased with our performance for the first half of fiscal year 2026 with improved results from our Tobacco Operations segment and higher sales volumes in our Ingredients Operations segment.

For the first half of the fiscal year, consolidated revenue was up $40 million to $1.3 billion. This increase was driven by higher third-party tobacco processing volumes, accelerated current crop tobacco shipments and increased sales volumes in our Ingredients Operations segment. Operating income rose $16 million to $101 million, primarily due to a favorable product mix in the Tobacco Operations segment. Revenue increased $22 million, reflecting higher third-party processing volumes. Segment operating income was up $9 million due to a favorable product mix. While overall tobacco sales volumes were slightly down, about 1%, higher and early shipments of current crop tobacco largely offset lower shipments of carryover crop tobacco. Segment results reflected continued firm customer demand, a favorable product mix, larger current crop shipments, particularly from Brazil and African origins, and increased third-party processing volumes. These positives were partially offset by higher inventory write-downs.

Turning to our Ingredients Operations segment. Revenue was up 11% on increased sales volumes. Operating income was lower, reflecting a less favorable product mix, higher fixed costs, including additional depreciation from our recently expanded production facility, and higher inventory write-downs.

Finishing up, on the first half of fiscal year 2026, we are focused on managing our working capital. Additional purchases of tobacco due to larger crop size increased our inventory versus the same period last year. Despite that, net debt was down $52 million on September 30 compared to the same date last year. We had approximately $340 million available under our revolving credit facility as of September 30, and interest expense was down $4 million year-over-year.

Now looking at our second quarter results. Consolidated revenue was up $43 million to $754 million, driven by higher tobacco ingredients sales volumes. Operating income decreased $1 million to $68 million, with higher sales volumes and lower restructuring and impairment costs slightly offset by unfavorable foreign currency comparisons, higher inventory write-downs and increased provisions for farmer advances.

In the Tobacco Operations segment, revenue rose $29 million on a 3% increase in tobacco sales volumes. However, segment operating income declined by $12 million due to unfavorable foreign currency comparisons, higher inventory write-downs and a less favorable product mix. The Ingredients Operations segment delivered higher revenues on increased sales volumes. Operating income, however, was lower in the quarter despite those volumes, reflecting ongoing challenges in the consumer packaged goods industry, tariff uncertainty, higher fixed costs from our expanded facility and higher inventory write-downs.

And finally, restructuring and impairment costs for the second quarter of fiscal year 2025 were $10.6 million. We did not have any restructuring and impairment costs in the second quarter of fiscal year 2026.

I would like to now turn the conversation back to Preston.

Thank you, Johan. We are pleased with the first half of our fiscal year. We are absolutely committed to continuing our strong operational performance through the second half. We will also continue to find opportunities and the challenges. Our diverse global footprint, long-standing customer relationships, deep local expertise and the unique value Universal offers our customers support our strategic commitment to growth.

Our Tobacco Operations team remains focused on maximizing and optimizing our tobacco business. This includes offering additional services to our customers and leveraging our deep experience to navigate changing market conditions, including the expected shift to an oversupply environment later this fiscal year. At the same time, our Ingredients platform is continuing its momentum and is focused on growth. With our expanded facility, we will capitalize on our investments in extraction, blending, aseptic packaging and other capabilities.

We're also focused on strengthening and expanding our customer engagement. Our sales, marketing and product development teams proactively showcase our abilities and help convert customer interest into product sales. We remain committed to driving organic growth, creating value across the platform and delivering customized, differentiated solutions to our customers. As we continue to focus on delivering long-term value, our commitment to sustainability strengthens our operations and manages risk across our company.

We continue to make meaningful progress in our transition to renewable and lower emission energy sources. We have significantly expanded our use of clean electricity as an important element of our carbon transition plan. This continued progress demonstrates our strong commitment to operational efficiency and environmental stewardship. Investing in clean energy, such as on-site installations at our operations in Italy, the Dominican Republic and the Philippines, supports our sustainability goals, strengthens the resilience of our operations and creates long-term value for our stakeholders.

To wrap up, Universal continues to execute with discipline across key areas of our business. The first half of our fiscal year saw solid performance, advanced operational execution and meaningful progress in our sustainability efforts. These results reflect our commitment to long-term value creation, resilience and responsible growth and position us well for the second half of fiscal year 2026.

Thank you again for joining us today. We'll now open the call for questions.

[Operator Instructions] Your first question comes from the line of Daniel Harriman of Sidoti.

Congrats on the quarter. I'll start off with two today, one for each segment, and I'll begin with Ingredients. Preston, you mentioned solid demand for your value-added products, but also obviously, mix, fixed costs and broader consumer weakness weighed on earnings. To the extent that you can, can you give us a sense of where utilization stands now at Lancaster and then how quickly you expect fixed cost absorption to improve as you continue to scale volume there? And then with tobacco, I was just hoping to kind of get your thoughts on -- with larger crops and softer green leaf pricing, as the new crop shipments continue to ramp, what are your thoughts and how confident are you on pricing discipline and margins through the back half of the year?

Thanks, Daniel. I'll start with Ingredients. Yes, that's -- with that new facility that we've enhanced the capabilities and the investments for our campus for our extracts business. The goal is to fill that facility and to build scale, not just there, but across the platform. And we are off to a good start from where we were just a year ago, ribbon cutting. I'm very pleased with the progress we've made to grow revenues, to get volume through there and to maintain and increase an active pipeline.

A lot of that pipeline conversion is a long process, and it's a slog that our team fights on a daily basis. First, proactively making sure we're reaching out to customers to understand what their needs are, to meet with those customers and offer them the products and solutions that they need, as well as understanding their evolving needs and future needs and what can we produce for them that they may not use today, but they'll use in products going forward. And all of those projects in the pipeline move at different speeds. And we're very pleased with how we're converting the pipeline, how we're growing our products and our sales. And we're building scale. And yes, we've got to cover those additional costs, and that will take time. But as those product interest and pipeline interest turn into volume, I'm confident that we will continue to increase our scale, increase our volumes and sales, and we'll be able to cover those costs going forward.

On the tobacco side, I'm very comfortable with where we are in the year. I'm very comfortable with what I see for the second half of the year for this year, certainly because we don't buy on a speculative basis. Our uncommitted inventory is low at 13%. And we have lots of tobacco we need to ship for the second half of the year. But I'm confident in our ability to convert that. It's going to be subject to timing on shipments. And assuming there's no unforeseen market disruptions, we'll get those shipments out.

And I'm comfortable with pricing. I talked about green pricing, really large crops this year. Green pricing, as I mentioned, has softened in certain markets, but it's been a little bit of a variety in the different markets. Some markets have softened a little bit, some are stable from where they were last year. Some might even be up. Some markets were down, and then at the tail end of the buying season, they went back up, which is really a reflection of that -- still that firm demand. And with that firm demand and still pretty stable pricing, I'm very comfortable with where we're going. We just have to see how shipments end up throughout the third and the fourth quarter.

Your next question comes from the line of Ann Gurkin of Davenport.

So I wanted to start with the Ingredient segment. I'm surprised by the loss in the second quarter. I understand the reasons. So my first question is, you touched on a little bit about conversion and the pace of conversion from the customer interest versus your internal expectations. And is it a factor of end markets slower, customers are more challenged, maybe waiting to see how inventories are going to align or sales are going to align? Can you just talk about kind of the pace of conversion?

Sure. Yes, it's -- I think all those factors you mentioned impact the platform. Across the board, not just one part of our platform. And I'm very pleased with how we've navigated that through the quarter, through the first half, where we've had top line growth in a market that's really been difficult for CPG companies and lots of people in the industry to achieve growth with the types of headwinds that are out there.

And some headwinds might affect us directly, like tariff, for example, on raw materials that we might bring in. And some are impacting us indirectly. If they're impacting our customers, then they potentially impact us. And we've seen some of that in the quarter. Our teams on the ground are very experienced in managing procurement and particularly with our dry vegetable ingredient company, navigating tariffs, which they've done in the past, balancing their procurement strategies and their inventory strategies to try to service their customers while also trying to protect margins and returns.

But overall, for the project pipeline, that's hard to predict because everything is moving in sort of different speeds. Some things -- because of our broad kind of product portfolio, some things a customer needs are core products that we've got. And it might be something like vanilla. And with vanilla, vanilla pricing is an all-time low for the raw product. And so we might have very good margins on vanilla. But on a dollar basis, those are down because the raw material is down.

Other areas, there might be opportunities for us to sell a product to a customer that's core for an existing line of our business, but we can add sales of other core products from other existing lines of our business through our platform commercial sales and having some commercial synergies across the platform to grow sales that way. And then for value-added products, some are new products to customers, some are existing products that we are trying to transform with additional products in the portfolio to make a value-added blend for customers. And if it's switching out an existing product that they're getting from another vendor to us, that might work at a certain pace. If it's a new product that we've offered that they aren't getting from somebody else and it's a customized solution that we're providing, that might take longer to get through the pipeline. So it's hard to convert the pipeline into weeks and months and years of conversion. It's a real mix. And the current environment does factor into that for our customers. If it impacts our customers, it potentially impacts us.

Great. So for the year, for Ingredients, can you deliver profits in line with what you delivered last year?

Yes. I think this year, I'm very happy with where we are for the first half. I'm very pleased with what I see moving forward and the work and the effort that's getting -- that's going into it. I'm very happy with what we've built and the resources that are helping us grow on the top line.

We still have significant costs to cover. And as we've said, we're always focused on growing scale to cover those costs across the platform, not just for our Shank's expansion investment. So we're going to have to wait and see for the rest of the year how market conditions change, how the headwinds change, tariff variability. Are there going to be changes with the Supreme Court ruling and tariffs? What's that going to impact for our customers? How are they going to change their ordering and buying strategies? So it's still early in the year to figure out where we might be for Ingredients by the end of the year.

Great. Okay. Switching to Tobacco. Nice to see a stronger-than-expected quarter and margin than we were looking for on the Tobacco segment. And the end market demand or customer buying was stronger than we would have thought given the movement of the industry into balanced or slight oversupply situation. So I was wondering how much of the quarter upside in Tobacco was due to earlier shipments. Can you quantify that number?

We don't quantify the number. We did have accelerated shipments, and we still -- with larger crops and still firm demand, we still have a lot of tobacco left to ship in the second half. So again, with -- as always, shipping can impact quarter-to-quarter and fourth quarter into the first quarter. But we're very pleased with where we are and really optimistic for the second half of the year.

So the decline in the uncommitted inventory from, I think it was 20% last quarter to 13% this quarter, was that accelerated shipment? Was that all pulled forward in this accelerated shipment number? Or is there some other factor in that decline in uncommitted tobacco leaf inventory number?

And that's methodology, right? At the end of the day, depending on how you do it, but we want to be consistent. So year-over-year, that's the way we do it, quarter-by-quarter. So no, that's not really reflective of that. We're really happy with the 13%. And clearly, we're sitting on the slug of tobacco, inventory is still up. So we expect to ship a lot of that in the next 6 months.

Great. And for the full year, where do you anticipate that uncommitted inventory number being? Do you think you'll stay within your comfort range?

I think -- well, I think we'll stay within the comfort range. We're in the comfort range right now. Yes, there's still a lot to go, depends on shipping timing, making sure we get customer shipping instructions early enough to get it out for the year. But because we don't buy on a speculative basis, we are very comfortable with current levels and where we're going. But we do communicate on almost a daily basis with our customers to make sure that the tobacco ships as we end the year going into another year of large crops.

Great. SG&A was lower than we were looking for. Should we use that number in the back half?

You know well as anybody, Ann, that it all depends on a bunch of variables there. Even between the quarter and the 6 months, there were some things that were different. We had some favorable FX variances on one side, and then we had some other things going on. So it really depends on what the back end of the year brings, and we'll go from there. But there is just a lot of variables out there, exchange rates, what are they going to do going forward. We'll have to see.

And the same question for interest expense.

Interest expense, we're really trying to bring down that leverage. I think we -- year-over-year, we have done a good job there. It all depends on how quickly can we ship this tobacco and bring down that leverage even further.

Great. And then do you have a worldwide uncommitted leaf inventory number?

Yes. So the worldwide estimated unsold flue-cured and burley. Stocks were at 101 million kilos as of September 30, and that's up 76 million kilos from June 30 of this year.

Is that because of large oversupply?

Because of the large crops, right?

Yes, large crops.

Crop, sorry, large crops?

Yes. Yes, ma'am.

There are no further questions at this time. And with that, I will turn the call back over to Preston Wigner for final closing remarks. Please go ahead.

Thank you all for taking the time to join us today. We look forward to connecting again for the third quarter fiscal year 2026 earnings call.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Corporation First Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to Wushuang Ma, Vice President and Treasurer. You may begin.

Good morning, and thank you for joining us. With me today are Preston Wigner, our Chairman, President and CEO; and Johan Kroner, our Chief Financial Officer.

During the course of this call, we will be making forward-looking statements that are based on our current knowledge and some assumptions about the future. They 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 forward-looking statements, and we assume no obligation to update any forward-looking statements, except as required by law. For information on some of the risks and uncertainties related to these forward-looking statements, please refer to our reports we filed with the SEC and under cautionary statements regarding forward-looking statements in our current earnings press 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 may also include certain non-GAAP financial measures. For details regarding these measures, including a reconciliation of these non-GAAP measures to the most comparable GAAP measures, please refer to our current earnings press release and other public materials.

This call is being webcast live and will be available for replay on our website through November 7, 2025, and via telephone through August 21, 2025. This call is copyrighted and may not be used without our permission. Other than the referenced replay, we have not authorized and disclaim responsibility for any recording, replay or distribution of any transcription of this call.

I would like to now turn the call over to Preston.

Thank you, Wush. Good morning, everyone. Thank you for joining us today. We are off to a good start to our fiscal year. On a consolidated basis, operating income increased $17 million to $34 million for the first fiscal quarter, while revenue was down slightly to $594 million for the quarter.

Our Tobacco Operations segment delivered improved results driven primarily by favorable product mix, which offset lower tobacco sales volumes. Seasonally, our first fiscal quarter tends to be our smaller quarter. Tobacco sales volumes in the first quarter are generally driven by shipments of carryover tobacco from the prior fiscal year. Given strong customer demand last fiscal year, we shipped significant volumes of tobacco earlier in the prior year. As a result, carryover tobacco shipments and tobacco sales volumes were lower in the first quarter of the current fiscal year compared to the same quarter last year.

Flue-cured and burley crop sizes are significantly larger this fiscal year, and green tobacco purchases are largely completed in Brazil and Africa. Although it is still early, we expect the flue-cured and burley tobacco will move to more balanced supply positions during the fiscal year. Given the current expected crop sizes, we believe it is likely that flue-cured and burley tobacco will be in oversupply positions by the end of the fiscal year.

Customer demand has remained firm despite larger crops, and we believe this is a result of several years of short tobacco supply. At the end of June, our uncommitted tobacco inventories were low at about 11% of total tobacco inventory.

Turning to our Ingredients Operations segment. We maintained positive momentum in the first quarter of fiscal year 2026, with revenues and sales volumes both up in the quarter. Operating income was lower in the quarter. Segment results were impacted by a less favorable product mix, tariff uncertainty impacts on demand and higher fixed costs associated with our recently expanded production facility.

As we work to fill our new facility, we continue to see interest in our new value-added products. Supported by a foundational customer for our expanded facility, we are focused on converting additional interest from both new and existing customers into increased volumes and margins.

I will now hand it over to Johan to provide details of our financial and operational performance. After which, I will offer additional thoughts and open the call for questions.

Thank you, Preston. Good morning, everyone. As Preston mentioned, we are off to a good start to our fiscal year 2026 with improved results from our Tobacco Operations segment and higher revenue and sales volumes in our Ingredients Operations segment.

For the first quarter of fiscal year 2026, sales and other operating revenues were $593.8 million as compared to $597.1 million for the same quarter last fiscal year. This was a slight decline of $3.3 million, mainly due to lower sales of carryover crop tobaccos.

Operating income for the quarter was $33.8 million as compared to $17.2 million for the same quarter in the fiscal year 2025. The increase of $16.6 million was due to a favorable product mix in the Tobacco Operations segment. SG&A expenses were $79.2 million during the quarter compared to $78.7 million for the same quarter last year, an increase of $500,000 primarily due to higher compensation and legal and professional fees, which were largely offset by favorable foreign currency comparisons and lower tobacco sales commissions.

Net income attributable to Universal Corporation was $8.5 million for the first quarter or $0.34 per share on a fully diluted basis as compared to $100,000 or $0.01 per share for the same quarter in fiscal year 2025. Adjusted net income, which excludes certain nonrecurring items, was $9.6 million or $0.38 per share on a fully diluted basis for the quarter as compared to $100,000 or $0.01 per share for the same quarter last year.

Segment operating income for the Tobacco Operations segment was $35.7 million in the quarter as compared to $14.5 million for the same quarter last year. The increase of $21.2 million was mainly due to a favorable product mix in Asia.

Segment operating income for the Ingredients Operations segment was $1.7 million for the quarter as compared to $2.9 million for the same quarter last year. The decrease of $1.2 million was due to less favorable product mix, some curtailed demand due to tariff uncertainty and higher fixed costs including depreciation from our recently expanded Universal Ingredients production facility. The corporate overhead allocation to the segment was also higher in the quarter.

As of June 30, 2025, our net debt, which is defined as the sum of notes payable, overdrafts and long-term obligations, including current portion plus customer advances and deposits less cash and cash equivalents was $1.1 billion, $47 million lower than as of June 30 of last year. We are focused on continuing to maintain a strong balance sheet and conservative debt levels.

I would like to now turn it back over to Preston.

Thank you, Johan. It is still early in our fiscal year. Uncertainties remain for the rest of the fiscal year, including our customers' procurement strategies and tariff impacts. We believe those challenges can present us with opportunities. Our global diversification, long-term customer relationships and local expertise will position us well to capitalize on those opportunities.

Our leaf tobacco team is experienced in managing changes in market conditions. We will continue pursuing opportunities to maximize and optimize our tobacco business, including offering and providing additional services to our customers. At the same time, we are dedicated to continuing our Ingredients segment's momentum. We are focused on driving organic growth, capitalizing on our investments in Universal Ingredients and converting customer interest into product sales. Our expanded facility added an industry-leading combination of extraction, blending, aseptic packaging and other capabilities to our segment. With our investment in sales, marketing and product development teams, we are creating value across the entire Universal Ingredients business and delivering unique customized products to our customers.

I also want to take a moment to acknowledge a recent leadership announcement. Johan will be retiring from his role as Senior Vice President and Chief Financial Officer after more than 30 years with Universal. He will remain with the company through July 1, 2026, to support a seamless transition. We thank Johan for his dedicated service and we value the financial discipline he has instilled across the organization. I look forward to working closely with Johan for the next year.

Finally, I'd like to highlight our ongoing commitment to sustainability. At Universal, we believe sustainability is good for business and it gives us a competitive advantage. It also represents good stewardship in the communities in which we operate. We recently completed our annual third-party assessment and verification of Scope 1, 2 and relevant Scope 3 emissions. This assessment is part of our broader emissions reduction efforts. It ensures alignment with established standards and provides transparency into our emission reduction efforts.

It also helps us calculate the impact of projects, like our newly commissioned biomass boiler in Zimbabwe. Once operational, this new boiler will hope reduce coal use over time and contribute to our goal of net zero greenhouse gas emissions in our value chain by the year 2050. Universal will continue integrating sustainability into our operational decision-making.

Operator, please open the floor for questions.

[Operator Instructions] And our first question comes from the line of Ann Gurkin with Davenport.

Congratulations on a very solid start to your fiscal year. Nice to see. I was wondering if we could start with a conversation surrounding tariffs, both on tobacco and ingredients business. I guess, starting with tobacco, leaf imported into the U.S. from Brazil, I think, would represent maybe 5% to 10% of tobacco sales for you all. Is that in the ballpark? And how should I think about navigating the tariff situation, uncertainty, ability to pass along tariff costs to customers? Any kind of insight you can share on the tobacco tariff situation?

Sure. With respect to Brazil imports, I think those imports over the years, let's say, they're around 35,000, 40,000 tons per year, which is a small portion of the total Brazil crop. And our portion of that is relatively small.

On the tobacco side, a large majority of our business is obviously outside the United States. So it's not a significant impact for imports in and out of the United States for us. Our diversified footprint and our broad customer base, they provide opportunities for us and solutions for our customers with tariff impacts.

For our U.S. customers, we can provide them with options if they need to shift purchases from high tariff origins like Brazil, including selling them U.S. tobacco. And where we have tobacco in high tariff origins, we have a very broad global customer base and we move that tobacco to them. Tariffs are still fluid. They continue to be monitored, and we remain in very close contact with our customers, both on the tobacco side and on the ingredient side.

On the ingredients side, our ingredients business also has flexibility. We evaluate and alter our buying strategies to account for tariffs. And we import raw materials, for example, from China for one of our operations, and we did buy forward to mitigate the tariff impacts for those volumes that we bought.

We also work with our customers on their buying strategies to mitigate tariffs. We've seen some tariff impacts on customers demand that are arising from challenges in their own supply chains. And we've worked with those customers to understand the impacts of those supply chains and the timing of when they can increase their purchases from us. And we work very closely with both our tobacco and our ingredients customers in those tariffs. And if tariff costs are included in the pricing, then they're included in the pricing, but we certainly try everything we can to work with our customers to mitigate those impacts of tariffs to avoid those situations.

So overall, our global footprint and our customer base, broad customer base and really solid customer relationships, they're going to help us pursue these opportunities that tariffs are going to create, and we're really well placed to take advantage of that.

Great. That's very helpful. I appreciate it. Sticking with tobacco, nice margin in the first quarter. I understand the positive contribution from the mix from Asia. How should I think about -- or can you help me think about margin projection in the second half of the fiscal year, reflecting customer orders and pricing and mix? And how should I think about that margin really for the full year for the Tobacco segment?

Yes. Of course, as we mentioned earlier in the call, the first quarter is our seasonally low quarter. And so we certainly enjoyed an improved product mix for carryover sales for the quarter, but it's a small quarter for us. Looking ahead, we have been very happy with how things have progressed. We have largely completed purchasing in Brazil and Africa and those crops are very large, and we expect very large crops all around the world. And with that, we would expect pricing to come down despite that firm demand to date. So that could create margin pressure that we would monitor and work with our customers.

Additionally, if we're handling larger volumes through our factories with those larger crops, that also helps reduce our per unit costs in our factory. So we're very happy with where we are today with our uncommitted inventory levels and with the more traditional buying patterns that we've seen especially in Brazil versus what we've seen in the prior season with the accelerated buying everything all at one grade. That gives us options to satisfy our customers' needs while also protecting the margins that we recognize for the value that we bring to our customers. There's a value doing business with Universal.

So it's still really early in the season. There's still a lot of tobacco to buy. There are markets that still are opening. And we're going to continue to monitor those dynamics in those markets and work hard with our customers to maintain good communication with them and to protect the value that we bring to them.

Super. And have you been able to increase services or market share with customers?

Yes, that's certainly a goal of ours. That's part of our corporate strategy of maximizing and optimizing tobacco is to increase volumes, increase market share and take advantage of opportunities to increase the services we provide for them. I'm not going to talk about any customer in particular, but we're very happy with where things are going so far early in the year. And we see benefits. We still have a long way to go for the year. But we're on the right track, and we're optimistic.

Super. And then maybe an update on the progress of the U.S. tobacco leaf crop?

Yes. U.S. tobacco crop is large. It's more of a traditional crop. Buying is really just beginning. So it's really sort of early in the process for that. They've had very good weather conditions. So it should be a really large crop in pretty good quality.

Super. Switching to Ingredients. So the margin was lower than we would have thought in the first quarter and you've outlined the challenges faced by that segment in the first quarter. I guess also the same question. If you look out to the back half, we had operating margins for the full year for Ingredients in the mid-single-digit range, and that seems aggressive given what we've seen in the first quarter, some customer challenges, specific customer challenges, maybe reduced purchases and forward purchases that shifted into Q4 last year. I guess, can you help me think about that margin progression, where it could end, land at the end of fiscal '26, please?

Yes, there are certainly a lot of moving pieces with that. We're very happy with the momentum from increased revenue and volume, and we continue to make progress with our ingredient strategy. We're focused on continuing to increase volume of the value-added products, especially through the new Universal Ingredients, Shank's expanded facility to increase sales and achieve returns on those investments.

We did have those additional costs that impacted the first quarter, performance in margin, and our goal is to keep increasing volume through the facility as well as across the entire platform to reduce those per unit costs and provide us more opportunities to increase margins. It's a similar story on the tobacco side with increasing volumes going through our factories.

We continue to see interest in the value-added products and capabilities, and we're absolutely dedicated to converting them with existing and new customers from existing business, new business, pipeline business to additional volumes and improved margins.

And you've set a terrific investment in the new facility, as you referenced, Shank's, and then the new capacity at the Shank's facility and the investment in added sales force. So you've set a platform to drive these higher revenues, and that is very exciting. I guess are you experiencing customer wins? Are you experiencing increased business that should help -- that you should be able to leverage those investments?

We certainly see those investments as key to our strategy. And in terms of what we saw in the first quarter with those types of headwinds, there are some tariff impacts, for example. We think we can work through with our customers. I believe some of that will end up being a timing issue for them if they've had tariff impacts in their supply chain versus tariff impacts with us with our one facility where we're bringing in raw material from China.

But we have -- we've built this platform, and we've invested in those R&D, commercial marketing resources and invested in expanding capabilities, not just in the Shank's facility, but in others. To give us that opportunity to provide platform products, leveraging the entire platform for customized value-added products for our customers, we are well set up for that. And now, it's a matter of executing on our plans, executing on our commercial strategies to increase those volumes and get pipeline projects from the pipeline to the factory floor and running volume for those factories. We're very pleased with our strategy, with our momentum, and we're going to continue pushing hard for the rest of the year and the years beyond to keep increasing volume.

So do you think that margin can increase in the back half of the year for the Ingredients segment versus Q1?

Yes. We have work to do to continue to execute on our strategy and to get things out of the pipeline. Some pipeline projects take months, some might take a year, and they're all in different phases. I'm optimistic for the rest of the year that we would continue to execute on our strategies and continue to drive volume growth and then have the margin opportunities as we continue to increase our volumes. It's a lot of work, but we feel like we've got the right investments and the right teams and the right relationships with the customers and the right strategies to make that happen.

Great. Well, we'll see how the year plays out. Best wishes to Johan and his retirement. That's fantastic. Any update on the announcement of a successor in terms of CFO?

No. We have initiated the process, but no announcements to date. We will keep everybody informed, of course.

Great. And then I always ask about the use of cash. Any updates there?

In what sense, Ann?

Are you still there?

Technical Difficulty. Give us one moment. [Technical Difficulty]

And we will proceed to our next question comes from the line of Daniel Harriman with Sidoti & Company.

Congrats on the quarter. I've got 2 questions this morning, and I understand you already hit on both of these in the prepared remarks and then the prior questions. But just for educational purposes, as someone newer to the story, at a high level, could you just walk us through how seasonality and crop carryover typically affect results as the year progresses? Obviously, we know the impact from the first quarter. And then with the oversupply expected in the market, I was just hoping you might be able to comment a little bit on how you're managing that risk of the oversupply while maintaining pricing and inventory discipline as the year goes on.

Sure, Daniel. I think for carryover for us, a lot of that is timing, a lot of that is mix. It varies year-to-year. And again, with the first quarter being our seasonally low quarter, we're doing less selling and more buying. Small changes in mix, small changes in volume for carryover can make a big difference for the quarter. For us, with the short crops for the past few years, we haven't had much carryover to carryover. Just like last year, as I said in my remarks, there was such high demand. We shipped product earlier in the year, and we just had less carryover to sell into the fourth -- into the first quarter.

In addition, because uncommitted inventories were so low at the end of the year because it was an undersupplied situation. We didn't have the flexibility that we like with additional uncommitted inventory to be able to make sales towards the end of the season or the end of the year for opportunity purchases with our customers. And now as we move into a more balanced supply, and then as we said, likely oversupply by the end of the fiscal year, the key for us is access to tobacco.

If we can access tobacco, we believe we can sell it, given our strategies and our competitive advantages. Our diversified footprint gives us access to all the necessary crops to meet customer needs and our strong relationships with our customers and our close communication with them help us to really mutually navigate market dynamics, shifting from smaller crops and undersupplied to larger crops and balanced or oversupply, those should logically reduce costs, create attractive opportunities, and they should reduce our working capital requirements. And as I mentioned earlier, we also benefit from increasing volumes through our factories, which reduces our per kilo cost.

We generally prefer balanced to slight oversupply markets for all of those reasons. And we believe we have competitive advantages that make us a really valuable partner for our customers, especially in these changing market dynamics. It provides us more access and more flexibility to meet all of our customers' evolving needs. And what's also really key for us to remember is that we don't buy tobacco on a speculative basis. We buy it with an understanding of what we believe our customers' needs are so that when you do get into oversupply markets, because we don't buy on a speculative basis, it mitigates that risk that we would end up a year with a lot of uncommitted inventory.

And as oversupply continues, what you traditionally see is prices, green prices to the farmer drop year-over-year until you get back into balance. And what we're very careful about is understanding what tobacco we have in inventory, how we're going to move it so that we don't end the year with large volumes of expensive tobacco going into another oversupply season.

So we have -- there are some unique things for this current change in the market dynamics. We're going from historically high green prices that we just have never seen before. But our teams around the world, we're very experienced in dealing with changes in dynamics. These aren't the first times we've seen shifts from undersupplied to oversupplied to balanced supply. And again, based on our global diversified footprint, the advantages that give us, the flexibility that gives us, our strong teams on the ground who are experts in buying tobacco, how to buy it, when to buy it. We think we're very well set up to take advantage of that and to help our customers and also to retain the value that we see in doing business with us.

Great. That's really helpful. And I appreciate your willingness to kind of take a step back there. But congrats on the quarter and best of luck moving forward.

And we would like to call out Ann Gurkin for any additional questions.

I just wanted to follow up on the use of cash. I know you have an outstanding share repurchase program. And I know you use it for investing in working capital needs and ingredients business, although it sounds like you're going to grow that organically more at this point. That was my question.

Yes. And the repurchase and the $100 million that we have out there, we just renewed that and we just have it out there just in case the opportunity arises in any of the situations that you just mentioned. So currently, there are no big plans there, but because we have lots of other things to look at. But yes, it is out there just in case we need it.

There are no further questions at this time. I would like to turn the call back over to Preston Wigner for closing remarks.

Thank you, Desiree. Thank you all for joining our call today, and we look forward to speaking to you for our next quarter. So have a very good day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.