UVV earnings call transcript, November 4, 2026

Thank you for joining us, and welcome to the Universal Corporation Second Quarter Fiscal Year 2027 Earnings Call.

After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now... hand the conference over to Wuxma, Vice President and Treasurer. Please go ahead.

Good morning and thank you for joining us. With me today are President Wagner, our Chairman, President and CEO. and Steve Deal, 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 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, this refers to the reports we filed with the ICC and under cautionary statements regarding forward-looking statements in our current earnings price release. Finally, some of the information we have for you today may be based on unaudited allocations. may be subject to reclassification. Our comments today may also include certain non-GAAP financial measures. For details regarding these measures, including reconciliation of these non-GAAP measures to the most comparable 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 5th, 2027.

Thank you, Woosh.

Thank you, Preston.

Thank you, Steve.

Thank you again for joining us today. We'll now open the call for questions. We will now begin the question and answer session. If you would like to ask... To ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimal... sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Hey guys, good morning.

Thanks so much for taking my questions. I'll start out with two today and then get back into the... But firstly, obviously the first half this year looks quite different from what it did last year and you talked about that in the prepared remarks. But just overall, can you give us an idea of how we should think about a normal split between... your first and second half of the year, just so that neither this year nor last year gets mistaken for the baseline. And then you talked a little bit about El Nino, and I'm just curious if you could quantify maybe how big of a tailwind that could be. Customers end up buying earlier to get ahead of next year's weather risk, and do you think it would help pull down your uncommitted inventory below the 19% that you reported?

Thanks so much.

Good morning, Daniel.

I'll cover your first question first, and it's a good question. Normal is more challenging to define these days because the impacts of supply and demand market cycles. Weather impacts and the other uncertainties that we've seen just since COVID, but if you smooth all that out over time, there's a general annual cyclical pattern to our business. That shows that our sales and our results are heavily weighted to the second half of our fiscal year. The first half of the fiscal year is a period in which we've got funds in the crop as we move through buying tobacco and large. regions like south america and africa processing the tobacco and then starting to ship that tobacco sometime in the second quarter. And as a result of that uncommitted inventory levels follow that commercial flow also. That second half of the year is focused on finishing processing which is primarily wrapping up in our third quarter and then shipping that tobacco to our customers which occurs through the third and the fourth quarters. With that annual. Flow in mind. That's why our sales and results are heavily weighted to the second half of the fiscal year in a normal annual cycle. So your next question could be. So that's great.

You know, what prior year should I choose as the baseline on which future performance should be measured? And I can't give you one because there isn't one. Any of those different factors I mentioned earlier are occurring. Each year. And some of those factors are occurring at the same time in years. In addition to that, which is really important for our business, quarterly and annual results can be impacted by shipment timing. The timing of shipments generally follow the flow I just mentioned, but shipments can move between quarters and that mix of what's being shipped with different shipments having tobacco carrying different margins that can also. Impact performance. And in those shipments, if they slip from the second quarter to the third quarter, or the third quarter to the fourth quarter, they can provide movement quarter to quarter, but they end up in the annual. Results. So shipments that slip from the fourth quarter into the first quarter, which is what we call carryover tobacco in the industry, that can have an impact on the fourth quarter. But a bigger impact on the following first quarter. And the reason the impact is bigger is exactly where I started with our normal cycle. Our first quarter is a quiet sales quarter. So more carryover. Less carryover in a first quarter can create a large percentage swing in the results of the first quarter. So this year, for example, we had less carryover and a different mix of carryover in our first quarter than we did last year's first quarter.

And this second quarter, everything was delayed due to the delayed market cycle. So we had less sales this quarter than we did last year's quarter. That's the reason our first half results this year are different than last year, based on our customer commitments. Today, and the fact that we're in line with our fiscal year sales plan, as evidenced by our reduction in our uncommitted inventory level, that's why we didn't sell in the first half what we sold in the second. Starting in our third quarter. So that's sort of the reason for the delay this year. That's why this year versus last year swings, why it's difficult to say how this, our type of business is going to. Follow a normal cycle year to year. But overall, that normal cycle is heavily weighted to the second half of the year. And then, you know, things that could also impact, which is your second question, those different market dynamics. That I talked about earlier. You know, how do they impact it? And El Nino is one. And potential tailwinds with El Nino, with this emerging interest from customers who are thinking about El Nino impacts, you know, the impact. For those additional sales opportunities, it's hard to judge today. You know, we've seen interest from customers that are considering buying additional volume through the current crop inventories and hedge against those possible El Nino. Impacts. And although uncommitted inventory is reduced, we do see opportunities to sell inventory that we have on hand in the second half and to support our customers' purchase plans and strategies.

But it largely depends. On what customers need, what grades are available, and when they want to purchase it. And we'll be able to talk more about that in our next quarter. Because today, based on our experience and the estimated timing of El Nino Impacts, we certainly understand how it can impact crops in our origins, which origins should experience wet conditions, which ones will have drought conditions, which stage of the crop is likely to be impacted, and how those factors could impact crop size and quality. And we've seen these wet weather events before and our deep experience and strong regional local teams give us that solid framework for how we plan with our farmers and with our customers. But we're just now entering the period where we can better more accurately assess the actual severity of this El Nino and how it's going to impact the key origins we have around the world. So as part of our ongoing communications with our customers, as part of the survey, as we provide to our customers, we have discussions about possible crop size and quality risks in the upcoming crop. And during this quarter, we're going to continue those discussions with a more tailored perspective on what the likely impacts will be. as we start to see them evolve during this month and next month. So with that in mind, customers who are interested will likely balance their desire to buy tobacco now.

against waiting to better understand the full impact on the crop and buy it later, but with the risk that the inventories on hand today might be sold to someone else by then. And they also need to factor in the timing of when they want to receive that tobacco. They want to buy it, given their existing shipping plans for the large volumes we're shipping in the second half. So as as we go through this quarter, we'll have a better sense of how that's playing out. There are tailwinds that we could see. With additional sales this quarter, but it's a little early to say exactly what those could be, quantify them until we really understand what our customers are really going to do with that planning and coordination and collaboration with us. Daniel, this is Steve. Maybe to put a little bit of data around that question on the $1.74 last year versus this year, looking back last year with that number and then the year before, which was $1.46 through the first half. Both of those were accelerated in light of what we would typically see. If you were to go back to five years before that, so fiscal 2020 through say fiscal 2024, you would see kind of first half EP. Yes, adjusted EPS ranging from anywhere from 40 cents to $1.19. So kind of think about averaging, you know, a little over a dollar a share. So this year has certainly seen that delayed. In the EPS. But yes, to your point, comparing to last year's $1.74 is not valid when you look back historically.

That's really good color, guys. I appreciate it.

Thanks so much.

Your next question comes from the line of Ann Gherkin with Davenport.

If you would like to ask a question, please press star 1 to raise your hand.

Thanks, Kenneth.

This concludes today's call.

Thank you for attending.

You may now disconnect.