Prepared remarks
Good evening, and thank you for joining us. Preston Wigner, our Chairman, President and CEO; and Johan Kroner, our Chief Financial Officer, are here with me today. Our agenda is for President Johan to provide an update on our fourth quarter and full year fiscal 2025 operating and financial results and share some strategic thoughts about the company. We will then open up the call for questions. 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 and 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 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 August 28, 2025. Other than the replay, we have not authorized and disclaim responsibility for any recording, replay or distribution of any transcription of this call. This call is being copyrighted and may not be used without our permission. I would like now to turn the call over to Preston.
Thank you, Wush. Good evening, and thank you for taking the time to join us today. I am new to the CEO role, but not new to Universal, having joined the company over 20 years ago. Over the last 20 years, I've seen many stages of our company's evolution, complete with both triumphs and challenges. Our ability to adapt to change and to turn challenges into opportunities have helped shape Universal into the company that we are today. I'm honored to lead such a strong company and excited about the opportunities ahead of us. Our fiscal year 2025 was a good example of how our teams around the world adapted to change and executed our strategies. We had an exceptional fiscal year with revenue and operating income 7% and 5% higher, respectively, versus our strong fiscal year 2024. We navigated weather-impacted tobacco crops in certain origins and historically high green tobacco prices, while at the same time, we continued the development of Universal Ingredients, our plant-based ingredients business.
We are also pleased to have declared our 55th annual dividend increase. Our quarterly dividend of $0.82 per share equates to an annualized rate of $3.28 per common share. This reflects our ongoing commitment to returning value to the shareholders through consistent performance and operational excellence. As we will discuss today, fiscal year 2026 is well underway, and it will present new challenges and changes for us. If we can continue to execute our business strategy, I believe we can once again navigate those changes and challenges and pursue the resulting opportunities and continue to strengthen our company for the future. Our business strategy focuses on three pillars: maximizing and optimizing our Tobacco Operations segment, growing our Ingredients Operations segment and strengthening our organization. First, in our Tobacco Operations segment, we continuously look for opportunities to increase our sales volumes and market share, expand services across our customers' supply chain, participate in the evolution of next-generation products and pursue efficiencies in our operations.
Universal provides unparalleled access to tobacco that is supported by our farmer relationships, agronomy expertise and sustainability practices and backed by our investment-grade credit rating and access to financing. We are capable of handling all varieties of tobacco, commercializing all stock positions and sourcing and supplying from all major leaf tobacco exporting regions. Reliability, service and predictability are all the hallmarks of our tobacco business. As our customers look to optimize their capital allocation and seek supply chain efficiencies or to expand their next-generation product business, we believe that we have an ability to play an increasingly important role in supporting them while generating additional earnings. I believe that our geographic diversity, local expertise developed through decades of hand-in-hand work with farmers and suppliers and global relationships with multinational customers are the keys to our ability to continue to generate stable cash flow and deliver a unique value proposition for our shareholders.
Turning to our Ingredients Operations segment. We intend to seek opportunities to grow Universal Ingredients, both organically and through measured acquisitions to provide our customers with a solution-based portfolio of value-added product offerings. Since we set our strategy in 2018 to build a plant-based food and beverage ingredients business, we took a proactive but deliberate approach in recruiting a management team, making acquisitions and setting and executing commercial strategies. We paced ourselves as we integrated the three acquisitions to form a coherent platform, and we made key investments in expanding platform capabilities and capacity. As a result, operating income grew in fiscal year 2025 despite broader headwinds in the consumer products market. And the platform has given us a firm foothold in a very deep multi-segment market. We strive to leverage our strong reputation for quality and service as well as our long-standing relationships with customers to be a premier player in this space.
The third pillar of our strategy is strengthening our organization. As a corporation, we will pursue strategies and initiatives designed to support and strengthen our operations for the future. These strategies and initiatives will focus on areas such as efficient financial management, effective human capital management, optimal utilization of technology and operational synergies between our business segments. Ultimately, our goal is to position Universal for long-term success and value creation, and I look forward to sharing more about these initiatives in the quarters to come. I cannot talk about our strategy without talking about our strong regional and local management teams around the world. While our operations span five continents and over 30 countries, the coordination between our executive management and our regional and local management teams makes our decision-making quite nimble.
We are not afraid to make the right calls like when we and our South America management team decided to accelerate green tobacco buying in Brazil last year. That decision temporarily increased the level of debt on our balance sheet, but established a favorable cost position and secured the green tobacco needed to supply our customers in a very tight weather-impacted market. These types of decisions and the ability to execute on them are key to our success. I'd like now to hand it over to Johan to provide details of our financial and operational performance, after which I will have a high-level outlook for fiscal year 2026 and share a few additional thoughts.
Thank you, Preston. Good evening, everyone. As Preston mentioned, Universal just delivered exceptional results for the full year of fiscal year 2025. Within the fiscal year, we saw accelerated timing for tobacco shipments to some customers, which shifted some sales volume from the fourth quarter to earlier in the year. The results for our fourth quarter, therefore, reflected the effect of such timing shifts. For the fourth quarter of fiscal year 2025, sales and other operating revenue were $702.3 million as compared to $770.9 million for the same quarter in fiscal year 2024. The decrease in revenue was mainly due to lower tobacco sales volumes as a result of the timing shift I just mentioned. Operating income for the quarter was $42.8 million as compared to $68.2 million for the same quarter in fiscal year 2024. The lower operating income was also mainly due to lower tobacco sales volumes.
Selling, general and administrative expenses were $9.5 million lower during the quarter as compared to the same quarter in fiscal year 2024, mainly due to lower compensation costs, a better currency comparison, but partially offset by higher legal and professional fees associated with the Mozambique embezzlement investigation. Net income attributable to Universal Corporation was $9.3 million or $0.37 per share on a fully diluted basis as compared to $40.3 million or $1.61 per share for the same quarter in fiscal year 2024. During the quarter ended on March 31, 2025, Universal completed a pension risk transfer transaction, which resulted in a one-time pretax pension settlement charge of approximately $14 million. Adjusted net income, which excludes certain non-recurring items, was $20.2 million or $0.80 per share for the fourth quarter of fiscal year 2025 as compared to $44.8 million or $1.79 per share for the same quarter in fiscal year 2024.
Segment operating income for the Tobacco Operations segment was $45.8 million for the quarter as compared to $73.5 million for the same quarter of fiscal year 2024. The lower segment operating income was driven mainly by lower sales volumes, partially offset by better pricing. Segment operating income for the Ingredients Operations segment was $4.4 million for the quarter as compared to a $1 million loss for the same quarter of fiscal year 2024. The higher segment operating income was driven mainly by higher sales volumes. For the full year of fiscal year 2025, sales and operating revenue were $2.95 billion as compared to $2.75 billion for fiscal year 2024. The increase in revenue was mainly due to higher tobacco sales prices, partially offset by lower volumes. Operating income for fiscal year 2025 was $232.8 million as compared to $222 million for fiscal year 2024. The increase was mainly driven by higher sales revenue, partially offset by higher green tobacco purchase prices.
SG&A expenses were $305.3 million during fiscal year 2025 as compared to $310.6 million for fiscal year 2024. The lower SG&A expenses were mainly the result of lower compensation costs and better recoveries on farmer advances partially offset by higher legal and professional fees associated with the Mozambique embezzlement investigation and higher sales commissions. Net income attributable to Universal Corporation was $95 million for fiscal year 2025 or $3.78 per share on a fully diluted basis as compared to $119.6 million or $4.78 per share for fiscal year 2024. Net income was lower, mainly as a result of higher operating income being offset by higher interest expenses, the aforementioned pension settlement charge and restructuring and impairment charges related to the consolidation and restructuring of our European sheet operations. Adjusted net income, which excludes certain non-recurring items, was $116.3 million or $4.63 per share on a fully diluted basis for fiscal year 2025 as compared to $127.1 million or $5.08 per share for fiscal year 2024.
Segment operating income for the Tobacco Operations segment was $240.2 million for fiscal year 2025 as compared to $222.4 million for fiscal year 2024. The higher segment operating income was driven mainly by higher sales prices, partially offset by lower volumes. Segment operating income for the Ingredients Operations segment was $12.3 million for fiscal year 2025 as compared to $3.9 million for fiscal year 2024. The higher operating income was mainly driven by higher sales volumes. Strong cash flow generated by this financial performance supported our effort to delever. Effective revenue collection efforts and a more normalized green tobacco buying pattern in Brazil for the crop currently being purchased also improved our working capital usage. As of March 31, 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 $817 million, $180 million lower than March 31 of last year.
Additionally, as of March 31, 2025, our accounts receivable balance was over $100 million higher than at the end of fiscal year 2024. We remain focused on prudently and efficiently managing our working capital to maintain a conservative leverage level and solidify our investment-grade credit ratings. I will now hand it back to Preston to discuss our outlook for the next fiscal year.
Thank you, Johan. Looking to fiscal year 2026. On the tobacco side, we see strong customer demand and industry uncommitted inventory remains at low levels. Per our estimate, excluding China, global flue-cured production is expected to increase this current growing season by about 20% and burley production is expected to increase by about 30% as compared to the last growing season. If these anticipated production increases are achieved, we believe the incremental availability of tobacco will move the market from the recent undersupply position towards a more balanced or slight oversupply position. On the ingredients side, during fiscal year 2025, we completed our major expansion project in Lancaster, Pennsylvania, which added an industry-leading combination of extraction, blending, aseptic packaging and other capabilities. We also invested in strengthening our sales, marketing and product development teams and focused on creating value across the entire platform.
The platform level support enables us to deliver unique customized products to our customers. Entering fiscal year 2026, we are energized by strong customer interest in these new innovative products as we shift our focus from platform building to organic growth. I would be remiss not to highlight some of our key accomplishments in sustainability as well. As the largest global leaf tobacco supplier that directly contracts with over 175,000 farmers around the world, sustainability has been deeply embedded in our DNA. To us, a strategic part of our business is our commitment to setting high standards, promoting a sustainable supply chain and providing transparency about our sustainability efforts. Sustainability is good for our business and represents good stewardship in the communities in which we operate. Finally, I'll end my remarks with a note about our prior filing delays related to our investigation in Mozambique.
I'm pleased that the investigation is complete and our filings have been made, and the embezzlement did not and is not expected to have any material impact on our financials. As an organization, we learned from the matter, and we implemented various initiatives to improve our processes and internal controls. We believe these incremental improvements will make us an even stronger and better company.
Questions and answers
Thank you. Your first question comes from Ann Gurkin with Davenport & Company. Please go ahead.
Good evening, everybody. It's great to talk to you all. Congrats to Preston. Congrats on completing the investigation or at least filing the appropriate paperwork. And congrats on a very excellent fiscal '25. I wanted to spend a few minutes thinking about fiscal '26 and see what you can share, beginning with SG&A. How should I think about SG&A for fiscal '26?
Ann, I'll take that. We can't provide forward-looking guidance on our SG&A run rate, but I can help you understand some of the components of our SG&A. Fiscal year '25 full year SG&A was about $305 million, down $5 million versus prior year. There were a couple of moving pieces, some one-offs. There's legal and professional fees, of course, were up related to the Mozambique investigation. And we had some costs associated with value-added tax settlement in '24. So there's always these moving pieces. Other variances may be related to some specific aspects of our operations. For example, we had higher recoveries of farmer advances during fiscal year 2025 due to strong market demand and pricing and some higher commissions due to a shift in customer mix. Please also keep in mind that foreign currency comparisons could also impact SG&A. Overall, as we look to strengthen and grow the corporation, we may invest in additional SG&A to build capabilities, while at the same time, we seek opportunities to drive efficiencies and reduce costs.
So are you going to have ongoing legal expenses that continue in fiscal '26 for the Mozambique situation?
Not with regard to the Mozambique investigation. No, that investigation has been completed.
That's complete. Okay. Great. Okay. Switching to tobacco, the margins are very strong, and it's a promising business for fiscal '25. In discussions with tobacco companies and customers, it appears that demand is robust. They are anticipating lower tobacco costs moving forward. This leads to questions about their inventory levels in contrast to the expected shift towards a more balanced global supply of tobacco leaf, given the forecasts. How should I consider the margins, pricing capabilities, and growth potential in the tobacco segment for fiscal '26 compared to fiscal '25?
You've pointed out the main concern. As we transition from undersupply to a more balanced market with expected larger crops and decreasing prices, we share this perspective with our customers. As these crops develop, we are actively engaging with our customers to gauge their needs as far in advance as possible. This helps us determine what we should grow with our farmers. However, it's uncertain how customers will manage their inventory. Will they replenish it, or will they choose to allocate resources elsewhere in their companies? This question is on the minds of some customers. It's still early in the season, and while we foresee strong demand this year despite the arrival of substantial crops, we believe lower prices will be beneficial in meeting customer needs. However, until we gain a clearer understanding from our customers regarding their inventory management, it remains challenging to fully gauge the level and scope of their demands.
Last year, we saw very low inventory levels, and while we had a historically high green price crop in many regions and shorter crops in places like Brazil, we successfully sourced the necessary tobacco despite higher prices. This year, they anticipate improved pricing, and we share that expectation. Yet, we need a clearer picture of their actual needs throughout the entire crop season, starting with Brazil, then moving to Africa and globally.
Great. Do you anticipate growing volumes for the tobacco business in fiscal '26?
It's going to depend on their plans for those durations. That's what matters to me. We saw a slight decrease in volume last year despite strong demand. Even though Brazil will have a much larger crop, it doesn't automatically mean that everyone will buy 20% more. We will have to wait and see. Some might opt for longer durations, while others may choose to manage tighter durations and count on us to provide them with options, especially later in the crop season when there might be excess tobacco available that we can purchase and assist them with, unlike last year when we faced undersupply in tight markets and couldn't always help.
If I may add, Preston, assuming everything remains constant and crops are larger, we will purchase our share. However, we do not engage in speculative buying. This is where the customer aspect plays a critical role. Typically, we buy our share based on the contracts we have with the farmers. If the farmers produce more, that is what we will purchase, but we will also have some additional tobacco available. It's at a lower cost, which will provide us some benefit. We do anticipate a slight increase in volumes, but our ability to make these purchases depends on market conditions, which is currently uncertain.
And what are Universal's uncommitted inventory levels right now, tobacco inventory?
We're currently at 20% as of March 31, 2025.
And worldwide uncommitted leaf inventories?
So the estimated unsold flue-cured and burley stock was 22 million kilos as of March 31, which is up 11 million from December 31.
Okay. And how does the U.S. crop look right now, tobacco crop?
Too early, Ann.
Yes, it's a little too early.
It's encouraging to see the improvement in operating profit for the Ingredients segment compared to 2024. Can you share your thoughts on the profit outlook for this segment? Are you still aiming for profits from the Ingredients segment to account for 10% to 12% of EBITDA? Is that still the long-term target for the segment?
Well, we put that target out a while back, Ann. So we hit it and then we moved on. Again, we have made some significant investments, and that's where we need to deliver. And that's what we have been saying the entire time that by putting in these additional capabilities and all these things that we can do, now the sales guys need to do their thing. We ramped up the commercial department. We ramped up the R&D. There is a lot of costs associated with that in the numbers, which you can see in '25 and before. So you're going to see the fruits of this going forward, which is now we just need to sell it. And we need to margin up. Some of these things, we don't like to be in the commodity business. We like to be in the specialized stuff, and that's why we did what we did and we made the significant investment in Lancaster, Pennsylvania.
Yes, we are pleased with the year, noting increased sales and higher volumes for the platform, and ending the quarter on a strong note. Our strategy focuses on growth, particularly in Ingredients, which we expect to achieve. We aim to maximize the value we derive from our platform resources. This approach has been beneficial this year, and it will remain our focus for the upcoming years.
Can you quantify the increased sales due to anticipated tariffs? I assume some business shifted into Q4.
Yes, there was some modest activity in the fourth quarter in anticipation of tariffs. The situation regarding tariffs can vary depending on when you check the news. However, we see these challenges as opportunities we are working through. We have encountered tariffs before, and our focus will be on understanding the specifics of the tariffs. Additionally, we are exploring other sourcing options to possibly offset any extra costs from tariffs and to create a more diversified supply base to minimize potential impacts.
So about 10% of the sales in Q4 would have been due to timing of tariff purchases?
No, not that high. No.
Not that high.
No, no.
Can you discuss the impact of tariffs on your operations? Specifically, what effects are you experiencing on both the tobacco and ingredient sides? Are there any noteworthy concerns?
Yes. I guess it sort of depends on what...
As of today...
If we consider tariffs with China, it will affect the extent to which the Chinese will purchase from the U.S. This isn't a significant part of our business; we do some processing for them. For the U.S., if volumes decline, it creates opportunities in other areas as their needs shift because they have certain demands. We worked diligently last year to fulfill those demands in challenging markets and will continue to do the same this year. On the ingredient side, particularly regarding our dehydrated vegetable company, Silva International, it will depend on where tariffs land. We noticed customers were purchasing in advance, and we're actively exploring additional supply sources in case tariffs increase. Should tariffs decrease, we’ll be well positioned. Our strategy includes maintaining slightly larger inventories at Silva, providing us some flexibility as we manage the changes. If tariffs affect other sources, this will impact purchases our U.S. customers make from our global operations.
We remain committed to assisting our customers in any way possible and will collaborate with them in the event of unexpected tariffs from their usual sources, helping them find alternatives as necessary. It's challenging to predict the situation right now, as tariffs fluctuate. We've encountered similar challenges in the past, and we always develop a plan to achieve results despite obstacles. Every challenge presents an opportunity.
So are you buying products from China that has the 145% tariff on it? Or did you build enough inventory to not have to buy that at that moment? I know the tariffs drop now in the 30%, but where are you in that cycle, sorry?
Yes. I'd say I don't think we're buying anything at that level. It would just be too difficult to move. I think we bought at some strategic times to avoid the tariffs or to have minimal tariffs. And that plus our inventory, we're fine. But we'll have to see how long the tariffs last also.
And then you talked about recent increases in raw material prices for certain traditional products. What does that mean? I'm sorry. I don't know what that is.
So for our Ingredients business, for example, there's been historically low prices for apples, which impact FruitSmart, our operation in Washington on the fruit processing company and on vanilla or Shank's, which is one of their core products. Those sales have been good. It's just historically low levels, which impacts our dollar margins on that business. So we've got good sales. We've got good margin percentages. But of course, if your raw material prices are low, it's impacting your absolute dollar margins.
Can you grow margin on the ingredients business in fiscal '26 versus '25?
And that's why I mentioned the need to improve margins on these products. Our goal is to enhance the profitability of this business, which is reflected in our actions in Lancaster, Pennsylvania, where we established a unique offering that sets us apart in the market.
Right. And add on to that, the big part of our strategy in growing ingredients is to grow volume and grow scale. We've got a platform investments in product development and in sales and marketing. And the more we scale up, the more we spread those costs across our units, and we become even more competitive and then we've got better pricing and better margins as well. We get the return that we need for those investments.
Have you invested in the sales force to support growth to fill that platform?
Yes.
Great. That's great. And then can I just ask 2 more things. One about the $100 million share repurchase program and you didn't buy any stock back in the quarter. What are your thoughts on using that program? You ended the year with, I think, $260 million in cash, and you've done a lot of work on reducing working capital needs or managing working capital. How should I think about that opportunity to buy back stock?
Well, according to the capital allocation strategy, and we have some other things that are more prioritized at the moment. So it's out there. If the timing is right, we will use it. But right now, we would like to delever more and we want to do some other things, make some investments, strategic investments if the opportunity arises. So all those things are before we start buying back stock big time.
Okay. And how do I think about interest expense for '26 versus '25?
Interest expense, we have to work on clearly, because of the pricing last year, the early buying in Brazil, that was elevated. Working capital was up. This year, it's certainly better in Brazil. It's a more normal buying season, it appears. So that will help. We set on quite a bit of cash at the end of the year. So all of that, the goal is to bring interest expense down.
Great. And then CapEx for fiscal '26, it looks like it was $62 million in '25. What's '26?
Yes. Currently, we're looking at between $45 million and $55 million.
Okay. Okay. Thank you all for the time. Appreciate it very much.
Thank you, Anne. You don't know how much I was looking forward to talking to you today.
Thank you. There are no further questions at this time. I will now turn the call over to Preston Wigner for closing remarks.
Thank you, Tiffany. Thank you all for taking the time to join us today. We look forward to connecting again during our next earnings call. Thank you.
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.