Release Date: May 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Universal Corp (UVV, Financial) reported strong financial and operational performance for fiscal year 2024, driven by favorable product mix and strong customer demand in the tobacco business.
- The company made significant progress in its ingredients business, including a state-of-the-art expansion project and investments in the commercial sales team and R&D.
- Universal Corp (UVV) advanced towards its sustainability goals by entering agreements to reduce operational emissions and improve social supply chain targets.
- Operating income for the tobacco operations segment increased significantly, largely due to higher tobacco sales prices and a more favorable product mix.
- The company expects new product sales in the ingredients business to increase and contribute to future earnings, supported by new partnerships and innovative product offerings.
Negative Points
- The accelerated buying strategy in Brazil led to increased use of working capital and higher debt levels as of March 31, 2024.
- Earnings in the ingredients operations segment were below expectations due to higher costs related to infrastructure investments, lower new crop raw material prices, and inventory write-downs.
- Customer inventory recalibrations negatively impacted revenues in the ingredients business for fiscal year 2024.
- Selling, general, and administrative expenses increased significantly, driven by higher incentive compensation costs, unfavorable foreign currency comparisons, and costs related to a VAT settlement program in Brazil.
- The company faces tight tobacco supply and elevated green tobacco prices, which could impact future profitability and operational flexibility.
Q & A Highlights
Q: Can you comment on how much of the strength in tobacco sales was a pull forward from fiscal '25 to fiscal '24, particularly out of Brazil?
A: It's extremely tight; there's no pull forward. The market conditions are very tight.
Q: Have you completed negotiations for tobacco prices for fiscal '25 and fiscal '26?
A: We've completed negotiations for fiscal '25 for some regions, but Zimbabwe is still open, and there may be a second round in Brazil this summer. Multi-year contracts are not typical for us due to past issues with fixed price contracts.
Q: What is the worldwide uncommitted leaf inventory number?
A: It's 30 million kilos for flue-cured and burley as of March 31.
Q: Can you provide an outlook for tobacco crops in Zimbabwe and other regions?
A: Zimbabwe has some quality issues, especially with small-scale farmers. The US crop is yet to come, and we are monitoring weather conditions. Commercial crops in Zimbabwe, Malawi, and Mozambique are looking good.
Q: How much of the $30 million targeted for the Shanks upgrade or expansion was spent in fiscal '24?
A: The vast majority has been spent. The facility will come online later this year, and we expect to see full results in fiscal year '26.
Q: Can you quantify the inventory write-down number for the year?
A: It was a couple of million dollars earlier in the year.
Q: What do lower new crop raw material prices mean?
A: For example, apple prices have dropped dramatically, affecting revenue and absolute dollar margin profit. However, it helps us compete more easily with offshore areas.
Q: Does the aseptic packaging opportunity in the Lancaster facility mean you can process beverages like protein shakes?
A: Yes, we can produce various products, including beverages. We are in discussions with potential customers and are excited about the possibilities.
Q: What are your expectations for an uptick in margins for the ingredients business?
A: Gross profit percentage margins have been steady. We expect an uptick next year, even without the new line being fully operational. The majority of performance from the new line will come in fiscal year '26.
Q: Can you review overall capital allocation priorities for the company?
A: Our priorities remain unchanged since 2018. We are proud of our recent dividend increase, which is our 54th consecutive increase.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
