Universal (UVV) 3 Feb 222022 Q3 Earnings call transcript

Good evening. Thank you for attending today’s Universal Corporation Third Quarter Fiscal Year 2022 Earnings Conference Call. My name is Tanya, and I will be your moderator for today’s call. All lines will be muted during the presentation portion of the call, with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Candace Formacek, Vice President and Treasurer. ahead. go Please

Officer, May remain and these website Freeman, and our taped Tanya, our on XXXX. all permission. on replay, joining being our the and in and and Chief for through any disclaim recording, Operating authorized and will live on me available replay Thank join webcast of remarks. will Chairman, replay. we website thank This our President call. George me this Financial our may Kroner, or is our and questions telephone of This X, Hentschke, for not copyrighted be than here and us. be Other not with Officer; today after distribution you, answering Johan without you are It brief have CEO; will transcription call Chief any responsibility is used Airton call

projected results, forward-looking on we to of that I today representative Before you discuss as knowledge current only. future our that I statements about and and some are results from differ our begin materially the caution could assumptions making are no update Actual forward-looking be note the difficult predict. will based crisis obligation This and impacts we and economic any business when particular or ongoing are during to is and to of COVID-XX current severity of results statements. the pandemic, estimated length assume the and resultant

most ended industry government conditions, can economic XX, recently the the of timing consolidation Such pandemic, that our urge the affect some or to, and Form customer-mandated changes changes for market to rates, and on rates include, of and structure factors COVID-XX sources. environment, shipments, the uncertainties taxation, political weather in but and quarter. exchange fiscal interest in XX-Q XXXX, XX-K are evolution, and not limited March estimates, and regulation ongoing information year risks our read For ended you and the for I

to information have comments and may for based investors, reclassification. useful provide I on information the of effort you include unaudited measures. is allocations our to to subject an is some Finally, financial today non-GAAP today In

reconciliations For comparable press please to the details earnings refer measures, release. these our to measures, current on GAAP including most

the XX, Our ended operations nine XXXX. months in December results solid produce

pleased We Inc. from segment packaging, X, was is segment. especially October by Shank’s bottling adds the are Ingredients Shank’s of bolstered segment, development. Operations on extracts, Extracts, results valuable nicely our our strong including custom developing acquisition and XXXX. and That flavors to by the capabilities Shank’s and product

earlier ended XXXX. fiscal quarter limitations ongoing shipping and in the nine Logistical the tobacco mandated our tobacco elevated the months in pandemic impact period in shipment also shipments of third to XXXX XX, XXXX tobacco in compared XXXX. the the continue results nine months and ended fiscal the to in nine lower were quarter on worldwide part through timing COVID-XX due slowed availability experience We from Tobacco shipments due to challenges December December timing. customer months shipment XXXX, ended related XX, to year of shipments to XX, continued the year same December stemming

However, inventory tobacco we our and our target levels demand remain and Tobacco within despite robust shipment range. believe strong customer remains variations challenges, our timing business uncommitted logistical the well with that

diluted million XXXX. with months XX, December nine $X.XX results, the was the $XX diluted or per million ended $X.XX to or December share XXXX compared months $XX.X the Turning for net XX, income per for nine share, ended

income million, in compared increased December nine XX, Adjusted Other net today’s nine and months earnings diluted other to release, income per Excluding also XXXX. nine the December million respectively, items, detailed $XXX.X diluted XXXX, $XXX.X $X.XX diluted December XXXX. income Other share months restructuring with quarter to $XX.X million $X.X the by million share, non-recurring for the and XXXX. in ended compared operating and months XXXX, Items XX, XXXX quarter $X.X share adjusted XX, or impairment Net $X.XX, $XX.X costs per or increased December was XX, earnings for ended in operating the by the ended $X.XX per ended certain and XX, months nine of the million million for of Items compared detailed income ended for December ended December XX, for

the the part revenues $XXX.X on in of Tobacco ended product addition diluted Other the Adjusted mix impairment and by million, million share decreased detailed other consolidated acquisition acquired December compared the tobacco mix ended in XX, higher in to respectively, by to net the and the income XX, XXXX, restructuring ended Excluding earnings the sales for Operations Items a items, $X.XX, segment. In $X.X XXXX. product XX, on operating certain XXXX, fiscal and quarter well and as non-recurring million release, earnings detailed today’s sales Items the quarter the to December costs higher also December and year compared compared better revenues to segment. third by in operating for months quarter in the million as Ingredients fiscal XXXX, compared the increased year quarter prior $XX.X quarter prices XX, Ingredients Consolidated for of adjusted million million for $XX.X the the XX, nine $XX.X year, Other XXXX, of period ended December inclusion lower to third in fiscal December decreased tobacco the income by volumes, Shank’s of a offset XXXX. businesses per and segment, Operations billion income and million $XX.X Operations in the same of to XXXX, better $XX.X $X.X by the of sales decreased quarter ended prices, in tobacco

on timing. lower volumes mix Tobacco fiscal and timing, carryover for XXXX. margin ended freight the period XX, were segments. quarter Operations limited December the year due year tobacco, quarter year, a prior the to smaller trading to in fiscal the container Tobacco in the Vessel saw largely XX, to by nine of months nine and for to the million, operating well costs, XXXX, which December and operations same months in million $XX.X has Operations lamina respectively, Turning prior the income shipment customers million year. XXXX, of the to crops, favorable compared December been sales barley Brazil segment XX, shipments. on periods services to the our to XX, shipped. prior quarter nine XXXX, and same the high has shipment in in lower the partially Brazil ended more Tobacco services XXXX, a for in decreased $X.X million product the $XX.X also segment volumes compared slowed although, percentage by XXXX, value-added Operations, December periods ended higher and to as to slower declined compared product ended well in as compared during the were ended tobacco fiscal months results periods tobacco December down the $XXX.X well for mix, same offset to XXXX, increased fiscal as volumes XX, lower Sales Asia, consisting availability favorable December in of as when high year, In XXXX. same ended months XX, increased months nine quarter and nine as as were nine and Africa volumes value-added customers quarter in by months compared

months currency in $X.X Europe our quarter Tobacco ended Selling, to nine operations December experienced respectively, same in year. and million, administrative $X.X and quarter and XX, and segment quarter prior XXXX, compared XX, XXXX months the ended losses prior months the respectively, year and expenses December were for Operations, quarter Ingredients was the the higher segment December $XX.X fiscal for costs XXXX, comparisons, of acquisition million the October acquisition previous exchange Our for the for for the non-cash energy period in the XXXX in nine XXXX, the Results December Silva compared ended of higher our months $X.X fiscal compared fiscal Inc., unfavorable from International, in income and XX, in XXXX. to general and foreign of to remeasurement. segment the nine the include Silva million operating primarily Operations ended mainly XX, October same Shank’s. periods million, Operations the Ingredients and operating nine year,

nine ended volumes human the as COVID-XX Ingredients been some in rebound XXXX, from Operations pandemic. both saw have pet ongoing impacted XX, and both in strong our December demand as that well For sectors months categories, quarter and the by food

products, general and In addition, same of quarter in dehydrated compared XX, months for acquired ended on the and the the in and the fiscal the administrative segment addition of year strong Selling, nine products, extracts. businesses. periods expenses the to prior segment organic sales flavors increased and XXXX, saw the based December certain

constraints, and chains managing Our businesses availability. supply performed have well, shipping global particularly

some However, will we XXXX. continued certain freight in including expenses, Ingredients due tobacco certain have shipments Inflationary vessels and year our Operations. costs be higher origins from both fiscal of our lack and that Tobacco labor to in geographies, pushed up pressures, trucks driven containers, and into expect

both working prices, are and to Ingredients products. have raw we Despite demand Ingredients strong products. costs for we contracts. material Tobacco We customer remains diligently our costs believe costs increased and Tobacco both and higher seeing rising these also been And build into for our product

how our sustainability XXXX long origins efforts. While website, tenet sustainability our in it it goals been available and year we smaller work And also has year fiscal key our Report on fiscal is business communicate crops still We is and December Sustainability to are core XXXX. for clearly we conduct several our very of in early, XXXX forecasting finally, and we published www.universalcorp.com. a

time, targets to questions. and available committed our measurable about to and sustainability programs to of the sustainability reinforce this We chains. continue global outlined take supply are are report build your At our our excited in goals to on the are we sustainability

from Thank you. Gurkin first is Davenport. question of Instructions] the The line with [Operator Ann

line Your open. is

Hello, Good evening. everybody.

Hey.

Ann. Hi

quantify start the may Can to in and comments that? I about be help into that with same will as pushed wanted you or release? than fiscal XXXX. all the some you at shipments targeted be if significant your tobacco with significant me that versions some some last you Can less and release press

to going supposed that very Ann, availability, to much exactly point into questionable. six all will times weeks. going actually to of at are pushed Container have are Yeah. time say is difficult to The they be bookings get lanes will XXXX. how depots to to go it shipping this lead in be

So, at good a at to point time, see to likelihood are wanted in there that, point cannot just we We put going this it. that just there it it in out quantify time. is very we this

as or detail? Have confirmed a schedule you as still reached with secure terms and of any in schedules in kind can other best of out flux existing vessel you customers this

are we customers constant they have on containers lines we need. again, had are the Look, that with the getting they shipping No. the port communication take Yeah. that are vessels. that onto our depending to to tobacco at But, ensure their

leave Sometimes bypass they just ports. those some completely the of or containers vessels at just ports

difficult it’s it to are numbers to out difficulties and But us, will of automatically that be still it we going but XXXX, is in very going there what there. estimating put for it’s on the see we exactly gets then course, to into those next possibility… just where the likely wanted what we put a have So that that’s pushed boat to

Okay.

that … happen. will

But factor? volume. It’s timing just committed a this is

No. that we put Yes. there. committed happy numbers very with Again, Oh! out volume we the are have

are we very happy… range of of You middle the we XX%, are can see which the right in

Okay.

down … from last we are year.

there -- so whatsoever, so So for a demand no strong, is issues robust all of it’s there that product. demand great, the is

question on boat our the we it customers… quick get enough to to the is, get Just it can

Correct.

…by the year-end.

Fair enough.

start into again think or to at supply burley? think, crops to XXXX enough here. year, so small secure Okay. that are the we crops the Then outlook going burley’s a going least would particularly historically would XXXX headed row like looks your happen so for getting forecasting another nervous another smaller I smaller for tighten you third looking are given crop with in burley one I relatively, of to in need in for what’s customers here, crop

the in couple weather tobacco volumes a that months, crop conditions period. and have Brazil, the is Yeah. projected basically early the in the that, weeks, we areas. some that of we are in in still impacting is is Ann, the Africa, some last have done, what -- adversely of course, but growing Tobacco seen extreme few

well. on market conditions months So the still we see effect see we tobacco as of final market it’s styles is. -- a from couple to burley, see do see we that now and tight some oriental we don’t just qualities. And on flue-cured are But the in what that a the the going for and

Okay.

Okay.

Presentation XXXX. range Investor fiscal about nice have continued details should your in your we the you at margin, XXXX? recovery or recovery operating company, like looks November, the How slide in Looking for is was can think XX, target is margin which recovery What there there? any operating in

well not have, to are know You it’s… Ann, but you going enough. again,

I quarter. try every

Yeah.

You do.

you. And business as some with mix, margins tobacco. Ingredients saw should certainly really we and It’s the -- in value-added some that we for The question. help we which Good the we understand nice the saw in there helped regard had changes well. to

So, now, it positive the look margins. to a with regards trend like

Nine a shipments months numbers for year. nice just full given looks of cannot like It trend. the timing hold,

so we those shipped, -- be seen, positive. is there, some that Remain Hey. tobacco to leaves of all need in have there’s to couple broad still things that are be remains to shipped, a still be some

the of ingredients, mix, margin. saw freight because costs again, compression about down, that as So, of and those help the well, on again, regard a them we go there all with certainly some it if to bit depends will

some there’s there. had certainly still to So upside be

Okay. the XX Great. presentation, about XX%. am fan in and target, And not that the debt next and targets up that think trend, your net a then, that in what’s should couple don’t I free years? looking of flow How target, the it’s a like cash I the out slide the slide, of are What we there? XX%, trend

not with gone internal what exactly are acquisition Ann, again, but targets, leverage looking going new we are point has to of to course, up. certainly at, is the we

Okay.

although, at us looking make on far go agencies to Rating were be of too having that, closely our them. we were -- And the a confidence sure very confirmed, bounds. will outlook. in negative S&P doesn’t with that it And communication out put constant ratings

that do. So and bring here leverage going can we will can see that bit where we little a things a be ensure do we bit down looking to the we little at forward it that to want

ratings. our maintain And

think Ingredients business, to business favorable then see without a on months. Fair I margin the And the the objective and that margin about switching nine the these in that enough. environment business freight for operating issues? to it’s for should nice more quarter Where

quarter still there. at you field, safety then You changes have in year, Look, look have bit only Ann, a it’s from -- muddy and comparisons still Yeah. in had last you right? now some the if everything and you one of there

at So it. it’s quite muddy to look

quarters will we of nice business what to needed you picture get and healthy, looking at. and are we a value. you So But, wait where that’s clearer a it’s more we then can create couple again, value-added shareholder think are where and margins

there impact of December from of January? pullback in the of human of in side, Omicron Are any Omicron recovery? recovery And end the any on on you food particularly kind business because the pace pace seeing like were or demand,

No.

started of whether Look, Omicron or with regard bit really used the early has bar of product gone bit. done to type It was a entertainment That those or there. saw where little grocery going a because the businesses. of where you shift, to being a to in a setting has was mix shift little stores or bit back was a it not if it on

good. all that’s So

of we issue, are not And so products have pressures freight, you the are it’s with certain lot labor on which the and it’s then, regard cost lot tobacco inflationary product, is side, And Omicron heat of to really a really a using there. areas, the freight currently calls uses out in gas. dehydrated that the heat and

at is impact have those are but that energy positive. the the of on are So we those. But, prices had again, trend types things an looking

Okay.

are bit. the pull back Okay. CapEx reasons? you a It Great. little What on looks like

some us. by -- mind broadleaf is -- we are to primarily to where significant things, that for that’s investments for off them and over things certain paying years, we where now those asked keep side, last are in there couple where have the have value-added we on Well, those margins nice made the in do again customers investments

little that Shank’s. bit. down it the that is that in this also million month tailwind why we $XX includes bought that’s nine that quarter, So came current number we In --

$XX normally noted, investments is us. it sense tobacco, so if along make CapEx So, those we see number. makes we But we around in maintenance our happy hover goes still can in as long as to you with numbers, are it million, we

worldwide number, do you Candace, number? Okay. have uncommitted lease a

of the is Sure. worldwide Ann, we have XX number. as got down XX/XX/XXXX new the kilos, which June is million XX, million from XXXX, XX

any changes any to making Okay. inventory menthol looks like you And in come Are any characterizing plans then, going use and the last, insight you levels? with flavors you if orders I announce how FDA don’t of then their the in It the customer approach cigars. share? comments or Are FDA Anything out to all you menthol perhaps is share can any update April? can -- in about or Are seeing potential insight. cigarettes this into know preparations? in from you in engaged FDA, April

No.

they We seen regs -- take time a and take if have to a any patterns. is to talk we these to when to to customer be litigation, going rules any we between the say not for drawn will into and effect. come this regulatory it’s really folks, change long we Again, going the period commentary of process and long

all all you it. Appreciate for time. have. great. Thank I all your That’s Okay. That’s

Thanks, Ann.

Thanks, Ann.

you. Thank

from Ms. Gurkin. you, [Operator Reynolds Thank with line Berman. is of next the Instructions] The question Neuberger Chris

Your line is open.

And I for that to a doing but you there your good thank wasn’t my make in aristocrats policy are on you the just apologize shareholders. and job question. modestly change of dividend, dividend, with was comments grow to and any dividend and longstanding one I you any that are I of for continue that to have investments. your clarify the obviously, your wanted those part just for evening dividend call, made about wanted I And might not taking diversifying, you Good first you sure but

number ago, was dividend we announced annually. investing it growing a number Sure. allocation I our years and two thing in our capital one two our was think, When but thing business, our maintaining strategy tobacco

core is that corporate a So strategy. of our

results. so Nice much. Thank Okay. you

you. Thank

Thank you.

remarks. you, now any time. Mr. will to presenters Thank no Reynolds. over I this questions the are conference additional closing turn for the There waiting at

Thank you thanks all and you very joining much. for us. Good of evening

next talk with quarter. you Thank will you. We

That Third your XXXX Fiscal Quarter for Thank participation. Conference concludes Year Corporation Call. the Universal Earnings you

disconnect You your may lines. now