Universal (NYSE:UVV) reported lower revenue and profit for the second quarter of fiscal 2027 as tobacco shipments slowed and its Ingredients business faced higher costs and weak demand. Executives said customer commitments remain in line with the company’s full-year sales plan and that shipments and financial results are expected to be heavily weighted toward the second half.
Revenue fell 18% to $622 million in the quarter, while operating income declined to $43 million from $68 million a year earlier. Net income attributable to Universal dropped to $13 million from $34 million, Chief Financial Officer Steven S. Diel said.
For the first half, revenue decreased 15% to $1.1 billion, operating income fell to $45 million from $102 million, and attributable net income declined to $8 million from $43 million.
Tobacco Shipments Shift to Second Half
Second-quarter Tobacco Operations revenue declined 19% to $534 million, and segment operating income fell to $44 million from $65 million. For the first half, tobacco revenue decreased 17% to $972 million, while operating income dropped 53% to $47 million.
Diel said lower shipment volumes were the primary reason for the declines. With the market moving into oversupply, customers made commitments and provided shipping instructions later in the cycle than they did last year, he said.
Chairman, President and CEO Preston Wigner said Universal’s uncommitted inventory had declined to 19% as of September 30, within the company’s target range. Management expects that percentage to fall further in the second half.
Wigner said the company normally ships much of its tobacco in the third and fourth quarters, but cautioned that shipment timing, product mix and other market conditions make it difficult to identify a single baseline year for comparison. He also said Universal was monitoring potential logistics risks, including port congestion and the availability of ships and containers, although it was not seeing substantial delays at the time of the call.
Asked about margins, Diel said the company expected some improvement in tobacco operating margin as it shipped more volume. He also said gross profit as a percentage of revenue historically has been in a 17% to 19% range and that management did not expect a significant change in that trend.
Weather Concerns Could Spur Additional Orders
Wigner said some customers had shown interest in buying additional tobacco from current inventories as a hedge against potential El Niño-related effects on future crops. Such purchases would be opportunities beyond Universal’s existing sales plan, but he said it was too early to quantify them.
Customers will have to weigh buying tobacco now against waiting for a clearer picture of weather impacts on crop size and quality, Wigner said. The timing would also depend on their existing shipping plans and the grades of tobacco available.
Estimated worldwide unsold flue-cured and burley stocks totaled about 134 million kilograms at September 30, down approximately 45 million kilograms from June 30, Wigner said.
Ingredients Loss Widens
Ingredients Operations revenue fell 8% to $88 million in the second quarter, and the segment posted a $2 million operating loss, compared with a $200,000 loss a year earlier. First-half revenue declined 5% to $174 million, while the segment recorded a $2.7 million operating loss, compared with operating income of $1.5 million in the prior-year period.
Diel cited persistent weakness in the consumer packaged goods industry, inflation, high raw-material costs and supply constraints, including a tight apple market in the Pacific Northwest. Wigner said the tight apple crop had affected first-half performance in the Fruit business.
Universal has aligned the Ingredients business around Fruit, Dry, and Taste Solutions as it seeks to improve commercial execution, facility utilization and efficiency. Wigner said improvement initiatives, particularly in extracts and flavors, will continue through the next fiscal year. He said utilization at the newer Shanks facility was not increasing and remained below where he wanted it to be.
Debt and Liquidity
Net debt stood at $1.15 billion as of September 30, approximately $82 million higher than a year earlier, primarily because of delayed tobacco shipments, Diel said. Liquidity availability, including cash and access to committed and uncommitted credit lines, totaled approximately $945 million.
Diel said Universal expects working-capital usage to moderate as the tobacco market moves into oversupply and global crop sizes are expected to be smaller next growing season. The company aims to use that opportunity to reduce debt and interest expense, supporting earnings per share and dividend coverage.
About Universal (NYSE:UVV)
Universal Corporation (NYSE: UVV) is a global agricultural products company primarily engaged in the procurement, processing and sale of leaf tobacco. Through its tobacco operations, the company purchases tobacco from growers, processes and stores the leaf, and supplies it to manufacturers of cigarettes, cigars, pipe tobacco and other tobacco products.
Universal handles several types of tobacco, including flue-cured, burley, dark air-cured and oriental varieties, as well as other specialty leaf products.
