Universal Corporation — Second Quarter Fiscal Year 2027 Earnings Summary

Financial Performance

• Consolidated sales and other operating revenue for the three months ended September 30, 2026, was $621.8 million, a decrease of 18% from $754.2 million in the prior year period.
• Consolidated sales and other operating revenue for the six months ended September 30, 2026, was $1.146 billion, a decrease of 15% from $1.348 billion in the prior year period.
• Gross profit margin percentage for the quarter was 17.3%, down 120 basis points from 18.5% in the prior year; for the six months, it was 16.6%, down 220 basis points from 18.8%.
• Operating income for the quarter was $42.6 million, down 37% from $67.6 million in the prior year; for the six months, it was $44.9 million, down 56% from $101.5 million.
• Net income attributable to Universal Corporation for the quarter was $12.6 million, down 63% from $34.2 million; for the six months, it was $7.6 million, down 82% from $42.7 million.
• Adjusted diluted earnings per share (non-GAAP) for the quarter was $0.39, down 71% from $1.36; for the six months, it was $0.19, down 89% from $1.74.
• Total debt increased to $1.196 billion as of September 30, 2026, from $1.158 billion in the prior year period.
• Net debt (non-GAAP) increased to $1.154 billion as of September 30, 2026, from $1.072 billion in the prior year period.
• Available liquidity was approximately $945 million as of September 30, 2026.
• Interest expense for the six months ended September 30, 2026, was $34.9 million, down $3.3 million from the prior year period.
• Net cash used by operating activities for the six months ended September 30, 2026, was $213.8 million, compared to $172.4 million in the prior year period.

Guidance and Future Outlook

• Management forecasts tobacco shipments to be heavily weighted to the second half of fiscal year 2027, consistent with historical patterns.
• Uncommitted tobacco inventories are expected to reduce further during the second half of fiscal year 2027.
• Emerging customer interest in additional volumes is being observed, driven in part by El Niño weather concerns.
• Customer commitments for tobacco are in line with full-year sales plans.
• The company expects to continue transforming its Ingredients platform into a more integrated and aligned organization through the next fiscal year to improve facility utilization and operating efficiency.

Business Segments and Product Lines

• Tobacco Operations: Revenue for the quarter was $534.3 million (down 19%); for the six months, it was $971.5 million (down 17%). Segment operating income for the quarter was $43.9 million (down 33%); for the six months, it was $47.4 million (down 53%). Tobacco sales volumes were down approximately 23% in the quarter and 18% for the six months. Sales prices were flat for the six months, with product mix offsetting lower green tobacco prices.
• Ingredients Operations: Revenue for the quarter was $87.5 million (down 8%); for the six months, it was $174.2 million (down 5%). Segment operating income for the quarter was a loss of $2.1 million (compared to a loss of $0.2 million); for the six months, it was a loss of $2.7 million (compared to income of $1.5 million). Performance was negatively impacted by tight apple supplies, high raw material costs, and persistent weakness in the consumer-packaged-goods industry, partially offset by higher vanilla extract sales.
• Uncommitted tobacco inventory levels were 19% as of September 30, 2026, within the target range.

Market and Competitive Landscape

• The company navigates a delayed oversupply cycle in the tobacco market, resulting in slower green tobacco buying, customer commitments, and shipping starts, particularly for flue-cured and burley tobacco.
• Lower shipments out of Africa and Brazil occurred due to later customer commitments and delivery of shipping instructions.
• Ingredients operations face market challenges including raw material supply constraints, specifically tight apple markets in the Pacific Northwest, and inflationary pressures.
• The company maintains a century of experience and market leadership in the tobacco sector.

Risks and Challenges

• Risks include product purchased not meeting quality and quantity requirements, reliance on a few large customers, and shipment timing issues.
• Challenges include higher inflation rates, tariffs, weather conditions, and exposure to legal, regulatory, and financial risks related to climate change.
• The company faces industry-specific risks related to plant-based ingredients businesses, including supply chain disruptions and raw material constraints.
• The expiration of the Mozambique tax holiday in fiscal year 2026 contributed to a higher consolidated effective tax rate.
• Forward-looking statements are subject to risks such as changes in tax laws, exchange rates, interest rates, and government actions on tobacco sourcing.

Management Commentary and Tone

• Chairman, President, and CEO Preston D. Wigner expressed confidence in the outlook for the balance of fiscal year 2027, citing customer commitments and emerging interest driven by weather concerns.
• Management stated that while market and cost pressures remain in the Ingredients segment, they are confident in the strategy to strengthen the business through organizational transformation.
• The tone emphasized the company's century of experience, strong strategic partnerships, and commitment to sustainability initiatives like regenerative agriculture and forestry.
• Management noted that the first-half results reflect the slower timing of tobacco shipments due to the delayed oversupply cycle.

Other Key Points

• An insurance recovery of $4 million related to a previously disclosed Mozambique matter was recognized in the quarter ended September 30, 2026.
• Restructuring income of $2.7 million was recorded in the quarter and six months ended September 30, 2026, resulting from the sale of a previously closed manufacturing facility.
• The consolidated effective tax rate was 34% for the six months ended September 30, 2026, and 35% for the quarter, due to dividend withholdings, earnings mix, and the expiration of the Mozambique tax holiday.
• Universal Corporation will publish its fiscal year 2026 Sustainability Report in early December, detailing supply chain activities including the planting of more than 13.5 million trees in fiscal year 2026.
• The company hosted a conference call on November 5, 2026, to discuss results, with a replay available through February 5, 2027.