Universal Corp Stock

Hello, everyone. Thank you for joining us and welcome to the Universal Corporation First Quarter Fiscal Year 2027 Earnings Call. [Operator Instructions]

I will now hand the conference over to Wush Ma, Vice President and Treasurer. Wush, please go ahead.

Good morning, and thank you for joining us. With me today are Preston Wigner, our Chair and CEO; and Steve Diel, our Chief Financial Officer.

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 or 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 required by law. For information on some of the risks and uncertainties related to these forward-looking statements, please refer to the reports we filed 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 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 November 6, 2026. This call is copyrighted and may not be used without our permission. Other than the referenced replay, we have not authorized and disclaim responsibility for any recording, replay or distribution of any transcription of this call.

I would like to now turn the call over to Preston.

Thank you, Wush. Good morning, everyone, and thank you for joining us today. As we begin fiscal year 2027, our first quarter results reflect the market and operating conditions we anticipated. First quarter results for our leaf tobacco business followed a seasonal pattern, more consistent with historical trends than what we experienced in our exceptional first quarter of last year. The flue-cured and burley markets are in an oversupply position. And as expected, customer buying activity has been slower. We've managed through these types of market cycles before, and our global footprint, experienced teams and longstanding customer relationships give us a strong foundation for doing so again.

Our focus is on buying with discipline, anticipating and monitoring green tobacco trends carefully and maintaining the right inventory position. Against that backdrop, our expected customer demand remains consistent with our fiscal year sales plan. In line with historical patterns, we expect shipments to be weighted more heavily in the second half of the fiscal year.

Turning to ingredients, first quarter results continue to reflect persistent consumer market headwinds, tariff volatility, and longer-than-anticipated product development cycles. Despite these challenges, we continued efforts to improve performance across the ingredients platform, leveraging the investments we have made and focusing on stronger commercial execution, improved facility utilization and increased financial and operational efficiency.

I will now turn the call over to Steve to review our financial results, after which I will share a few additional thoughts.

Thank you, Preston. Good morning, everyone. I will start by reviewing our segment financial summary. For our Tobacco Operations segment, revenue was $437 million for the first quarter of fiscal year 2027, down 13% versus the same quarter of last year. Segment operating income was $3.5 million as compared to $35.7 million for the same quarter of last year. As Preston mentioned, in general, our fiscal first quarter tends to be a slow quarter due to the seasonality inherent in our leaf tobacco business model. During the first quarter of fiscal year 2027, such seasonality was even more pronounced as customers delayed timing of purchasing decisions with the recent market shift to an oversupply dynamic. I should note that we see this as a timing issue and our customer demand expectations for the full fiscal year are consistent with our initial sales plan.

Prior year comparisons were also negatively impacted by lower tobacco carryover crop sales, which were closer to historical normalized levels in the current first quarter and a less favorable product mix. Additionally, our Tobacco segment experienced $4.4 million of negative operating income variance in the first quarter of fiscal year 2027 versus the prior year due to foreign currency movements. For our Ingredients Operations segment, revenue was $87 million for the first quarter of fiscal year 2027, down 3% as compared to the same quarter of last year. The segment generated an operating loss of $700,000 for the quarter as compared to operating income of $1.7 million for the same quarter of last year.

During the quarter, our Ingredients segment continued to work through persistent consumer market headwinds and high fixed costs related to growth investments. While we're confident in our plan to improve segment performance, given the relatively long product development cycle in the ingredients space, we expect that tangible improvements will take some time to materialize.

On a consolidated basis, for the first quarter of fiscal year 2027, revenue was $524 million, down 12% from the same quarter of last year. Operating income was $2.3 million as compared to $33.8 million for the same quarter of last year, and the net loss attributable to Universal was $5 million as compared to a net income of $8.5 million for the same quarter of last year. And regarding liquidity and capital structure, as of June 30, 2026, our net debt was slightly over $1 billion, approximately $52 million lower relative to the same point last year. This decrease was mainly due to lower working capital usage as a result of tobacco crop purchase timing and lower green tobacco prices. Our liquidity availability, which includes cash and availability under our committed and uncommitted credit lines, totaled approximately $1.1 billion.

I'll now turn the conversation back to Preston.

Thank you, Steve. Looking ahead, we're approaching fiscal year 2027 with strategic focus and operational discipline, keeping long-term value creation at the center of our work. We're guided by the 3 pillars of our corporate strategy: maximizing and optimizing tobacco, growing ingredients, and strengthening Universal for the future. Across each of our strategic pillars, we will be disciplined in our approach and focused on execution.

For tobacco, we will continue to navigate current market conditions by leveraging our global footprint and deep market experience, strategic focus on sustainability, and longstanding customer relationships. As we plan for the next crop cycle, we're also evaluating how forecasted El Niño conditions could affect crop supply in certain regions. Universal has a long history of operating through complex agricultural, economic, and geopolitical cycles and our proven sourcing capabilities, supported by local expertise in our operating regions, remain an important competitive advantage in that work. For ingredients, we are strengthening performance across the platform through greater commercial focus, improved facility utilization, and financial discipline, while remaining focused on the long-term opportunity we see in the business. Realizing the benefits of these strategies will take time, and we expect some of the improvement efforts to continue through the next fiscal year. We are optimistic about our ability to make steady and incremental advancements towards our goal.

To strengthen for the future, we will identify ways in which we can advance progress in foundational areas such as efficiencies and financial management, human resources and human capital management as a strategic business function, and using technology like AI to innovate and enhance how we perform our work and operate our business. We have entered this fiscal year clear on our priorities, confident in our strategy, and focused on executing with discipline.

Thank you again for joining us today. We will now open the call for questions.

[Operator Instructions] Your first question comes from Daniel Harriman with Sidoti.

I'll start with 2 this morning, both on tobacco. In the release, you mentioned customer indications and commitments are consistent with your fiscal year sales plan despite performance in the first quarter compared to last year. Can you give us a little bit of a sense of the visibility you have into the back half of the year that gives you confidence to reach the full year sales plan? And then regarding dark air-cured tobacco, you called out that as a headwind in the fourth quarter of fiscal '26. Could you provide us with a bit of an update on current market conditions in that brand and for that tobacco style and whether you see additional write-down risk as we move through fiscal year '27?

Sure, thank you, Daniel. Let me start with tobacco overall. It's early in the season, but so far, based on how we've executed in a very disciplined way, our buying strategies in the fields, how we're procuring tobacco, getting the right grades at the right price and having access, given the large size of the crops, we're off to a good start getting the tobacco we need to satisfy our customers' demands. And we're, of course, in close communication with our customers, understanding what they need, when they need and where they need it. Given our global footprint and the diversity that gives them options, if you have issues of one origin versus another, we've got full complement to satisfy their needs in an oversupply market in both flue-cured and in burley.

As the largest global leaf tobacco supplier in the world, we're well positioned to navigate these market dynamics. Deep experience and strong regional teams are really key around the world, and they've given us those opportunities to navigate the large oversupply market and to find those opportunities with our customers. We've got the access that we need. We've got the large portfolio of customers. They all need something from everywhere we are. And we've seen the lower farmer pricing, which is what we would have expected in the large oversupply in most of those markets. And we expect to see those industry stocks rise through the year for us.

With our stocks in mind, it's critical that we utilize that expertise and that we really do follow those disciplined buying strategies that gives us the ability to succeed and to give the customers the quality and quantity of tobacco that they have been accustomed to expect from us. And you add that to sustainability practices, our agronomy and logistics expertise, financial stability, it's all key components to our competitive advantage and it gives us those opportunities to maintain and gain market share in this oversupply market. So today, even though it's early, the year is going the way we expect. There's still 9 more months to go and a lot of work to do. But we're pleased where we are with our communications with customers, with customer demand being consistent with our fiscal year sales plan.

Say on the dark side, to your second question, I'll pick up really where we left off in the fourth quarter. We see wrapper demand is still strong and non-wrapper, which is a broad group of styles, but I'll just generally say non-wrapper, is generally still in oversupply. We talked about initiatives that we were putting in place to improve performance and how we manage that non-wrapper business. And we've put those in place. We're implementing those, and I'm pleased with the progress there. Those primarily involve sales strategy and inventory management strategy. On the sales strategy side, we support a large number of customers. And core to that sales strategy is to maintain close communications with them to align these current market conditions with their sales expectations. We've enhanced our communications and planning so we can better understand and plan for their needs this year. Close communication and customer indications of what they need shape our tobacco purchasing plans also as well as our sales plans for the tobacco that we hold in inventory.

On that inventory management strategy side, with the sales strategy that aligns with customer indications and accounts for the required tobacco and inventory, we can more accurately set our new crop purchase strategy. That will help ensure that we're buying the right quantities and the styles of the tobacco that we need. Our objective is to reduce inventory levels by converting wrapper and non-wrapper to cash and to reduce new crop volumes to obtain the high-demand wrapper that we need, but to minimize the non-wrapper volumes that come with that run-of-crop purchase from our farmers. So those initiatives, they're all designed to drive margin optimization, cost alignment, working capital efficiencies.

So it's early in the year for them as well, but we expect to see the benefits from those initiatives this fiscal year and beyond. And with those initiatives and discipline and execution in those strategies, we're comfortable with our inventory levels, we're comfortable with our sales plan. And I would not expect to see the large inventory write-downs that we had last year.

Your next question comes from Ann Gurkin with Davenport.

I'd love to continue with discussion about the tobacco. So I've never seen the tobacco margin down this low. I realize it's a seasonally lower quarter, and I understand the oversupply. But I was curious if you could flesh out any expectations for the margin, tobacco margin, in the second half year and expectations for Universal's uncommitted tobacco leaf inventory levels as the year progresses as well.

Sure, Ann. As far as the uncommitted levels go, as Preston was talking about earlier, as far as us getting comfortable with our plan for the full year, we saw coming out of the gate, it was in different pockets. The velocity through in different markets, say, South America or pieces of Africa and Malawi, things were pretty slow. And that's what drove the higher uncommitted levels early. Areas like Zimbabwe were moving pretty quickly. Just over the last few months, we've seen a pickup in the pace, even in those slower markets. So we've seen our uncommitted inventories come down even from where they were on June 30 from what we've reported. So we fully expect to get those levels back down to our 20% target as the season progresses, and we're pretty comfortable with that.

As far as margins, yes, going through the next few quarters, we expect margins to be pretty normalized as from a percentage basis on where they were before. Our plans aren't seeing any deterioration. The first quarter was really about product mix, last quarter versus this quarter, and sales of some carryover crops. So I don't see any concerns with margin as we progress through the year.

That's great. That's super. And then I was curious if we could talk about working capital for the year. I guess in the release, I'm a little confused. You talk about working capital outlays for tobacco purchases, but then you talk about on the balance sheet, lower working capital usage on timing of crop purchases. So can I just get a better understanding of expectations for working capital for the full year?

I think working capital should be reduced from where you've seen the last few years as far as the price impact goes because we're buying green tobacco at lower prices. Now when you look at quarter-end levels, it's really going to depend on the pace of sales. And as we go through shipping timing and customer orders. So it's hard to say how the working capital is going to fluctuate through the year and where we end up with carryover crops at the end of the year. So again, kind of fundamentally, we see a reduction due to lower pricing, but that's going to fluctuate as timing of shipments progresses.

Well, I'll say some of it's also driven by volume. And based on sales plans, some of it will also depend on the volume that we're buying. And if we're picking up market share, if we're picking up opportunities, we will be looking for those additional volumes to satisfy those customers. But as Steve said, we would expect benefits from the lower green pricing, but really how we're buying and our ability to buy the right grades at the right price and then move that tobacco with an emphasis on trying to convert that inventory to cash and try to ship as quickly as we can.

Great. And do you anticipate volumes for tobacco to grow in fiscal '27 versus '26 given the oversupply?

I would say it's early in the year, but we have those opportunities, like I said, given our competitive advantages and all the things we do for our customers in supporting them and coordinating with them, we would have opportunities. It's a little bit is going to depend on the year. And some of it, I mentioned El Niño. We're communicating with our customers about El Niño. And if and as the year goes on, it's still a little early to have an accurate prediction on that in terms of the exact timing and the exact way El Niño is going to manifest in our origins. But customers are factoring in El Niño impacts on next season's crops as we're thinking about what's available this season. And so we could see, given the opportunities we've got, if they're going to be available this season, if there are concerns about that, we could see potentially additional volumes this year to hedge against risks that could occur next season.

That's great. That's great. And then can we just review capital allocation priorities for the company? You raised your dividend, I think back in May. You bought back some stock in the quarter. What's the reason for that? It looks like cash flow is pretty tight given the lower earnings. Working capital maybe down, but maybe flat versus last year. CapEx, $55 million, $65 million. I know you have adequate liquidity using credit lines. But can we just kind of walk through the cash flow, the capital allocation, the reason for buying back the stock this past quarter? Anything else you can share would be great.

Sure, Ann, I'll take that. On the share repurchases, that was mainly just to offset dilution for equity compensation. We hadn't repurchased in a couple years. Typically, we would buy enough to offset that dilution and keep our diluted shares around 25 million outstanding. So that's what that program was about. From a capital allocation standpoint, our priorities still remain as we have stated them before as far as investing in Tobacco Operations, supporting the dividend, growing the ingredients segment. And then last on the priority list is returning capital to shareholders through those share repurchases.

Our CapEx is estimated to be above maintenance levels this year. And if you look back over the last couple of years, we made the investment in ingredients. So that's where the higher levels of growth investment came from was on the ingredients side, particularly up at our Lancaster campus. This year it's more about investing in the tobacco side, and it's spread across multiple regions for us, South America, Africa, Asia. It's a mix of growth investments, facility efficiencies, automation. So we're investing in the tobacco business this year on the CapEx side with some real exciting projects that we expect to provide very good returns.

Yes, and I guess I'd say to add to that, our focus and our goal is to grow this company on tobacco and on ingredients. And on the tobacco side, you know, in addition to growing market share, we also want to find opportunities to support our customers through additional services, additional other opportunities. And that's the focus throughout the year. And we think we're in a position, given how we support our customers, our relationship with our customers, financial strength, if we have opportunities to grow and require additional investment, we'll make them, because we get such a good return on tobacco and it's stable and we have such good relationships long-term with our customers. So we do think of those throughout the year as we're looking at our management of cash and investment levels.

Great, that helps. Any help on SG&A for the year or interest expense for the year?

SG&A, if you look back, I think last year we were around $300 million. If you look back the last few years, we've kind of been in that $300 million to $310 million band. I think that's a pretty good point to use to start to think about SG&A. And then interest expense, again, due to the slower pace of purchasing and potential lower working capital from lower green pricing, we expect interest expense to be down a little bit from last year.

Okay. Great. Have you gotten any tariff refunds?

We have. We are working through those now. We have started to see some movement of getting refunds in and the affected businesses have been in discussions with customers on how best to manage what could flow back to them. But it's early in the process, and it's a work in process.

Okay. Great. And then worldwide uncommitted leaf number?

Yes. Estimated unsold flue-cured and burley stocks are about 180 million kilos at June 30, which is an increase of approximately 11 million kilos from March 31. And March 31 was 57 million over December 31.

Okay. And then lastly, Ingredients segment, you announced the leadership change in that business. I guess can we just have a conversation about target margin, target pace of recovery? Obviously, customers still are facing weak volumes and challenging environments and you have fixed cost issues in Lancaster just due to the overall macro challenges. How should I think about that business and pace of recovery? And what is your level of commitment to that segment long-term? You know, Preston and Steve, I think you were the architects of a lot of that investment. And I'd just be curious your kind of level of confidence, time line, expectations. That would be very helpful.

Yes, well first, we are absolutely committed to Universal Ingredients as a growth engine for the company, and we're committed for the long term, making sure that we're making the investments we need to make, as we've shown in the past in the last 6 years, giving them the tools they need to grow, the resources they needed to grow. I guess a lot of that starts with where we left the fourth quarter, talking about initiatives that we were implementing to improve performance and particularly, as you mentioned, at our Lancaster, Pennsylvania, campus.

Our objective is to ensure that those operations are fully utilizing those growth investments we've made in capacity, in capabilities and in the resources related to commercial sales, research and development and marketing. By leveraging that platform, we can see increased volume. We can obtain increased volume through our product portfolio with an emphasis on solutions-based, value-added products. The commercial execution initiatives, those are designed to improve the business flow and facilitate growth of the business. And that complements our initiatives to improve facility utilization with a specific focus on our Lancaster campus. It's the same goal that I've been talking about last year as well that increasing volume across the factory floor, but making sure that, that volume is more profitable.

So within those operations, our initiatives are also designed to advance gains in operational and financial efficiencies. The goal there is to ensure that we're running the facilities efficiently, we are responsibly managing and reducing costs, and we're increasing margin. Our leadership enhancements that we had mentioned previously, which include additional organizational alignment across the company, those support all those initiatives. So we're working tirelessly to increase the profitability of our business, provide those products and services to our existing and new customers that they need to succeed in the marketplace, it's challenging, and to grow Universal Ingredients and Universal as a whole. So those initiatives are prioritized, and they're going to take time.

So we're dedicated to making the steady, incremental advances that we need to make. And we're excited to see the benefits over time. With those initiatives, with that progress, and still day after day, year after year looking at entering new markets, gaining new customers, growing with existing customers. The volume will come, the margins will come. It will grow. But it's a steady, incremental progress with Universal Ingredients as I see it as a natural evolution of growth of a new company that we've created just over the 6-year period. And with Pat's announcement, as we mentioned in the announcement, we made a lot of progress in 6 years. Now we've got an opportunity where we are in 6 years to now find a new leader to come in with a real growth mindset to take us from where we are today to where we want to be in the future.

So there's a lot going on. I'm really excited about where we are, the direction we're going. I'm very happy with the strategies that we have, but we must execute. And we have to have strategic focus. We've got to have operational discipline, and we need to execute. And that's for ingredients. That's number one focus for this year is to implement these initiatives, get them to work, and start to see the benefits.

What is capacity utilization at Lancaster right now?

At Lancaster, we don't have a public number. It is relatively low because it's still relatively new. And I'm talking about, I mean, it's a large campus. I'm really talking about the expanded campus where we've cut the ribbon about a little less than 2 years ago. That is not as high as we want it to be or that it needs to be. But in executing, especially operational financial efficiencies and the commercial strategies, we can increase that volume, increase capacity.

60%, 70%, lower?

And I'm not going to give you a number, but it's not as high as I want.

This concludes the question-and-answer-session. I will now turn the call back to Preston Wigner for closing remarks.

Thank you, Rebecca. Thank you all for taking time to join us today. We look forward to speaking with you again for our second quarter fiscal year 2027 earnings call.

This concludes today's call. Thank you for attending. You may now disconnect.

Thank you for standing by. My name is JL, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Corporation's Fourth Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to Wush Ma, Vice President and Treasurer. You may begin.

Good morning, and thank you for joining us. With me today are Preston Wigner, our Chairman, President and CEO; and Steven Diel, our recently appointed Chief Financial Officer.

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. They are representative as of today only. Actual results, performance or 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 statement regarding forward-looking statements in our current earnings press release. Finally, some of the information we have filed 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 29, 2026, and by telephone through June 12, 2026. This call is copyrighted and may not be used without our permission. Other than the reference replay, we have not authorized and disclaim responsibility for any recording, replay or distribution of any transcription on this call.

I would like now to turn the call over to Preston.

Thank you, Wush. Good morning, everyone, and thank you for joining us today. Our fiscal year 2026 performance reflected solid execution across much of our business, operating in a market environment that shifted meaningfully from the prior year. We saw oversupply in certain tobacco styles and continued market headwinds in our ingredients business, which impacted volumes and margins.

Amidst these challenges, our teams around the globe demonstrated the resilience of our tobacco operations, and we continue to focus on the progress we are making to support the long-term growth of our ingredients operations. However, our financial results for the fourth quarter and fiscal year were impacted by a noncash goodwill impairment related to our Universal ingredients Shank's operation and by inventory write-downs primarily related to non-wrapper, dark air-cured tobacco.

We remain confident in our tobacco and ingredients strategies and the steps we have taken to adapt to current market conditions and position the business for the future. With more than 100 years of operating experience and a market-leading position, our leaf tobacco business has demonstrated its durability across market cycles. At the same time, we believe our ingredient strategy, which focuses on innovation and solution-based products is well aligned with customer needs and long-term value creation.

We have invested over several years to build a scalable ingredients platform with necessary capacity and capabilities, and we believe the platform is well positioned for future growth. Supporting both these priorities is our continued advancements in sustainability, which remains an increasingly important expectation across our global value chain.

During the fourth fiscal quarter, Universal advanced from an A- to an A rating in the Carbon Disclosure Project's Supplier Engagement Assessment. In addition, we were recognized as a CDP supplier engagement leader and named to CDP's Supplier Engagement A list, underscoring the strength of our governance, emissions management and collaboration with suppliers. Strong financial discipline and leadership are critical to executing across both our operating segments.

In February, we announced the appointment of Steven Diel as our Chief Financial Officer, effective April 1. Steve has been with Universal since 2018 and has more than 25 years of experience across finance, corporate development and business strategy. He is a trusted Universal leader with significant financial expertise, a deep understanding of our operations and a proven record of strategic execution.

With that, I'll now turn the call over to Steve to review our financial results in more detail.

Thank you, Preston. Good morning, everyone. As Preston mentioned, during fiscal year 2026, our flu-cured and burley tobacco portfolio performed well, but results were significantly impacted by 2 areas of our businesses, which I'll discuss during a review of consolidated and segment results.

For the fourth quarter, consolidated revenue was $715 million, up 2% from the same quarter of last year. For the full year, consolidated revenue was $2.9 billion, down slightly from the previous exceptional fiscal year. For the quarter, operating loss was $15 million as compared to an operating income of $43 million for the same quarter of last year. And for the full year, operating income was $169 million, down $64 million as compared to fiscal year 2025.

Lower operating income was mainly driven by 2 areas. First, the Shank's business within our Ingredients segment experienced lower profitability and recorded a $41 million noncash goodwill impairment, and I'll address both of these items in more detail later. Second, higher inventory write-downs in our non-wrapper, dark air-cured tobacco business, combined with weaker performance.

For the fourth quarter, net loss attributable to Universal was $43 million as compared to net income of $9 million for the same quarter of last year. For the full year, net income was $33 million, down from $95 million for fiscal year 2025. Lower net income was again mainly the result of the noncash charges I just mentioned as well as weaker performance at Shank's and our dark air-cured tobacco business.

In terms of segment results, tobacco segment revenue was $632 million for the fourth quarter of fiscal 2026, up 3% versus the same quarter last year. For the full year, revenue was $2.6 billion, down slightly as compared to fiscal year 2025. Segment operating income was $27 million for the fourth quarter of fiscal year 2026 as compared to $46 million for the same quarter of last year. For the full year, segment operating income was $212 million as compared to $240 million for fiscal year 2025.

Lower segment operating income was mainly the result of lower profitability and higher inventory write-downs of non-wrapper, dark air-cured tobaccos. Specifically, for fiscal year 2026, total inventory write-downs for our tobacco operations segment were $43 million as compared to $19 million during fiscal year 2025 and an average of $14 million across the 5 years from fiscal year 2021 through 2025.

Now turning to the Ingredients operating segment. Segment revenue was $83 million for the fourth quarter of fiscal year 2026 as compared to $90 million for the same quarter of last year. For the full year, revenue was $348 million, up 3% as compared to fiscal year 2025. Segment operating income was $2 million for the fourth quarter of fiscal year 2026 as compared to $4 million for the same quarter of last year. And for the full year, segment operating income was $3 million as compared to $12 million for fiscal year 2025.

Despite significant industry headwinds, our FruitSmart and Silva businesses performed in line with expectations Lower operating income for the segment was mainly the result of Shank's performance and driven by higher fixed and operating costs related to the recent growth investments as we build our new product pipeline.

Regarding liquidity and capital structure. As of March 31, 2026, our net debt was $845 million compared to $817 million at the same point last year. The increase was mainly the result of higher working capital usage associated with purchasing and selling a significantly larger tobacco crop. Our liquidity availability, which includes cash and availability under our committed and uncommitted credit lines totaled over $1.2 billion.

Now I'll briefly shift to an introduction as Universal's new CFO. As Preston mentioned, I joined Universal in 2018, coinciding with the company's rollout of the enhanced capital allocation strategy. Since then, I've been closely involved in developing and executing that strategy, including the formation of Universal Ingredients platform through 3 acquisitions and the continued investment in its commercial and operational capabilities.

At the same time, I have led our financial planning and analysis function, supporting the company through a full supply-demand cycle in leaf tobacco, the complexities of COVID and the evolving macroeconomic environment that followed. Because of these experiences, I have a clear perspective on both the durability of our core business and the importance of financial discipline as we invest in growth. I am greatly honored to take on the role of Chief Financial Officer.

Universal combines a resilient, market-leading leaf tobacco business with an adjacent ingredients platform that has a strong core product and customer base, expanding capabilities and a long runway for growth. My priority is to deliver dependable free cash flow and balance sheet strength through disciplined capital allocation. This approach underpins our commitment to durable shareholder value across agricultural and economic cycles.

Now before I hand the call back to Preston, I would like to address the noncash goodwill impairment related to Shank's. When we acquired Shank's in October of 2021, we recorded approximately $41 million of goodwill. In accordance with U.S. GAAP, this goodwill was assessed periodically and no indications of impairment were identified prior to fiscal year 2026. Since acquiring the business, we have invested in growth, both in the form of capital expenditures to build new production capabilities and in commercial and R&D human capital.

During fiscal 2026, market conditions pressured revenues and profitability for both core products and new product development. As a relatively new player in this space, converting customer interest into sustained revenue and margin growth can be a lengthy process. And as of March 31, 2026, we were behind in executing our commercial strategy amidst the market headwinds. In response, management, together with a third-party consultant, conducted a valuation analysis and concluded that a noncash goodwill impairment was appropriate.

To improve execution, we have recently implemented a leadership level organizational realignment at Shank's. The focus is on strengthening commercial execution, improving facility utilization and enhancing financial and operational efficiency. Strategically, Shank's remains a key component of our ingredients platform, given its underutilized capacity, technical capabilities and role in supporting innovation and solutions-based offerings.

As CFO, I will focus on strengthening the execution and financial discipline across the company, ensuring we convert strategic intent into financial performance and on growing revenue and margins, controlling costs and deploying capital effectively to support growth, both organically and through future accretive acquisition opportunities.

I'll now turn the conversation back to Preston.

Thank you, Steve. As we look ahead to fiscal year 2027, our leaf tobacco business brings over 100 years of experience operating through complex and evolving global environments. Combined with our broad geographic diversification and long-standing customer relationships, this positions us well to manage ongoing oversupply and current market dynamics.

In Ingredients, our strategy is centered on clean label, healthy, organic and solution-based products and remains aligned with our customers' priorities. We will continue to support our customers as we work together to navigate the persistent market headwinds. Our ingredients focus remains on disciplined execution, including leveraging the investments we have made, strengthening commercial effectiveness, achieving operational efficiencies and improving financial performance.

We enter fiscal year 2027 focused on maximizing and optimizing our tobacco business, growing our ingredients business and strengthening our company for the next 100 years. This strategic approach strengthens the durability of our business and positions us to navigate market cycles and volatility while continuing to deliver long-term value to our shareholders, like our recent announcement of our 56th consecutive annual dividend increase.

Thank you again for joining us today. We will now open the call for questions.

[Operator Instructions] Your first question comes from the line of Daniel Harriman of Sidoti.

Steve, congratulations on the new role. I'll start with 2 questions today, and then I'll get back into the queue. But Preston, can you just talk about your confidence level that we'll get inventory normalization during fiscal 2027? I know uncommitted inventories were 27%, I believe. And then I wanted to see if there's any additional write-down risk in non-wrapper, dark air-cured tobacco.

And then if we set aside the impairment and the tobacco inventory write-downs, it appears that the overall business is operating at a high level. So I was just wondering if you could speak about the underlying trends in flue-cured, burley and the ingredients platform outside of shanks and kind of what that tells you about the setup for fiscal '27.

Thanks, Daniel. I'll start with the inventory. Yes. So that inventory number we disclosed, that's as of March 31, 2026. And leading into that, we've had some buying -- early days of buying, but buying in Brazil. So some of that is what we bought in Brazil. But we've already seen movement from March 31, just over the last 2 months. We're confident that we will be within our range for uncommitted inventory between 10% and 20% during the fiscal year. And we'll have a much better update and a much better view of things for our first quarter call in a couple of months. But at the moment, we're pleased with where things are going. And like I said, we're confident we'll be within that range during the fiscal year.

For the dark write-downs, we've taken those write-downs, in particular in the fourth quarter through sort of a thorough review of inventory on hand and market dynamics. All of that goes into sort of the accounting side of how we evaluate and determine write-downs to take. That was a thorough review at the end of the fiscal year based on current market dynamics. And going into this year, we feel comfortable that inventory positions are good, that we're working closely with our customers to make sure we have the volumes and the quality, in particular, that they need of non-wrapper and of wrapper tobaccos, and we'll monitor it throughout the year.

There's an accounting side to it where we always assess no matter what the tobacco style, we assess our inventory positions and values through the accounting rules, and we'll continue to do that during the year. But at the moment, given the extent of the fourth quarter write-downs, we're comfortable where we are right now with current market dynamics.

Yes. Just to follow on the -- from the accounting side of that, we record inventory at the lower of cost or what we estimate as net realizable value. And that's where, as Preston said, we did a deep dive into our inventories in Q4 to come up with the estimates that we did. So we feel good about going into this coming year.

I think your other question is a little more about view of fiscal year '27 and on both ingredients and the tobacco side, in particular, flue-cured and burley. So on the tobacco side, it's very early in the season for us. Markets are really just starting. In Brazil, we are buying in Africa and our footprint buying has started recently. The oversupply which carries over from the transition this past fiscal year '26 from undersupply to balance oversupply all in one time based on really large crops feeds into this year, where we also see large crops really across the world, flue-cured and burley.

Even though it's early days, we have a lot of experience with our strong local teams in managing crops in any type of market cycle, including oversupply. The key for us is our geographic footprint where we can mitigate risks from one origin to another based on current conditions, our really sort of broad portfolio of customers that require all the styles, flue-cured and burley and all the origins where we are, we're in all the strategic origins. And maybe most importantly, a lot of deep experience in knowing how to buy and how to buy the right grades at the right price.

And when we look at the undersupply years, there were places in the undersupply years where we were really forced and the market was forced to pay really high prices for practically all grades because it was such an undersupply. And oversupply, we have more flexibility. We have access to the tobacco we need. The larger crops give us also some additional benefits like third-party processing because of larger crops being handled by others. And we could be more, I'd say, more intentional, more strategic and more efficient in how we buy. So we know we're buying the right grades at the right prices. And then we can move them and try to protect margins with oversupply and with customers who have built up durations over the past few years with their large purchases.

It's very important that we're buying correctly. But we're also keeping in close contact with our customers. So we know their demands and know their needs, and we can plan accordingly. And that will continue throughout the year. But so far, that's been going well, and we are encouraged where we are despite lots of market dynamics, and it's early. So we'll continue that good work. But on the tobacco side, we feel good. We are experienced and we're entering it with the right strategies.

On the ingredient side, also encouraged. We're very happy with the strategy of ingredients and with shanks as an important part of that, as Steve had mentioned. We see inflationary pressure and some of the other market headwinds persisting into this year. So we will continue to navigate those. And I think for things example, like tariffs, I think we did a good job of navigating a lot of the direct impacts of tariffs this past year to minimize the costs that are going into our inventory and taking advantage of opportunities we had where maybe domestic sourcing gave us opportunities versus others who are sourcing overseas and paying those higher tariffs. with maybe more normalized tariffs this year, and it will also be fluid with tariffs.

But if tariffs remain lower this year or even go away, I am optimistic that, that will reduce some inflationary pressure that our customers feel with our own sales and products and certainly on the tariff side, impacts on their business from tariffs that are more direct to them. But that will give us opportunities to increase the volumes we would otherwise have sold to those customers this past year with those headwinds. And with the increased volumes focus on increased profitability and cost absorption.

So I'm happy with where we are, happy with our strategy. I'm really excited about what we're doing with Universal Ingredients and where it can go. And we're putting in the hard work and we're absolutely committed to growing our ingredients business, in particular, in Shank's, executing these initiatives so that we're operating as efficiently and as profitably as we can operate this year.

[Operator Instructions] We have a follow-up question from the line of Daniel Harriman of Sidoti.

I'm back. I guess I'll follow up with one more if there are no other questions. Sorry about that. problem. Steve, kind of like I mentioned, congratulations on the role. And I understand that you're not at all new to Universal and you're not new to financial management or really corporate development. But can you just kind of remind us of the company's capital allocation priorities and how you see the balance breaking down in the coming year, maybe between the dividend leverage and then continued investment in ingredients?

Sure. Thank you, Daniel. I really appreciate it. It's great to speak with you today. Yes. So our capital allocation strategy, which we announced right around the time I joined the company in 2018, it really has 4 pillars: strengthening and investing for growth in our leaf tobacco business, increasing our strong dividend, and exploring growth opportunities for our plant-based ingredients business. And then finally, returning excess capital through share repurchases. So that strategy hasn't changed. It's still consistent.

As far as the dividend goes, we are a strong cash-generating company and our dividend payout ratio on our reported net income this year is over 100%. But if you look back kind of over the last 5 years on an adjusted net income basis, it's been below 75%. So we feel really good about our positioning and our ability to continue to fund the dividend going forward. That said, our Board certainly reviews and management with the Board reviews our capital allocation strategy regularly and could make decisions based on new information that comes along. But as we sit here now, we see no change.

And from the ingredients kind of M&A strategy standpoint, no change there. We have not acquired any businesses since Shank's in 2021. We've invested in organic growth. We are now in kind of the phase of realizing the returns on that investment and earning the right for future growth.

And so as we kind of pull through this current expansion at Shank's and get new volumes through that facility to really leverage the cost structure that we have in place and the R&D and commercial people that we put in place, that's our focus now. And once we achieve that, we will be back in and investing in new opportunities for growth.

Daniel, if I can add on to that, in particular, the top of our priorities, which is investing in our tobacco business. We've got such a strong tobacco business. And even this year, if you take away the write-downs, primarily the dark air-cured non-wrapper write-downs, the rest of the business performed really well. And our tobacco business is so strong. We see lots of opportunities in terms of market share growth, volume growth, other opportunities for services that we see lots of opportunities to continue to invest in tobacco. At the same time, we're absolutely committed to investing in what we need to grow ingredients as well.

So we've -- our capital allocation strategy hasn't changed. I don't see it changing because I think it's the right strategy for us to grow the company as a whole. But both sides really have good opportunities going forward. I'm really happy with the priorities that we have in continuing to invest in tobacco.

Steve, seeing that you came to Universal at the beginning of the rollout with ingredients and where you are now, can you -- and you talked about this a little bit in the prepared remarks, but could you just kind of talk us through what that experience has shown you and prepared you and how you think you will use that in the CFO role? And then maybe how that -- how you incorporate that view into the long-term value proposition of the ingredients platform that some other people like us may not have a view on?

Yes. So I mean, coming into the role as a public company CFO, my #1 priority is to maximize long-term shareholder value by driving profitable growth, securing strict regulatory compliance and optimizing capital allocation. So I think achieving that falls into kind of 4 main categories, all that are underpinned by human capital management. First is on financial stewardship. So I must continue to build on the strong culture that we have here at Universal around compliance, financial reporting, tax, audit, all the nuts and bolts of finance.

Second is kind of taking that to the next level around financial excellence. So this is about continuous improvement. All the areas like budgeting, forecasting, capital structure optimization, tax strategies, cost management, capital decision-making. And in order to do all of this, we just need to make sure -- I need to make sure that we have the right people and the right systems and tools in place to achieve that.

Third is around supporting Preston and the Board on executing the strategy that we decided upon and maximizing in the 4 areas that I just talked about, maximizing and optimizing tobacco, growing ingredients, strengthening for the future and committing to the dividend. And so this includes not only ensuring that the strategy and vision flow through the finance organization, but partnering with the other resource groups and operations around the world to make that happen. And that kind of brings it to the fourth and final category of telling the story around the strategy.

So Universal, I believe, is uniquely positioned in the agri product space as a market-leading leaf tobacco processor. We have over 100 years of proven performance combined with developing an ingredients business positioned for long-term growth and value creation. And I'm excited to engage with potential investors and other external shareholders to tell that story.

With no further questions, that concludes our Q&A session. I will now turn the conference back over to Preston Wigner for closing remarks.

Thank you, JL. Thank you for joining our call today. We look forward to speaking with you during our fiscal year 2027 first quarter call in the coming months.

This concludes today's conference call. You may now disconnect.

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Universal Corporation Third Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions]. Thank you. I'd now like to turn the call over to Wushuang Ma, Vice President and Treasurer. You may begin.

Good evening, and thank you for joining us. With me today are Preston Wigner, our Chairman, President and CEO; and Johan Kroner, our Chief Financial Officer.

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 or achievements could differ materially from anticipated results, prospects, performance or achievements expressed or implied by such forward-looking statements, but 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 filed with ICC 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 may also include certain non-GAAP financial measures. For details regarding these measures, including a reconciliation of those 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 a replay on our website through May 9, 2026, and by telephone through February 23, 2026. This call is copyrighted and may not be used without our permission. Other than the reference replay, we have not authorized and disclaim responsibility for any recording, replay or distribution of any transcription of this call. I would like to now turn the call over to Preston.

Good evening, everyone. Thank you for joining us today. Fiscal year 2025 was an extraordinary year for Universal. We're following the year with solid performance at the end of our third quarter of fiscal year 2026. I'm proud of our company's dedication and commitment to delivering results for all our stakeholders.

During the third quarter of our fiscal year, our team executed well and advanced the strategic priorities that support long-term value creation. I'll start with our Tobacco Operations segment, which generated solid quarterly results in comparison to a robust third quarter last fiscal year. Customer demand remained firm for most tobacco styles following several years of undersupply. We continue to leverage our diverse global footprint, long-standing customer relationships and deep local expertise to optimize results as the market transitions into an oversupply environment.

Turning to the Ingredients Operations segment. We continue to advance our strategy in order to build durable commercial and operational fundamentals that support sustained growth. Sales revenue for our value-added products has started to make up a significant portion of our overall ingredients revenue. However, our segment results reflect higher fixed costs from the significant investments we made which have compressed margins. Additionally, market headwinds, such as the broader softness in the consumer packaged goods sector weighed on our business directly and indirectly and tariff impacts were more pronounced during this quarter.

These headwinds reinforce the importance of our disciplined and deliberate approach to investing in the resources and capabilities needed to provide resiliency and grow our ingredients business for the long term. While our global commercial and operational teams focused on delivering strong results, we also took several meaningful steps to strengthen our company and position ourselves for the future. We refinanced, upsized and improved our corporate credit facility, which significantly expanded our liquidity and improved financial flexibility. And earlier today, we were excited to announce the appointment of our new CFO, Steven S. Diel, effective April 1.

Steve brings strong financial, business and strategic expertise to his new role, and I look forward to working closely with them to advance our company's strategies and deliver value to our stakeholders. I will now turn the call over to Johan to review our financial and operational performance in more detail, after which I'll share a few additional thoughts.

Thank you, Preston. Good evening, everyone. For the 9 months ended December 31, 2025, consolidated revenue was $2.21 billion compared to $2.25 billion in the prior year period. Operating income was $183.4 million versus $190 million for the same period last year. Net income was $75.9 million versus $85.7 million for the same period last year.

In our Tobacco Operations segment, Revenue was $1.94 billion compared to $2 billion in the prior year period. Segment operating income was $185 million versus $194.4 million for the same period last year. In our Ingredients Operations segment, revenue was $265.2 million compared to $249 million in the prior year period. Segment operating income was $1.4 million compared to $7.9 million for the same period last year. For the third quarter of fiscal year 2026, consolidated revenue was $861.3 million compared to $937.2 million in the same quarter of last year.

Operating income was $82 million versus $104.1 million for the third quarter of last fiscal year. Net income was $33.2 million versus $59.6 million for the third quarter of last fiscal year. In our Tobacco Operations segment, revenue was $779.9 million compared to $853.9 million in the same quarter of last year. Segment operating income was $84 million versus $102.6 million for the third quarter of last fiscal year. In our ingredients Operating segment, revenue was $81.3 million compared to $83.3 million in the third quarter last year. Segment operating loss was $0.1 million compared to segment operating income of $3.7 million in the third quarter of last fiscal year.

Turning to liquidity and capital structure. During the quarter, with strong support from our existing and new banking partners. We refinanced our senior unsecured credit facility and upsized the facility by $250 million. The new facility significantly expands our available liquidity, lowers our borrowing costs, enhances our financial flexibility and positions us well to advance our long-term strategic priorities. As of December 31, 2025, our net debt was $995 million compared to $945 million at the same point last year.

Our liquidity availability, which includes cash and availability under our committed and uncommitted credit lines totaled $917 million. I will now turn the conversation back to Preston.

Thank you, Johan. We are pleased with our solid results through the first 3 quarters of the fiscal year. As anticipated, the leaf tobacco market is moving into an oversupply environment. Managing evolving market dynamics is an area where Universal has demonstrated consistent strength for more than 100 years. We're proud of our resilience and our ability to deliver strong performance under all market conditions. Our long history of tobacco leadership motivates us to build and grow Universal Ingredients to support our long-term success. Back in 2018, we made the decision and developed a strategy to diversify into food and beverage ingredients.

As part of that strategy, we made 3 acquisitions in 2020 and 2021 to gain a broad product portfolio, established customer relationships and experienced management teams. These moves created Universal Ingredients and established the foundation for a scalable differentiated platform capable of delivering and offering new innovative solutions-based products to our customers. To support that strategy, we invested in building commercial sales, R&D and product development capabilities and in adding industry-leading production capabilities. These investments culminated in the completion of our Lancaster, Pennsylvania facility expansion just over a year ago.

Since completing the expansion, our focus has been on leveraging these new resources and capabilities to grow Universal Ingredients and convert customer interest into sales. We're excited about the progress we've made since those early days in 2018. While we continue to navigate inflationary pressures and the impact of tariff headwinds, we're focused on increasing sales to absorb fixed costs from our growth investments in Universal Ingredients. We're encouraged by the continued steady interest in our enhanced capabilities and the growing breadth of our solutions-based product portfolio.

We are committed to continuing the progress we've made to date and scaling the platform to support stronger earnings, improved resilience and enhanced margins. Before we conclude today's discussion, I want to highlight our continued progress in advancing our sustainability priorities. We recently released our annual sustainability report, which highlights significant progress across our environmental and social commitments. Notably, we increased renewable electricity consumption nearly sixfold year-over-year with approximately 17.7% of our global electricity sourced from renewable energy. These actions support our approved science-based emissions targets and our commitment to achieve net zero greenhouse gas emissions across the value chain by 2050.

We also further demonstrated our support for farming communities globally, advancing our good agricultural practices and agricultural labor practices programs to maintain momentum across our social responsibility and farmer sustainability initiatives. Our disciplined execution and clear strategic focus provide a strong foundation as we move into the final quarter of the fiscal year. We are confident in our ability to execute on our strategy and continue creating long-term value for our stakeholders. Thank you again for joining us today. We will now open the call for questions.

[Operator Instructions]. Your first question comes from the line from Daniel Harriman from Sidoti.

I'll start this afternoon with Ingredients. And with the mention of the tariffs and obviously, the overall market weakness within consumer packaged goods, I was hoping you could help us understand how those issues are affecting both the traditional business within Ingredients and then also the newer solutions-based offerings?

And then in tobacco, you called out fiscal 2025. And while sales were down in the quarter, that's not necessarily a fair comparison considering the supply backdrop last year and margins have been holding up pretty well. So given that last year was a high watermark for the segment, how do you view the underlying performance of the tobacco segment this quarter considering solid sales and the -- like I said, the maintained margins.

Daniel, I'll start with Ingredients. So last year, third quarter, was a good quarter for Ingredients, we had revenues and volume both up over the prior year's quarter. And this year, we've been impacted by market headwinds, product mix and the higher fixed costs. And I'll talk about all 3. So on those market headwinds, which are affecting the industry and a lot of the sectors where our customers are, there's weakness in that consumer packaged goods sector and other food and beverage sectors and those inflationary pressures.

We're putting pressures on the consumer goods prices and therefore, from those customers pressures on us on our pricing and compressing our margins as well as tightening demand as their sales might decrease, then their orders from us will decrease. If it impacts them, it will impact us. And we've seen that maybe in particular, with sales this quarter of -- or sort of traditional core products. On the tariff side, we've talked about this a little bit in the past. We've had direct tariff impact with that indirect tariff impacts. Those impacts were just a little more pronounced this quarter than in the first half.

On the direct tariff impact, we've got tariff costs that are impacting the cost of the products that we import into the U.S. and incorporate in the products that we sell. And so we've got tariff costs in those raw materials that we're having difficulty this past quarter, capturing all of that in our sales to our customers. And then on the indirect impact, our customers have tariff impacts, which are impacting the sale of their products. Those tariffs might be impacting components of their products or packaging of their products, which has decrease their sales.

And again, if their sales decreasing, then potentially their orders to us are decreasing. On the product mix side, we had just a different mix of products with a little higher margins in the third quarter last year than we did this year. Some of those could be attributed, for example, to customer ordering based on forecasts of how they think their products were going to perform last year. So they might have ordered higher-margin products from us last year, ramping up for their sales into the market. And if those sales didn't turn out the way they had forecasted, then potentially this quarter, they would have had fewer of those sales or different products that they'd be ordering from us with slightly different margins.

So just a little bit of a margin mix. And then lastly, on the higher fixed costs, we've been talking about that for a while. We're still focused on scaling the business to absorb the costs and the investments we made to grow the ingredients business, including the expansion of our capabilities of the Lancaster extracts facility. We continue to try to absorb those costs, which are impacting our margins and impacting our earnings. So we're positioned to offer innovative solutions-based products to our customers, and our sales are up 7% year-to-date versus last year, despite this challenging market, and our goal is to maintain that momentum.

Sales of our new products have contributed to our increased sales, and we're focused on continuing to increase those sales and increased new and existing customer interest in Universal ingredients. We continue to add to our active product development pipeline that leverages our broad product portfolio across the full Universal Ingredients Foundation. And we think those capabilities and the products that we offer can help our customers deliver new or improved or unique products to navigate the existing headwinds that are impacting them. So our focus on the ingredient side, every single day is to convert that customer interest and the product portfolio into increased sales and volume across the factory floor.

So I'm really encouraged by the dedication of the team is putting in the hard work on a daily basis. And I'm really pleased with the progress that we've made and how far we've come since our early days of 2018. So on the tobacco side, as you mentioned, this has been a solid quarter and year-to-date for our tobacco business. Last year was an extraordinary year for us. In last year's third quarter, was really robust. We had very strong demand in the undersupply market last year. We moved a lot of tobacco in the third quarter, including accelerated shipments in the third quarter. And pricing, both for our farmer pricing, green pricing as well as our sales prices were high, resulting in high dollar margins.

And we also shipped more of certain kind of higher-margin dark tobaccos. Last third quarter, which supported a high operating margin last third quarter. This year, year-to-date, our tobacco segment revenues and operating income were only down slightly from last year's extraordinary results. Quarter-to-quarter, tobacco segment revenues and operating income are good, except in comparison to such a big third quarter last year. Last year's year-to-date and third quarter numbers were the highest that we've seen in a number of years. And just looking at the last 4 years for us, which were all solid years, our current year-to-date tobacco numbers are the second highest during that period.

And our third quarter tobacco segment revenues are second highest and our tobacco segment operating income is within $4 million of being second highest for that period. So last year cast a big shadow, but we're still performing well this year and this quarter. This year's large crops, especially in Brazil and Africa, and still firm customer demand have given us opportunities to keep up with last year's sales. And we've also increased our third-party processing based on the size of those crops.

But pricing is down slightly from last year. And we've had additional write-downs in certain dark air cured tobaccos that have impacted results and the comparative mix of products, which I just mentioned a second ago that we sold this quarter, third quarter versus last year's third quarter also had an impact with some higher-margin styles shipped at higher volumes last third quarter versus this third quarter. And then there's also some shipment timing impacts to the quarter-to-quarter comparison.

So we've leveraged our tobacco expertise, our diversified footprint and our strong customer relationships to navigate what's been a really complex year, and we're moving into undersupply, from undersupply to oversupply. And with all of that, I'm really proud of the job we've done around the world to deliver the results we've delivered and to support all of our stakeholders.

Your next question comes from the line of Ann Gurkin from Davenport.

Good evening, everybody. I'd love to pick up with the conversation around the tobacco segment. Do you think you'd be able to exit fiscal '26 with margins relatively in line with what you delivered in fiscal '25, I thought Q3 was better than I would have expected, and it's very impressive. So I was just curious if you can give me any kind of direction as to the full year tobacco segment margin?

Yes, I'd say we're still working hard on the quarter. We've got some tobacco to ship. Some of that tobacco is higher-margin tobacco that may have otherwise shipped in the third quarter. It's really going to come down to mix and to timing of shipments. Can we get all that tobacco out in the fourth quarter.

Okay. And any comments on the customers' inventory level or duration positions with your key customers? Any comments? Any insight you can share there?

Yes. We're in near constant communication with the customers. And I think with customers, it's a little bit of a mix. Some of those customers last year and into this year. They've been buying what they need and may be restoring some of their durations and looking at their duration policies. Some still have lower durations and they'll decide in the upcoming years, whether they'll return to those historically high duration levels or try to maintain a tighter duration and assume some of that risk as we go into oversupply.

Okay. And then do you have a worldwide uncommitted lease inventory number?

Yes. So estimated unsold secured and Burley stock was about 102 million kilos at December 31, 2025, which is about the same as it was on September 30 2025.

Great. And then switching over to the Ingredients segment. I'd be curious what your biggest surprise was from the Q3 results versus Q2 on a sequential basis?

I think the market headwinds and the impacts and the length of those impacts we've seen in the third quarter on our customers. I think that's had a bigger impact than maybe I would have thought a year ago. We're hearing and we're seeing lots of customers trying to keep up sales, trying to keep up volumes and their own margins and results through the third quarter.

But that will be cyclical, and we will -- we're going to continue to perform, continue to get in front of our customers and get our products sold. But I'd say that's -- to me, that's probably the biggest surprise.

Okay. As you break out the revenue component, can you break it out in volume, price and new customer wins?

We don't have that breakdown for public disclosure. It's -- and it's also a little bit of mix, the mix this quarter versus same quarter last year.

Do you anticipate in the next several quarters, pricing catching up with the higher tariff cost or input cost?

I think we are optimistic with continuing sales that maybe the higher cost inventory we have that's carrying those additional tariffs that we can get that through the system in the coming quarters and then get that behind us, that will certainly help.

Okay. And then can you quantify the amount of inventory write-down in the ingredients side in this quarter?

We had some, Ann, but that's like standard, the methodology that we used. We just looked at some of the inventory at the end of the quarter and determine whether or not it was -- the net realizable value was below the cost. So we took a little bit, but it was primarily in the dark air-cured space where we had to take some write-downs.

So it's more write-down in the tobacco space than it was in an ingredient space?

Oh, yes. Yes.

Okay. Okay. And then I'm just curious with the CFO announcement, congratulations, but I think you put out a press release in January of a CFO, and then now you have another announcement today. I'm just kind of curious if you can walk me through what's going on?

Yes. We filed an 8-K announcing that we withdrew our offer from Mr. Mittal to become our CFO and in our 8-K really speaks for itself. Instead, we were thrilled to have our press release this morning. And Steve cannot wait to join these calls and talk to you.

That's great. Preston, I also want to tell you how much I enjoyed your presentation at ICR. I'm so glad you all participated in that conference. It was a terrific presentation. I have a couple of questions if I can still ask questions in relation to that presentation. In the presentation, you talked about participating in the next-generation supply chain for tobacco companies. Can you just flesh that statement out a little bit for me?

Yes. As part of our strategy, we want to make sure that we have opportunities to participate in some way in the supply chain. Some of that we do today. So if they've got tobacco-based products like heat not burn for those customers, we want to make sure that, that tobacco is coming from us.

And then as they develop and expand other products, we want to have opportunities to be part of that supply chain for that as well, whether it's liquid nicotine or going forward with our universal ingredients abilities with flavors. So all of that, we we'd like to have that as part of our strategy, part of our growth going forward.

Okay. Great. And then you talked about investing in commercial sales and the platform and opportunities to cross-sell across the 2 segments. So I was wondering if I could get an update on your ability to leverage that investment? And are you recognizing realizing wins or cross-selling successes? Any kind of update there?

I think that cross-selling referred to products within the Universal Ingredients platform, I think. And that's a big part of what we're doing in terms of building that active pipeline, getting that commercial sales teams in front of existing customers, selling new products in front of new customers, selling new products, getting those in the pipeline back through. And we don't have them broken out separately, but that's a big part of the increased sales and also on the flavor side as well.

Okay. Great. And then just one more question. What tax rate should I use for the year?

It's a good question, Ann. As you could see in the filings, it ticked up a little bit. We had some hard look at our taxes. There were some taxes implemented in certain countries by law. So that had an impact on this. So like I said before, it's normally between 28% and 32%. We have been below that in the last couple of years, but we're ticking up slightly because of some of these changes. And of course, it depends on the mix, where do we make it in the currency, it's earned in. So all those things come into play in the next quarter.

There are no further questions for the question-and-answer session. I'd like to turn the call over to Preston Wigner for closing remarks.

Thanks, Jordan. Thank you for taking the time to join us today. We look forward to connecting again on our next earnings call.

That concludes today's meeting. You may now disconnect. Have a great day.

Good afternoon. Thanks for joining us. Welcome to the Universal Corp presentation. We're thrilled to have them here. Presenting for the company, we have Preston Wigner, who is the CEO and President. I'll turn it over to you, sir.

Thank you, Reed. Good afternoon, everybody. Thanks for coming. We're thrilled to be here to tell Universal's story. Those of you in the room, thank you for attending. Those of you on the webcast, thanks for dialing in.

As Reed said, I'm Preston Wigner, I'm the CEO of Universal Corporation. Not to be confused with Universal Studios down the road, Universal Corporation.

We're a global business-to-business agro products company. We've been delivering innovative solutions and quality products to our customers for well over 100 years. We're actually getting close to our 100-year anniversary, one listed on the New York Stock Exchange coming up next year.

One of our strengths and our competitive advantages is our global footprint. And we operate -- there you go. We operate in 5 continents, over 30 countries around the world, all in the strategic markets where we need to be where our customers need to be. Our roots are in tobacco supply.

So we're the world's leading leaf tobacco supplier. We contract with growers. The majority of what we buy is contracting through growers, 200,000-plus growers around the world, and we process and sell that to our large portfolio of customers. That business has generated strong and consistent cash flows for us over the years, year-over-year.

And I'll talk a little bit about our financial performance towards the end of the presentation. It's an exciting time to be at Universal. I'm a relatively new CEO, about 1.5 years.

We've got a lot of exciting things going on, on the tobacco side as we proactively grow our tobacco business. And we've got a new segment for Food Ingredients. It's Universal Ingredients, a new -- really new for us, ingredients company selling into the food and beverage markets in the U.S. and around the world.

When we talk about Universal, we always talk about sustainability as well. It's also a strength and a competitive advantage for us, especially on the tobacco side.

And I'll just touch on sustainability a couple of times today, so you have some sense of how important that is to us and what it means to us and what we do with it. In simple terms, we're the vital link between international farmers and suppliers and international customers.

We link local growers to a global marketplace for their goods, and we link customers to the world's agri products that they need to meet their needs and objectives and to meet the evolving needs of their customers.

We're led by a simple but strong 3-pillar corporate strategy. First is to maximize and optimize our tobacco business. Second is to grow our ingredients business. And third is to strengthen our company for the next 100 years. When I talk about maximizing and optimizing our tobacco business, really talking about growing that business.

With all of our strengths and capabilities and leading position in the market, we want to increase volume with our customers, increase market share with our customers, perform more supply chain services for them and participate in their next-generation product supply chain.

When I talk about optimizing, we also look inward. We're making sure that we're -- our footprint is strategic to our customers and it's operating, giving us the returns that we expect and that we're operating efficiently, cost effectively.

For growing ingredients, which is a new section of our company, we've acquired businesses. We've invested in the tools and resources to grow. And now we're looking to grow that business, both organically as well as through acquisitions.

And for strengthening the company, we look at how we perform, and we think we're performing really well. We've been in business a long time. We do things really well, but there's always areas that we can improve. We always want to be better 1 year after the next.

So we want to look at our financial resources, how are we managing our financial resources. We're managing them effectively, efficiently to maximize our profits. We look at human capital management.

Are we empowering our employees and training them and developing them for the future. And we look at technology. How can we use technology to be more efficient, make better decisions, whether it's robotics, whether it's AI.

And we look at our 2 segments. And in the future, we figure out how we can find synergies between those 2 segments. How can they both work together, leverage their strengths and capabilities to improve our performance.

So I'll start with our tobacco operations and give you a kind of high-level overview of our tobacco operations. And the first thing to understand is for tobacco, tobacco is not a commodity, it's a varietal.

So the tobacco that's grown around the world, it's all a little bit different. There are different types, different styles. What's grown in the U.S. is different than what's grown in Zimbabwe or Brazil.

And on a plant, the plant might have 20 separate leaves on the tobacco plant. All those leaves, all those different positions are slightly different. And all those different leaves and positions, they satisfy our customers' needs.

And I'll talk about why that's important and what our role in this process is and why we're so valuable to our customers. If you think of buying all the leaf in the world ex China, China is a huge market. All of that leaf is primarily used domestically.

So for the rest of the world, the total leaf supply is purchased by essentially 3 groups of competitors of ours. One is global leaf suppliers like Universal. The second is vertically integrated customers and a number of our large customers are vertically integrated.

And the third is local and regional suppliers. They may be in one market, they may be in multiple small markets. And we've got competitive advantages and benefits over all of those 3 groups, which will allow us to continue to grow our business.

On the global leaf supplier side, there's only one other global leaf supplier, and they are similar to us. They're smaller. They're based in the U.S. They aren't invited to ICR, so I'm not going to mention their name. But we are larger. We think we've got programs a little bit better, and we're financially stronger.

So our financial strength gives us the ability to perform well, to invest in ingredients, to invest in growth in our tobacco business as well as provide value to our customers. So we're very proud of that.

The vertically integrated customers, they have operations in some of the key strategic markets, where we also operate. Remember, I talked about that plant. And one of the big benefits that we have that we provide to those customers is that those customers may only need certain types of leaf positions.

They don't need that whole plant. But when we buy that plant and when they buy that plant from farmers, they have to buy the whole thing. So for us, we buy the whole thing, we disappear it across our broad customer base.

When they buy it, they may have pieces that they can't use or they have to force into their blends. So it's not as efficient, not as cost effective.

We also operate, of course, at scale. We're a huge company in all the major markets around the world. So we think we can pick up additional business through our customers as maybe they decrease their vertically integrated operations.

And the third are the regional and local suppliers. They don't have very many of the same things that we have. They certainly don't have all of them. If you think about sustainability programs, which are critically important in the tobacco business.

You think about support for farmers, which is important, factories, multiple operations in multiple markets, so they derisk for weather or for geopolitical environments. They don't have any of that, and we've certainly picked up market share over the years through that group.

With that, you look at our segment operating income, we've gone up, and that's on the slide. We've gone up over the last 5 years, showing our performance on tobacco, which we're really excited about, and we think there's more that we can do.

Our strength as a supplier, in addition to all those advantages I just talked about, which are also barriers to entry for new entrants into the market, we really focus on how we source agronomy, processing and logistics. In sourcing, we source strategically in a diverse global market. It gives us the access to the tobacco that our customers need.

It also derisks some of the issues that have come up, weather, tariffs, whatever it might be. We have really strong local operating teams who are experts in the ground, and they really know those markets and those markets will be very dynamic.

And we have a broad customer base. So anything that we're buying around the world, we're buying it, making sure we have a place to sell to those customers. We don't buy on a speculative basis.

On the agronomy side, really important for Universal. We support those farmers. Farmer success is our success. So we want to make sure those farmers are following good agricultural practices.

So the quality and the quantity of what they grow is what's needed. And we also want to make sure those farmers are complying with our sustainability programs. We have strict sustainability programs. We expect them to follow, our customers expect them to follow. Some of our investors expect them to follow. So we have agronomists that work with those farmers to educate them on those programs, to help them comply with those programs and then to monitor their compliance and collect the data so that we can report transparently on their progress.

And on processing, we've got processing facilities in all the key markets. They're large processing facilities. They're built for volume, they're efficient, and they can meet our customers' demanding specifications. And finally, logistics. I talked a little bit a second ago about being the vital link between our growers and our customers.

On logistics, we're experts at logistics, in particular, places that are difficult to operate in rural areas around the world. We're experts at helping move tobacco from farm to factory, factory to port, port to customer. All of those strengths help defend our leading market position and has given us the ability to grow and perform as well as we have for over 100 years.

On the Ingredients side, a sort of a different story.

Long history on tobacco, market leader, everybody knows us. Universal Ingredients, new company on the block, new segment to our market, and we're really excited about what we're doing in Universal Ingredients. I'm really proud of what we've done just since 2018. 2018, we had a strategy. Now we've got a segment and a real operation, integrated acquisitions that we've made since 2018, we sort of thoughtfully, carefully acquired companies to give us the functions that we thought we needed for a platform.

We've invested in that platform to give them the tools they need to grow and succeed. And now they're operating. And now what we're looking to do is to grow organically while we think about our next acquisition for the group.

Those acquisitions, they gave us the ability to process fruit, so we can do fruit juices, fruit purees, essences, dry by products, all sort of functional ingredients on the fruit side.

On the vegetable side, we have dehydrated vegetable capabilities, so we can process dehydrated vegetables in practically any sort of form from granules to powders and everything in between and blends. And we acquired a company that had botanical extracts and flavors.

And with that company, the ability to -- through botanicals, green label plant-based extracts, produce extracts, produce flavors that have flavor profile, flavor library, and we bought that and added to that. To give them the tools and resources they need to grow, we invested in commercial sales and marketing.

So the commercial sales helps us sell products across that platform, instead of 3 separate companies selling 3 separate products. We've got commercial sales that can sell across the platform. In addition to existing customers, we can sell all 3 companies' products to one customer.

We can sell combinations to existing customers, and we can find new customers in new markets, where we're targeting. We've also invested in R&D and product development, so important on the ingredient side. So we understand the science behind the products that we produce, their functions and what they can do.

And on the product development side, we can be proactive with our customers and combine products and present products that are in their products to help solve their problems, help give them advantages and with our marketing group, understanding trends in the market, consumer trends, customer trends, market trends, we can help them stay ahead of the curve on those trends while they develop products with our ingredients included.

And finally, we've invested pretty heavily in expanding the capabilities of the group, including most recently a $30-plus million expansion into that extracts and flavor company. And that expansion gave them additional extraction capabilities, different types of extraction, bulk blending capabilities and aseptic packaging capabilities, all under one roof, which is relatively unique and that provides some logistical benefits and some sustainability benefits to some of our customers.

So now where we are with Universal Ingredients, we've built it, we've invested in it. Now we'd like to see a return on that investment. So now we're looking to scale up. We need scale, so we can generate the volume going across the factory floors, generate the margin and income coming in to cover our costs and start adding even more significantly to Universal's performance.

We are leveraging our diverse product portfolio, giving us flexibility to meet the changing trends with customers, changing trends in the markets.

So we want to have fruit, vegetable, extract, flavors, blending, tea, coffee, blending, extracts, all of that available to our customers.

In addition, we're looking at the research and development, always looking at how we can be better, more technically proficient, and we can produce what those customers need, understand the science behind it.

And being proactive. We want to co-create products with our customers. We want to -- we're always happy to take orders from their procurement group, and we'll fill those orders. But what we're looking at is value-added products with higher margins.

We want to work with the product development teams of our customers and co-create products that help them keep up with current trends. So there's a current trend for flavors. We want to show them how our products, our flavors can help them introduce products into their lines and make them profitable and achieve their own growth goals.

And finally, on packaging, I talked about aseptic packaging, an efficient, especially under one roof, some efficiencies, especially logistics efficiencies for our customers.

They can get extracts, they can do bulk blending and then instead of having to freeze that and move it or move it in refrigerated trucks for aseptic packaging somewhere else, it's all right there.

Once it's aseptically packaged is shelf stable and based on the packaging and the types of packaging varieties we've got, it's also reduced packaging usage for our customers on their shelves, a little more efficient.

I talked about sustainability, just a second there with aseptic packaging and all the benefits of aseptic packaging. Sustainability is important to us, and we're really focused on to date on sustainability of our operations, our actual factories, sustainability for our tobacco farmers.

Again, those sort of direct contracting with farmers, direct access to farmers, how they're performing. For those of you who speak sustainability, Scope 3 for emissions, for example, that's Scope 3 for us is our farmers and making sure they're operating the way we need them to operate, so we can meet our goals and also supporting the communities in which we operate around the world.

We set high standards for ourselves and our customers on the tobacco side also set high standards for us to meet. We take this very seriously. It's good business for us because our customers value it, but it's also good stewardship for the communities where we operate, and it makes our farmers better and more successful.

We also spend a lot of time collecting data, and we've got different forms and different systems we use to collect data. And we think it's important to report that data consistently and transparently. So we're very proud of our sustainability reports and the most recent sustainability report, I think, went out last week.

So visit our website, you can see our sustainability report and see our goals, our progress against those goals and the data for our sustainability.

And we think that, that's going to be very important for our tobacco customers. I also think sustainability is going to become more important on the ingredient side. Certainly, if I've been sitting in some of the conference presentations, I've heard a little bit about sustainability, but I think other than price to the consumer, once some of that's figured out, I think sustainability is going to become more and more important in the food and beverage markets.

And I think with our sustainability expertise from the tobacco side and what we've been able to accomplish in our systems, I think we can leverage that and tailor it to our ingredients company for Universal Ingredients and give us a competitive advantage there as well.

Financial overview. So I've talked a lot about how great Universal is. How have we done? So we've done well. If we look at the last 5 fiscal years, we made progress on all those 5 fiscal years. Adjusted EBITDA has gone up each of the last 5 years, 9% CAGR over those 5-year period.

Free cash flow has also gone up year-over-year over the last 5 years. Again, especially on the tobacco side, we generate strong cash. And we've been using those strong cash flows to invest in our company for growth, both on the tobacco side and on the ingredient side as well as paying down debt. We acquired those 3 companies.

We used our credit facility to buy them. And now we are paying that debt down. We're really fiscally conservative on our debt levels. It's around 2.5x adjusted EBITDA. And that will give us opportunities in the future as we pay down that debt.

So we're really focused on our debt level, keeping that down low, taking it down lower and also maintaining our credit grade -- our credit rating with rating agencies. And that's prudent -- just prudent management. Also not on the slide, but very important to us is our return to our shareholders. And this past year, we've had our 55th consecutive annual increase to our dividend.

We're very proud of our dividend history and our ability to generate the funds to reward our investors for investing in our company. And they'll only benefit in the future with where we can take Universal Ingredients, really exciting to see where that can go as well as our strong tobacco business that continues to perform well and should continue to perform well in the future.

So I'm going to wrap up and say the why Universal. I think it's a lot of excitement at Universal, certainly an exciting time for me to be in a position to lead a company that's so strong, doing so well, great strategy.

We're putting in the work to make this work, to make it profitable and to make it sustainable long term. We're building this for our next 100 years. So we're trying to build a really solid base to start from. We've got leading tobacco business. We're the leader in the industry.

And with all of our strengths and capabilities and those barriers to entry, we can go up with our business on the tobacco side. The ingredient side is really exciting. There's a lot of work to do. It's a lot of work getting our name out there so that customers, vendors, they know who we are. We partner with them. They trust us.

We can grow with them. So we're putting in the work. We're getting progress. And again, we're building scale, lots of excitement for the future for Universal Ingredients. And we're really proud of our sustained performance, both on the cash flows as well as returns to our shareholders. So thank you all very much for your attendance. And maybe we'll see you next year. Thank you.

Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Corporation Second Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Wushuang, Vice President and Treasurer. Please go ahead.

Good morning, and thank you for joining us. With me today is Preston Wigner, our Chairman, President and CEO; and Johan Kroner, our Chief Financial Officer.

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. They are representative as of today only. Actual results, performance or achievements could differ materially from 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 February 6, 2026, and by telephone through November 20, 2025. This call is copyrighted and may not be used without our permission. Other than the referenced replay, we have not authorized and disclaim responsibility for any recording, replay or distribution of any transcription of this call.

I would like to now turn the call over to Preston.

Thank you, Wush. Good morning, everyone. Thank you for joining us today. We're pleased with our performance in the first half and second quarter of fiscal year 2026. We saw strong operational execution for both segments of our company, and we are working diligently to continue that performance through the second half of our fiscal year.

Let's begin with our Tobacco Operations segment, which continues to perform well. Tobacco buying is largely complete in most key growing regions, and crop sizes are significantly larger this year following several years of smaller crops due to weather. Green tobacco prices have softened in certain regions compared to the prior fiscal year. Shipments are progressing smoothly, and we are shipping tobacco earlier than we did last year.

Customer demand has remained firm following several years of undersupply despite significantly larger crops this fiscal year. As expected, carryover crop sales were lower for the 6-month period, reflecting significant shipment volumes earlier in the prior fiscal year. Uncommitted inventory levels remain low and well within our target range.

We believe that tobacco supply and demand are generally balanced at this point in the fiscal year, and we expect tobacco to move into an oversupply position by year-end. We have historically performed well in slight oversupply market conditions. It allows us to meet customer needs while also pursuing opportunity sales. Our team is experienced in managing oversupply markets, and we are confident in our ability to navigate the change in market dynamics.

Now turning to our Ingredients Operations segment. We maintained positive momentum with higher sales and volume in both the quarter and the 6-month period ended September 30. Interest in our new value-added products continues to grow, and we are maintaining an active pipeline. Universal Ingredients' enhanced production and operational capabilities are supporting this growth.

Demand for our new products remains solid, while fixed cost, product mix and external challenges, including weakness in the consumer packaged goods industry and tariff uncertainty, had a negative impact on earnings. We are taking a proactive approach to meeting our customers' strategic needs, focusing on organic growth and converting customer interest into product sales so we can continue to build scale and generate returns on our investments. We believe the Ingredients segment is well positioned to capitalize on those investments and drive future growth.

I'll turn it over to Johan to walk through our financial and operational performance in more detail. After that, I'll offer some additional thoughts and open the call for questions.

Thank you, Preston. Good morning, everyone. As Preston mentioned, we are pleased with our performance for the first half of fiscal year 2026 with improved results from our Tobacco Operations segment and higher sales volumes in our Ingredients Operations segment.

For the first half of the fiscal year, consolidated revenue was up $40 million to $1.3 billion. This increase was driven by higher third-party tobacco processing volumes, accelerated current crop tobacco shipments and increased sales volumes in our Ingredients Operations segment. Operating income rose $16 million to $101 million, primarily due to a favorable product mix in the Tobacco Operations segment. Revenue increased $22 million, reflecting higher third-party processing volumes. Segment operating income was up $9 million due to a favorable product mix. While overall tobacco sales volumes were slightly down, about 1%, higher and early shipments of current crop tobacco largely offset lower shipments of carryover crop tobacco. Segment results reflected continued firm customer demand, a favorable product mix, larger current crop shipments, particularly from Brazil and African origins, and increased third-party processing volumes. These positives were partially offset by higher inventory write-downs.

Turning to our Ingredients Operations segment. Revenue was up 11% on increased sales volumes. Operating income was lower, reflecting a less favorable product mix, higher fixed costs, including additional depreciation from our recently expanded production facility, and higher inventory write-downs.

Finishing up, on the first half of fiscal year 2026, we are focused on managing our working capital. Additional purchases of tobacco due to larger crop size increased our inventory versus the same period last year. Despite that, net debt was down $52 million on September 30 compared to the same date last year. We had approximately $340 million available under our revolving credit facility as of September 30, and interest expense was down $4 million year-over-year.

Now looking at our second quarter results. Consolidated revenue was up $43 million to $754 million, driven by higher tobacco ingredients sales volumes. Operating income decreased $1 million to $68 million, with higher sales volumes and lower restructuring and impairment costs slightly offset by unfavorable foreign currency comparisons, higher inventory write-downs and increased provisions for farmer advances.

In the Tobacco Operations segment, revenue rose $29 million on a 3% increase in tobacco sales volumes. However, segment operating income declined by $12 million due to unfavorable foreign currency comparisons, higher inventory write-downs and a less favorable product mix. The Ingredients Operations segment delivered higher revenues on increased sales volumes. Operating income, however, was lower in the quarter despite those volumes, reflecting ongoing challenges in the consumer packaged goods industry, tariff uncertainty, higher fixed costs from our expanded facility and higher inventory write-downs.

And finally, restructuring and impairment costs for the second quarter of fiscal year 2025 were $10.6 million. We did not have any restructuring and impairment costs in the second quarter of fiscal year 2026.

I would like to now turn the conversation back to Preston.

Thank you, Johan. We are pleased with the first half of our fiscal year. We are absolutely committed to continuing our strong operational performance through the second half. We will also continue to find opportunities and the challenges. Our diverse global footprint, long-standing customer relationships, deep local expertise and the unique value Universal offers our customers support our strategic commitment to growth.

Our Tobacco Operations team remains focused on maximizing and optimizing our tobacco business. This includes offering additional services to our customers and leveraging our deep experience to navigate changing market conditions, including the expected shift to an oversupply environment later this fiscal year. At the same time, our Ingredients platform is continuing its momentum and is focused on growth. With our expanded facility, we will capitalize on our investments in extraction, blending, aseptic packaging and other capabilities.

We're also focused on strengthening and expanding our customer engagement. Our sales, marketing and product development teams proactively showcase our abilities and help convert customer interest into product sales. We remain committed to driving organic growth, creating value across the platform and delivering customized, differentiated solutions to our customers. As we continue to focus on delivering long-term value, our commitment to sustainability strengthens our operations and manages risk across our company.

We continue to make meaningful progress in our transition to renewable and lower emission energy sources. We have significantly expanded our use of clean electricity as an important element of our carbon transition plan. This continued progress demonstrates our strong commitment to operational efficiency and environmental stewardship. Investing in clean energy, such as on-site installations at our operations in Italy, the Dominican Republic and the Philippines, supports our sustainability goals, strengthens the resilience of our operations and creates long-term value for our stakeholders.

To wrap up, Universal continues to execute with discipline across key areas of our business. The first half of our fiscal year saw solid performance, advanced operational execution and meaningful progress in our sustainability efforts. These results reflect our commitment to long-term value creation, resilience and responsible growth and position us well for the second half of fiscal year 2026.

Thank you again for joining us today. We'll now open the call for questions.

[Operator Instructions] Your first question comes from the line of Daniel Harriman of Sidoti.

Congrats on the quarter. I'll start off with two today, one for each segment, and I'll begin with Ingredients. Preston, you mentioned solid demand for your value-added products, but also obviously, mix, fixed costs and broader consumer weakness weighed on earnings. To the extent that you can, can you give us a sense of where utilization stands now at Lancaster and then how quickly you expect fixed cost absorption to improve as you continue to scale volume there? And then with tobacco, I was just hoping to kind of get your thoughts on -- with larger crops and softer green leaf pricing, as the new crop shipments continue to ramp, what are your thoughts and how confident are you on pricing discipline and margins through the back half of the year?

Thanks, Daniel. I'll start with Ingredients. Yes, that's -- with that new facility that we've enhanced the capabilities and the investments for our campus for our extracts business. The goal is to fill that facility and to build scale, not just there, but across the platform. And we are off to a good start from where we were just a year ago, ribbon cutting. I'm very pleased with the progress we've made to grow revenues, to get volume through there and to maintain and increase an active pipeline.

A lot of that pipeline conversion is a long process, and it's a slog that our team fights on a daily basis. First, proactively making sure we're reaching out to customers to understand what their needs are, to meet with those customers and offer them the products and solutions that they need, as well as understanding their evolving needs and future needs and what can we produce for them that they may not use today, but they'll use in products going forward. And all of those projects in the pipeline move at different speeds. And we're very pleased with how we're converting the pipeline, how we're growing our products and our sales. And we're building scale. And yes, we've got to cover those additional costs, and that will take time. But as those product interest and pipeline interest turn into volume, I'm confident that we will continue to increase our scale, increase our volumes and sales, and we'll be able to cover those costs going forward.

On the tobacco side, I'm very comfortable with where we are in the year. I'm very comfortable with what I see for the second half of the year for this year, certainly because we don't buy on a speculative basis. Our uncommitted inventory is low at 13%. And we have lots of tobacco we need to ship for the second half of the year. But I'm confident in our ability to convert that. It's going to be subject to timing on shipments. And assuming there's no unforeseen market disruptions, we'll get those shipments out.

And I'm comfortable with pricing. I talked about green pricing, really large crops this year. Green pricing, as I mentioned, has softened in certain markets, but it's been a little bit of a variety in the different markets. Some markets have softened a little bit, some are stable from where they were last year. Some might even be up. Some markets were down, and then at the tail end of the buying season, they went back up, which is really a reflection of that -- still that firm demand. And with that firm demand and still pretty stable pricing, I'm very comfortable with where we're going. We just have to see how shipments end up throughout the third and the fourth quarter.

Your next question comes from the line of Ann Gurkin of Davenport.

So I wanted to start with the Ingredient segment. I'm surprised by the loss in the second quarter. I understand the reasons. So my first question is, you touched on a little bit about conversion and the pace of conversion from the customer interest versus your internal expectations. And is it a factor of end markets slower, customers are more challenged, maybe waiting to see how inventories are going to align or sales are going to align? Can you just talk about kind of the pace of conversion?

Sure. Yes, it's -- I think all those factors you mentioned impact the platform. Across the board, not just one part of our platform. And I'm very pleased with how we've navigated that through the quarter, through the first half, where we've had top line growth in a market that's really been difficult for CPG companies and lots of people in the industry to achieve growth with the types of headwinds that are out there.

And some headwinds might affect us directly, like tariff, for example, on raw materials that we might bring in. And some are impacting us indirectly. If they're impacting our customers, then they potentially impact us. And we've seen some of that in the quarter. Our teams on the ground are very experienced in managing procurement and particularly with our dry vegetable ingredient company, navigating tariffs, which they've done in the past, balancing their procurement strategies and their inventory strategies to try to service their customers while also trying to protect margins and returns.

But overall, for the project pipeline, that's hard to predict because everything is moving in sort of different speeds. Some things -- because of our broad kind of product portfolio, some things a customer needs are core products that we've got. And it might be something like vanilla. And with vanilla, vanilla pricing is an all-time low for the raw product. And so we might have very good margins on vanilla. But on a dollar basis, those are down because the raw material is down.

Other areas, there might be opportunities for us to sell a product to a customer that's core for an existing line of our business, but we can add sales of other core products from other existing lines of our business through our platform commercial sales and having some commercial synergies across the platform to grow sales that way. And then for value-added products, some are new products to customers, some are existing products that we are trying to transform with additional products in the portfolio to make a value-added blend for customers. And if it's switching out an existing product that they're getting from another vendor to us, that might work at a certain pace. If it's a new product that we've offered that they aren't getting from somebody else and it's a customized solution that we're providing, that might take longer to get through the pipeline. So it's hard to convert the pipeline into weeks and months and years of conversion. It's a real mix. And the current environment does factor into that for our customers. If it impacts our customers, it potentially impacts us.

Great. So for the year, for Ingredients, can you deliver profits in line with what you delivered last year?

Yes. I think this year, I'm very happy with where we are for the first half. I'm very pleased with what I see moving forward and the work and the effort that's getting -- that's going into it. I'm very happy with what we've built and the resources that are helping us grow on the top line.

We still have significant costs to cover. And as we've said, we're always focused on growing scale to cover those costs across the platform, not just for our Shank's expansion investment. So we're going to have to wait and see for the rest of the year how market conditions change, how the headwinds change, tariff variability. Are there going to be changes with the Supreme Court ruling and tariffs? What's that going to impact for our customers? How are they going to change their ordering and buying strategies? So it's still early in the year to figure out where we might be for Ingredients by the end of the year.

Great. Okay. Switching to Tobacco. Nice to see a stronger-than-expected quarter and margin than we were looking for on the Tobacco segment. And the end market demand or customer buying was stronger than we would have thought given the movement of the industry into balanced or slight oversupply situation. So I was wondering how much of the quarter upside in Tobacco was due to earlier shipments. Can you quantify that number?

We don't quantify the number. We did have accelerated shipments, and we still -- with larger crops and still firm demand, we still have a lot of tobacco left to ship in the second half. So again, with -- as always, shipping can impact quarter-to-quarter and fourth quarter into the first quarter. But we're very pleased with where we are and really optimistic for the second half of the year.

So the decline in the uncommitted inventory from, I think it was 20% last quarter to 13% this quarter, was that accelerated shipment? Was that all pulled forward in this accelerated shipment number? Or is there some other factor in that decline in uncommitted tobacco leaf inventory number?

And that's methodology, right? At the end of the day, depending on how you do it, but we want to be consistent. So year-over-year, that's the way we do it, quarter-by-quarter. So no, that's not really reflective of that. We're really happy with the 13%. And clearly, we're sitting on the slug of tobacco, inventory is still up. So we expect to ship a lot of that in the next 6 months.

Great. And for the full year, where do you anticipate that uncommitted inventory number being? Do you think you'll stay within your comfort range?

I think -- well, I think we'll stay within the comfort range. We're in the comfort range right now. Yes, there's still a lot to go, depends on shipping timing, making sure we get customer shipping instructions early enough to get it out for the year. But because we don't buy on a speculative basis, we are very comfortable with current levels and where we're going. But we do communicate on almost a daily basis with our customers to make sure that the tobacco ships as we end the year going into another year of large crops.

Great. SG&A was lower than we were looking for. Should we use that number in the back half?

You know well as anybody, Ann, that it all depends on a bunch of variables there. Even between the quarter and the 6 months, there were some things that were different. We had some favorable FX variances on one side, and then we had some other things going on. So it really depends on what the back end of the year brings, and we'll go from there. But there is just a lot of variables out there, exchange rates, what are they going to do going forward. We'll have to see.

And the same question for interest expense.

Interest expense, we're really trying to bring down that leverage. I think we -- year-over-year, we have done a good job there. It all depends on how quickly can we ship this tobacco and bring down that leverage even further.

Great. And then do you have a worldwide uncommitted leaf inventory number?

Yes. So the worldwide estimated unsold flue-cured and burley. Stocks were at 101 million kilos as of September 30, and that's up 76 million kilos from June 30 of this year.

Is that because of large oversupply?

Because of the large crops, right?

Yes, large crops.

Crop, sorry, large crops?

Yes. Yes, ma'am.

There are no further questions at this time. And with that, I will turn the call back over to Preston Wigner for final closing remarks. Please go ahead.

Thank you all for taking the time to join us today. We look forward to connecting again for the third quarter fiscal year 2026 earnings call.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.