Q1 2024 Universal Corporation Earnings Call
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time your lines will remain on music hold thank you for your patience.
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But after noon, ladies and gentlemen, and welcome to the Universal Corporation first quarter fiscal year 2024 earnings Conference call. At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call required immediate assistance. Please press star zero for operator.
I would now like to turn the conference over to Jennifer Row. Please go ahead.
Thank you for joining us George Freeman, our chairman President and CEO , Eric <unk>, Our Chief operating officer, and Johan Kroner, Our Chief Financial Officer are here with me today and will join me in answering questions. After these brief remarks.
This call is being webcast live and will be available on our website and on telephone taped replay.
It will remain on our website through November 2023.
Other than the replay we have not authorized and disclaim responsibility for any recording replay or distribution of any transcription of this call. This call is copyrighted and may not be used without our permission.
Before I begin to discuss our results I caution you that we will be making forward looking statements that are based on our current knowledge and some assumptions about the future and are representative as of today only.
Actual results could differ materially from projected or estimated results and we assume no obligation to update any forward looking statements.
For information on some of the factors that can affect our estimates I urge you to read our 10-K for the year ended March 31 2023.
Such risks and uncertainties include but may.
But are not limited to impacts of COVID-19 customer mandated timing of shipments weather conditions, political and economic environment government regulation and taxation.
Changes in interest rates.
And exchange rates industry consolidation and evolution and changes in market structure or sources.
Finally, some of the information I happy today is based on unaudited allocations and is subject to reclassification.
In an effort to provide useful information to investors. Our comments today may include non-GAAP financial measures for details on these measures, including reconciliations to the most comparable GAAP measures. Please refer to our current earnings press release.
Our tobacco operations performed well and are off to a good start for our fiscal year 2024.
Operating income was higher for tobacco operations segment in the quarter ended June 32023, compared to the quarter ended June 32022, even though we did not have the benefit of large shipments of carryover tobacco from certain origins that we had in the first quarter of fiscal year 2023.
Demand for leaf tobacco from our customers remained strong and our level of uncommitted tobacco inventory was 16% of tobacco inventory at June 32023.
We are forecasting increased leaf tobacco production in fiscal year 2024, compared to fiscal year 2023, and believe that even with the increased production leaf tobacco, we remain in an under supply position.
We are pleased with the ongoing progress we are making to integrate our plant based ingredients platform and we continue to execute on our strategy to invest in and expand platform's capabilities for future growth in existing and new products.
For the quarter ended June 32023, the platform faced soft demand due to high customer inventory levels and our earnings for the platform were below our expectations.
We believe that many of our customers are continuing to draw down on the raw material inventories after building inventories to protect against prior supply chain uncertainties.
The inventory challenges have been more extensive and persistent in duration than we had forecast.
In addition, the expansion of the platform's capabilities added to our costs while.
While a sharp drop in certain new crop raw material prices resulted in inventory write downs in the quarter ended June 32023.
We continue to believe the inventory challenges are temporary and expect excess inventory levels held by our customers to eventually worked down.
One of the main objectives of our current investments in our plant based ingredients platform is to expand our portfolio to include more value added products to our customers.
We believe that we are well positioned to capitalize on demand from our customers and that with the investments. We are making we are a stronger partner for current and future customers due to the expanded range of capabilities and products that we can offer them.
We are encouraged by ongoing customer engagements regarding existing business and new business opportunities.
Some financial highlights for the quarter ended June 32023.
Net loss for the quarter ended June 32023, with $2 1 million or <unk> <unk> per diluted share.
Excluding certain nonrecurring items detailed in todays press release net income and diluted earnings per share decreased by $8 2 million and 33, respectively for the quarter ended June 32023, compared to the quarter ended June 32022.
Operating income of $11 million for the quarter ended June 32023 decreased by $2 two.
$2 million.
Segment operating income for the tobacco operation segment was up <unk> 8 million while segment operating income for the ingredients operation segment was down $6 6 million for the quarter ended June 32023, compared to the quarter ended June 32022.
Selling general and administrative expenses were up $9 million in the first quarter of fiscal year 2024, compared to the first quarter.
Fiscal year 2023.
Our cost, notably interest costs and prices for Green leaf tobacco remained high in the quarter ended June 32023, compared to the quarter ended June 32022 interest costs were more than double on higher interest rates in the first quarter of fiscal year 2024, compared to the same quarter of fiscal year 2023.
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Our debt balances the sum of notes payable and overdrafts and long term obligations were relatively flat in the quarter ended June 32023, compared to the same quarter in the prior fiscal year as working capital requirements to fund larger tobacco crops and higher green tobacco prices were partially offset by increased customer deposits.
We continue to make transparency around our sustainability efforts and goals at priority. We recently completed our annual submission to the global nonprofit organization CDP regarding climate change forestry and water risk to provide more information on our achievements in these areas to our stakeholders.
We continue to work with third parties to verify our emissions and establish our pathway to net zero through the identification and prioritization of high impact projects throughout our footprint.
At this time, we are available to take your questions.
Okay.
Thank you ladies and gentlemen, we will now begin the question answer session. If you would.
I'd like to ask a question. Please press star followed by the number one on your Touchtone phone.
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First question comes from the line of Ann Gurkin from Stephens. Your line is now open.
Good evening everybody.
Hey, Brian .
Hi, I wanted to start with the ingredients business.
Couple of questions related to that business. When do you think end market demand has changed for plant based products. So I think some companies customers are commenting maybe slower end market demand not inventory build because of Covid bill, but just overall market dynamics I was wonder if you could comment on that.
I don't.
I have not seen.
Right.
Looking at sort of the end users to whom we sell obviously drastic reduction.
Their sales.
Volumes, we think it's just they're just.
It's just right.
Right sizing and streamlining their supply chain.
And.
It's gone on longer than we expected I think there are some mixed signals that it may be abating soon but we can't we don't know for certain.
Okay.
And then I think last time last quarter, you talked about investing to expand capacity is that on track or make an update on that that objective.
Yes. It is.
On that.
That will not come online until calendar year 2024 somewhere.
Okay, Great and then in the release when you talked about.
Including more value added products for our customers does that include potential M&A or is that more reflecting the capacity you're adding sorry.
The capacity and its excluded.
Buying the three the three.
Three pillars.
To produce.
Yes, and as well as we have pointed out previously and that's why we're incurring additional cost with regard to resources on the R&D side.
We have brought on quite a few people in order to be able to.
Create some some some solutions for sure if I caught it.
Customers that use the entire platform and our ability to be able to go to these customers with unique solutions for what they're looking for.
Great. That's great and then can you comment at all on projected sequential improvement in margins for the ingredients segment for fiscal 'twenty four.
No really can we need to first get out of this patch of soft demand then we can go there but currently.
Soft demand there is pressure everywhere.
In order to.
After sales that we have so.
Those pressures are just they are right now if we get out of that patch then we can go from there.
How about can you turn a profit in the business for the fiscal year.
Yeah, we certainly hope so because ethanol while we're in it but again it all depends on how long this patch lasts and when this thing turns around on us if it lasts long enough. We certainly it's not across all of the items, we're seeing an uptick in demand in certain areas, but again.
These things certainly lasting longer than we had anticipated.
Okay, that's great that helps and then turning to tobacco.
I guess, you Didnt change any kind of crop outlook size for you asked just given the hot weather.
It's still the growing season I was just curious if theres any other comments regarding the domestic tobacco leaf crop.
What we see here in the U S flue cured crop is progressing nicely.
That.
Hot weather did not produce negative impacts.
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We are seeing.
<unk> forecasted increase in overall volumes on the fluke <unk> compared to last year on.
The early sites.
We saw some impact related to weather, some heavy rain and some hail, but the volumes also that we are projecting it.
They are higher than last year, and then of course, the U S in Pennsylvania.
We'd like to do it in Tennessee, and Kentucky, We also produce rafa stylus and that crop has been effective in different areas somewhere a little bit more than others, a little bit less but keep in mind. It is a little early in that whole process.
And I think the next quarter I can update you.
Where we stand, but so far we don't see any negative impact on hopefully that we are not going to face any extreme weather conditions in the next couple of months.
Okay, that's great and then I get an update on the outlook for the Oriental tobacco crop.
JP was down significantly in the quarter.
What's the outlook for the year for that crop.
Yes.
<unk> specifically of course with regard to the unfavorable foreign currency comparisons due to local currency denominated net assets.
Weakening local currency environment and the high interest rates. This is about Turkey, specifically about Turkey.
Tough environment for those folks there.
We are just trying to get through this crop.
Okay. That's great that helps capex for the year I'm, sorry does that change I didn't have time to look in the Q I'm sorry.
65 to 75, we're still for the next 12 months Okay.
And then I need help if you can give any help with SG&A expense for the year, our interest expense I'm struggling with is two lines. So they have gone up dramatically.
Over the next over the past couple of years and I don't see how thats coming down so that's what I would need help us sorry, yes. It is.
It's early on of course.
Debt levels in Q1 were similar to last year, but certainly there is room for higher Ed.
As you will know our working capital.
You should be higher in the first half of the year.
Green leaf tobacco prices are up so.
That one is.
All I can tell you there with regard to get SG&A. There is lots of variables. Therefore, we're trying to highlight the big movers in the current quarter certainly the weakening U S dollars in certain origins didn't help us and then compensation increases and higher travel costs also impacted those numbers. So we always.
Ladies and continue to look at SG&A and tried to determine whether or not there was any efficiencies to be had so we will continue to do that so as you head into Q4 Q1 number SG&A number for the full year every quarter for the full year or is that a reasonable base.
Again, we don't give guidance there and we will have to see how this whole thing pans out.
On a higher <unk>.
G&A expenses related to the ingredients business also built into that one.
Yes.
Yes, Matt.
Okay, Great and then.
Jeff I don't know if you have worldwide uncommitted leaf numbers.
Sure. It's at 26 million kilos as of June 30th Thats up $9 million from the March 31 number.
Great and then any change in priority use of capital for the business.
No. There is no there is not.
Okay. That's great. Thank you I appreciate your time. Thank you. Thank you.
There are no further questions at this time I will now hand over to Jennifer Please continue.
Thank you all for joining us on our call today.
Yes.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
And for your participation you may now disconnect.