Full Year 2024 Universal Corp Earnings Call

Operator: Good day everyone, and welcome to today's Universal Corporation fourth quarter fiscal year 2024 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note, today's call will be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Assistant Treasurer at Universal Corporation, Jennifer Rowe. Please go ahead.

Good day, everyone and welcome to today's Universal Corporation fourth quarter fiscal year 'twenty 'twenty four earnings calls at this time all participants are in a listen only mode.

Later, you will have the opportunity to ask questions. During the question and answer session. Please.

Please note today's call will be recorded and I will.

I'll be standing by should you need any assistance. It is now my pleasure to turn the conference over to assistant Treasurer at Universal Corporation, Jennifer Row. Please go ahead.

Yeah.

Jennifer Rowe: Thank you for joining us. George Freeman, our Chairman, President, and CEO, 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. We will remain on the website through August 22, 2024. Other than the replay, we have not authorized and disclaimed responsibility for any recording, replay, or distribution of any transcription of this call.

Thank you for joining us George Freeman, our chairman, President and CEO and Johan Kroner, Our Chief Financial Officer are here with me today and will join me in answering questions. After these brief remarks.

Speaker Change: This call is being webcast live and will be available on our website and on telephone taped replay will remain on the website through August 22024, 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 copied.

Jennifer Rowe: 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 current knowledge and some assumptions about the future and are representative only as of today. 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, and our 10-K for the year ended March 31, 2024, which will be filed shortly.

Speaker Change: Writers and may not be used without our permission.

Jennifer Rowe: Such risks and uncertainties include, but are not limited to, customer-mandated timing of shipments, weather conditions, political and economic environment, government regulation and taxation, changes in exchange rates and interest rates, industry consolidation and evolution, and changes in market structure or sources. Finally, some of the information I have for you today may be based on unaudited allocations and is subject to reclassification.

Speaker Change: Before I begin to discuss our results I caution you that we will be making forward looking statements that are based on current knowledge and some assumptions about the future and are representative as of today only.

Jennifer Rowe: In an effort to provide useful information to investors, our comments today may also 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. Universal Corporation had a positive finish to a strong fiscal year 2024 with notable financial and operational performance in both the fiscal year and quarter ended March 31, 2024. Fiscal year 2024 was an exceptional year for our tobacco business, as a favorable product mix, strong customer demand, and the sale of larger crops in Africa compared to fiscal year 2023 drove our strong operating results.

Speaker Change: Actual results could differ materially from projected or estimated results and we assume no obligation to update any forward looking statements.

Speaker Change: 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, and our 10-K for the year ended March 31, 2024, which will be filed shortly.

Speaker Change: Such risks and uncertainties include but are not limited to customer mandated timing of shipments weather conditions, political and economic environment government regulation and taxation changes in exchange rates and interest rates industry consolidation and evolution and changes in market structure or sources.

Speaker Change: Finally, some of the information I have for you today, maybe based on unaudited allocations and is subject to reclassification in an effort to provide useful information to investors. Our comments. Today May also include non-GAAP financial measures for details on these measures, including reconciliations to the most comparable GAAP measures.

Jennifer Rowe: Fiscal year 2024 was also a significant building year for our ingredients business. We made important progress with our state-of-the-art expansion project, and we continue to invest in the Universal Ingredients Commercial Sales Team and Research and Development Function. We also made advances in fiscal year 2024 towards our sustainability goals by entering agreements that move us closer to our operational emissions target and by making continued progress towards our social supply chain targets. Turning to current tobacco market conditions, while we expect leaf tobacco supply and demand to return to a more balanced position over time, we are currently seeing very tight tobacco supply and elevated green tobacco prices.

Speaker Change: Please refer to our current earnings press release.

Speaker Change: Yeah.

Jennifer Rowe: We continue to leverage our diverse global footprint and financial flexibility to manage these conditions and to execute on our tobacco strategies. For example, during the fourth quarter of fiscal year 2024 and into the first quarter of fiscal year 2025, we accelerated buying in Brazil to ensure access to the tobacco we need for our customers. This accelerated buying, combined with higher green tobacco prices, resulted in an increased use of working capital and higher debt levels at March 31, 2024. We expect most of the net impact on working capital from our accelerated buying strategy to naturally unwind over the next two years.

Speaker Change: Universal Corporation had a positive finish to a strong fiscal year 2024, with notable financial and operational performance in both the fiscal year and quarter ended March 31 2024.

Speaker Change: Fiscal year 2024 was an exceptional year for our tobacco business as a favorable product mix strong customer demand and the sale of larger crops in Africa compared to fiscal year 2023 drove our strong operating results.

Jennifer Rowe: In addition, we remain committed to supporting our tobacco business while efficiently managing working capital and reducing leverage levels. Our vision for our ingredients business is to be a provider of a complete innovative suite of solutions and value-add products. We believe our investments in our Universal Ingredients Platform's commercial sales team and research and development function support our vision and will deliver value over time. During fiscal year 2024, we entered several new partnerships to supply innovative products that capitalize on our newly developed capabilities and portfolio across our three ingredients companies.

Speaker Change: Full year 2024 was also a significant building year for our ingredients business we.

Speaker Change: We made important progress with our state of the art expansion project and our and we continue to invest in universal ingredients commercial sales team and research and development function.

Speaker Change: We also made advances in fiscal year 2024 towards our sustainability goals by entering agreements that move us closer to our operational emissions target.

Speaker Change: And by making continued progress towards our social supply chain targets.

Speaker Change: Turning to our two current tobacco market conditions, while we expect leaf tobacco supply and demand to return to a more balanced position overtime. We are currently seeing very tight tobacco supply and elevated green tobacco prices.

Speaker Change: We continue to leverage our diverse global footprint print and financial flexibility to manage these conditions and to execute on our tobacco strategies.

Speaker Change: For example, during the fourth quarter of fiscal year 2024 and into the first quarter of fiscal year 2025, we accelerated buying in Brazil to ensure access to the tobacco, we need for our customers.

Speaker Change: This accelerated buying combined with higher green tobacco prices resulted in increased use of working capital and higher debt levels and March 31 2024.

Speaker Change: We expect most of the net impact on working capital from our accelerated buying strategy to naturally unwind over the next two years.

Speaker Change: In addition, we remain committed to supporting our tobacco business, while efficiently managing working capital and reducing leverage levels.

Speaker Change: Yes.

Speaker Change: Our vision for our ingredients business is to be the provider of a of a complete innovative suite of solutions and value add products.

Speaker Change: We believe our investments in our universal ingredients platforms commercial sales team and research and development function support our vision and will deliver value over time.

Speaker Change: During fiscal year 2024, we entered several new partnerships to supply innovative products that capitalize on our newly developed capabilities and portfolio across our three ingredients company.

Jennifer Rowe: Those new customer relationships and new product sales benefited our ingredients business by helping offset lower revenues from sales in fiscal year 2024 due to inventory recalibration by existing customers and lower sales prices due to lower raw material prices. Earnings in fiscal year 2024, however, were below expectations due to higher costs related to our infrastructure investment, lower new crop raw material prices, inventory write-downs, and customer inventory recalibration. We expect our new product sales to increase and contribute to our future earnings.

Speaker Change: Those new customer relationships and new product sales benefited our ingredients business by helping offset lower revenues from sales in fiscal year 2024, due to inventory recalibration by existing customers and lower sales prices due to lower raw material prices.

Speaker Change: Earnings in fiscal year, 2024, however were below expectations due to higher costs related to our infrastructure investment.

Speaker Change: So our new crop raw material prices inventory write downs and customer inventory recalibration.

Speaker Change: We expect our new product sales to increase and contribute to our future earnings.

Jennifer Rowe: Some financial highlights for the fiscal year and quarter ended March 31, 2024. Net income for the fiscal year was $119.6 million, or $4.78 per diluted share, and was $40.3 million, or $1.61 per diluted share, for the quarter ended March 31, 2024. Excluding certain non-recurrent items detailed in today's press release, adjusted net income increased by $33 million and adjusted diluted earnings per share increased by $1.31 for the fiscal year. Adjusted net income and adjusted diluting earnings per share increased by $20.3 million and $0.82, respectively, for the quarter ended March 31, 2024, compared to the same period last fiscal year.

Speaker Change: Some financial highlights for the fiscal year and quarter ended March 31 2024.

Speaker Change: Net income for the fiscal year was $119 6 million or.

Speaker Change: Or $4 78 per diluted share and was $43 million or $1 61 per diluted share for the quarter ended March 31 2024.

Speaker Change: Excluding certain nonrecurring items detailed in todays press release, adjusted net income increased by $33 million and adjusted diluted earnings per share increased by $1 31 for the fiscal year.

Speaker Change: And adjusted net income and adjusted diluted earnings per share increased by $23 million and 82, respectively for the quarter ended March 31, 2024 compared to the same periods last fiscal year.

Jennifer Rowe: Operating income of $222 million for the fiscal year ended March 31, 2024, increased by $40.9 million, and operating income for the quarter of $68.2 million increased by $15.8 million. Selling general and administrative expenses were up $33.4 million in the fiscal year and up $12.3 million in the quarter ended March 31, 2024, largely due to higher incentive compensation costs as well as unfavorable foreign currency comparisons and costs related to a value-added tax settlement program in Brazil, compared to the same period last fiscal year and highlights for our operating business.

Operating income of $222 million for the fiscal year ended March 31, 2024 increased by $40 9 million.

Speaker Change: And operating income for the quarter of $68 2 million increased by $15 8 million.

Selling general and administrative expenses were up $33 $4 million in the fiscal year and up $12 $3 million in the quarter ended March 31, 2024, largely on higher incentive compensation costs as well as unfavorable foreign currency comparisons and costs related to a value added tax settlement program in Brazil.

Speaker Change: Compared to the same period last fiscal year.

Speaker Change: Highlights for our operating segments.

Jennifer Rowe: Operating income for the tobacco operations segment increased by $49.5 million to $222.4 million for the fiscal year and by $19.6 million to $73.5 million for the quarter-ended March 31, 2024, compared with the fiscal year and quarter-ended March 31, 2023. Tobacco segment operating income was up in fiscal year 2024, largely due to higher tobacco sales prices and a more favorable product mix, partially offset by lower tobacco sales volumes compared to fiscal year 2023

Speaker Change: Operating income for the tobacco operation segment increased by $49 5 million to $222 $4 million for the fiscal year and by $19 6 million to $73 5 million for the quarter ended March 31, 2024, compared with the fiscal year and quarter ended March 31.

Speaker Change: 2023.

Speaker Change: Tobacco operations segment operating income was up in fiscal year 2024, largely on higher tobacco sales prices and a more favorable product mix, partially offset by lower tobacco sales volumes compared to fiscal year 2023.

Speaker Change: In fiscal year 2024 African crops were larger carryover crop shipments from South America were lower and in Asia, We saw an improved product mix compared to fiscal year 2023.

Jennifer Rowe: In fiscal year 2024, African crops were larger, carryover crop shipments from South America were lower, and in Asia, we saw an improved product mix compared to fiscal year 2023. Tobacco operations segment operating income was up in the quarter ended March 31, 2024, largely due to higher tobacco sales prices and a more favorable product mix compared to the quarter ended March 31, 2023. Operating income for the ingredients operation segment was $4 million for fiscal year 2024 and an operating loss of $1 million for the quarter ended March 31, 2020.

Speaker Change: Tobacco operations segment operating income was up in the quarter ended March 31, 2024, largely on higher tobacco sales prices and a more favorable product mix compared to the quarter ended March 31 2023.

Speaker Change: Operating income for the ingredients operations segment was $4 million for fiscal year, 2024, and an operating loss of $1 million for the quarter ended March 31 2024.

Jennifer Rowe: Results for the ingredients operations segment for the fiscal year and quarter ended March 31, 2024 were negatively impacted by higher costs related to infrastructure investments in the ingredients platform, lower new craft raw material prices, and inventory write-downs partially offset by margins on new products. Customer inventory recalibration in the first half of fiscal year 2024 also negatively impacted results for the fiscal year.

Speaker Change: Results for the ingredients operations segment for the fiscal year and quarter ended March 31, 2024 were negatively impacted by higher costs related to infrastructure investments and ingredients platform.

Speaker Change: Lower new crop.

Speaker Change: Raw material prices and inventory write downs, partially offset by margins on new products.

Speaker Change: Customer inventory recalibration in the first half of fiscal year 2024 also negatively impacted results for the fiscal year.

Jennifer Rowe: In our ingredients business, the expansion project at our Lancaster Manufacturing Facility is progressing as expected, and we anticipate the facility to be fully operational in the second half of fiscal year 2025. We're excited about this unique project as it will significantly expand our processing capabilities, including aseptic packaging, and will enable us to considerably grow our product portfolio and supply existing and new customers with additional products. This project is expected to contribute meaningfully to the results of our Ingredients Operations segment in fiscal year 2026.

Speaker Change: In our ingredients business the expansion project at our Lancaster manufacturing facility is progressing as expected and we anticipate this facility to be fully operational in the second half of fiscal year 2025.

Speaker Change: We're excited about this unique project as it will significantly expand our processing capabilities, including ace uptick packaging and will enable us to considerably grow our product portfolio and supply existing and new customers with additional products.

Speaker Change: This project is expected to contribute meaningfully to the results of our ingredients operations segment in fiscal year 2026.

Jennifer Rowe: Going into fiscal year 2025, we remain steadfast in executing our strategy of maximizing tobacco opportunities while growing the ingredients business. We believe our leading market position, global footprint, and proven sustainability practices will continue to enable us to generate stable cash flow from our tobacco business. Universal Ingredients is also well-positioned with its fully-built platform to deliver high-quality, innovative products that drive top-line growth, margin expansion, and earnings stability. At this time, we are available to take your questions.

Speaker Change: Going into fiscal year 2025, we remain steadfast in executing our strategy of maximizing tobacco opportunities while growing the ingredients business.

Speaker Change: We believe our leading market position global footprint and proven sustainability practices will continue to enable us to generate stable cash flow from our tobacco business.

Speaker Change: Universal ingredients is also well positioned with its fully built platform to deliver a high quality innovative products that drive topline growth margin expansion and earnings stability.

Speaker Change: At this time, we are available to take your questions.

Operator: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star 2. Once more, that is star and one. And we'll move first to Anne Gurkin with Davenport. Your line is open.

Speaker Change: At this time, if you would like to ask a question. Please press the star and one on your telephone keypad.

Speaker Change: Troy yourself from the queue at any time by pressing star two.

Speaker Change: Once more that is star one.

Speaker Change: And we'll move first to Ann Gurkin with Davenport.

Your line is open.

Ann Holden Gurkin: Good evening. Can y'all hear me?

Ann Holden Gurkin: Good evening can you all hear me.

George C. Freeman: Yeah, McCann Anne, how are you doing?

Speaker Change: Yes, Karen How're, you doing hey, good evening, Thanks, John Great terrific finish to your fiscal year well done.

Ann Holden Gurkin: Great. Good evening. Thanks. I'm doing great. Terrific finish to your fiscal year. Well done. Thank you. Dive in on the tobacco segment, if I might. The strength we saw in the sales, can you comment on how much was like a pull forward from fiscal 25 to fiscal 24 from accelerated sales, particularly out of Brazil?

Speaker Change: Thank you did that.

Speaker Change: David on the tobacco segment, if I might the strength we saw in the sale can you comment on what how much was like a pull forward from fiscal 'twenty five to fiscal 'twenty four from accelerated sales, particularly out of Brazil.

George C. Freeman: It's so tight that there's been no pull forward. It's extremely tight.

Speaker Change: Yeah.

It is so tight.

Speaker Change: Pull forward.

Speaker Change: Right.

Speaker Change: Extremely tight.

Speaker Change: Okay great.

And.

George C. Freeman: Okay, great, have you negotiated, can you just remind me, in terms of negotiating tobacco prices with customers, have you completed those negotiations for fiscal 25 and fiscal 26, or just fiscal 25 at this point for tobacco?

Speaker Change: Have you negotiated can you provide any.

Speaker Change: Locating tobacco prices with customers have you completed those negotiations for fiscal 'twenty, five and fiscal 'twenty six or just fiscal 'twenty five at this point for tobacco.

George C. Freeman: Twenty-five for some, but Zimbabwe's still open, and they're having some quality issues in Zimbabwe, especially on the small-scale farmer side, and so we anticipate there may be a second round in Brazil this summer.

Speaker Change: 25 for some but there is.

Speaker Change: Zimbabwe is still open and they are having some.

Speaker Change: Quality issues in Zimbabwe, especially the small scale on a small scale former sade and so we anticipate there may be a second round in Brazil. This summer.

George C. Freeman: And also keep in mind, we got a bit of a bit good a couple of years back with a three-year fixed-price contract that didn't really work for us. So for us to do multi-year contracts with customers is not a normal thing for us.

Speaker Change: And also keep in mind, we've got pretty good a couple of years back right.

Speaker Change: Through Europe, you're a fixed price contract that didn't really work for us so for us to do multiyear contracts with customers is not a normal thing for us.

George C. Freeman: All right, I guess I'm just a little concerned that customers have been paying elevated prices due to the tight supply and demand for tobacco. And at some point, I'm worried they're going to start pushing back. And so that's why I was curious about your kind of pricing, where you are in terms of the pricing cycle for tobacco.

Speaker Change: Alright, I guess obviously.

Speaker Change: A little concerned that the customers have been paying elevated prices due to the tight supply and demand for tobacco and at some point I'm worried they're going to start pushing back and tobacco I was curious about your kind of pricing where you are in terms of the pricing cycle for tobacco.

George C. Freeman: We're in a good spot. At the end of the day, most of our customers, our larger customers, are virtually integrated into a number of markets, so they know what the green prize is, certainly. Their green price is pretty much our green price. That's the way that those markets work. So, you know, all of them, then conversion charges and everything, you know, that is what it is. So everybody's on the same page. And yes, of course, there is pushback, but, you know, we need to make a return on our investments. And those are the discussions that our sales team has with our customers on a daily basis.

Speaker Change: Hi.

Speaker Change: We're in a good spot at the end of the day most of our customers our larger customers are vertically integrated in a number of markets. So they know what the green prizes.

Speaker Change: Yes.

Speaker Change: They have re price is pretty much our greenbrier.

Speaker Change: Those markets work so.

All of the embedded conversion charges and everything that.

Speaker Change: That is what it is so everybody is on the same page and yes of course, there is pushback, but we need to make a return on our investments and those are the discussions that our sales teams have with our customers on a daily basis.

George C. Freeman: Great. Okay. And then, may I get the worldwide uncommitted lease inventory number?

Speaker Change: Great Okay.

Speaker Change: And then can I get the worldwide uncommitted leaf inventory number.

Speaker Change: Sure, It's 30 million kilos for Richard in Burley as of March 31.

George C. Freeman: 30 million kilos for Fleetwood and Burleigh as of March 31st.

George C. Freeman: Great. And then in terms of the outlook for the crops, anything that should be noted for tobacco crops? Zimbabwe, it sounds like there's some quality issues. Anything else?

Speaker Change: Great and then in terms of the outlook for the crops anything I should should that should be noted for tobacco crops Zimbabwe. It sounds like there's some quality issues anything else.

George C. Freeman: You know, the U.S. is yet to come, and I know that we're forecasting La Nina, which is associated with an Atlantic hurricane, so that's... Nothing we can do about it, but that's something we're watching. But the commercial Zimbabwean crop is pretty good, and Malawi and Mozambique are pretty

Speaker Change: No.

Speaker Change: U S is yet to come and I know that it's for forecasting.

Nino: Nino, which is associated with Atlantic Hurricane for that.

Nino: Nothing we can do about it but that's something.

Speaker Change: We are watching but Doug commercial Zimbabwe's <unk> crop is pretty good in Malawi, Mozambique are pretty good.

George C. Freeman: Look, we're dealing with a commercial or agricultural crop, so at the end of the day, the weather is what the weather is, and we are in a number of countries around the world, so we're fairly well diversified, and we should be able to supply the crops that our customers require.

Speaker Change: We're dealing in a commercial oriented agricultural crop. So at the end of the day to weather is what the weather is and we are in a number of origins around the world.

Speaker Change: Fairly well diversified and we should be able to supply the crops that our customers require.

Ann Holden Gurkin: Great, great. Okay, and then switching to ingredients, so that came in weaker than we were expecting, so I wonder if you could help me understand a little bit. I think you were targeting spending $30 million for the shank upgrade or an expansion, so how much of that $30 million did you spend in fiscal 24?

Speaker Change: Alright, great. Okay, and then switching to ingredients so that came in weaker than we were expecting.

Speaker Change: So I wonder if you could help me understand a little bit.

Speaker Change: I think you were targeting spending $30 million for the <unk> upgrades and expansion to how much of that $30 million did you spend in fiscal 'twenty four.

George C. Freeman: The vast majority of it has been spent, and the facility will come online later this year. So, you know, we're really upbeat about that. You know, our commercial guys are talking to customers about what that facility can produce. And, you know, we just have to get that thing going and then go from there. We will not see the full result of that line, of course, because it is coming online later this year until fiscal year twenty six. But again, we're seeing really positive results, and we're having some really good discussions with our customers.

Speaker Change: Okay.

Speaker Change: Vast majority of it has been spent.

Speaker Change: Okay.

Speaker Change: The facility will come online later this year.

Speaker Change: So we're really upbeat about that.

Speaker Change: Commercial guys are talking to the customers about what debt to show what we can produce and.

Speaker Change: We just have to get that thing going in and then go from there we will not see the full result of that line of course, because it is coming online later this year until fiscal year 'twenty, six, but again and we're seeing really positive results and we're having some really good discussions with our customers.

George C. Freeman: Great. And so when you call out profits being negatively impacted by infrastructure spend, is that the bulk of that $30 million in that number?

Speaker Change: Great and so when you call out profits being negatively impacted by infrastructure spend is that the bulk of that $30 million in that number.

George C. Freeman: No, the spending really is on the commercial and the R&D costs that we are incurring. Of course, on those we also want to return, right, but you know that you have to spend the money there up front to be able to bear fruit at a later date. So those costs are just there. Of course, this year also, we had some inventory write-downs earlier in the year, and we got into a bit of a hole early on, and we just had a bit of a struggle to get out of that.

Speaker Change: No.

Speaker Change: The spending really is on the commercial and the R&D cost that we are incurring of course on those we also want to return right, but you know that you have to spend the money there upfront to be able to.

Speaker Change: That could bear fruit at a later date. So those costs are just there of course. This year also we have some inventory write downs earlier in the year and we got a bit of a hole early on and we just had a bit of a struggle to get out of that but.

George C. Freeman: But margins are holding up nicely from that standpoint, so we're really happy where it's at. You're right, the performance was not as good as we had anticipated or had hoped, but certainly it's performing, and it's going in the right direction.

Speaker Change: But margins are holding up nicely from that standpoint, So we're really happy where it's at.

Speaker Change: The performance was not as good as we had anticipated or hoped, but certainly it's performing and it's going in the right direction.

George C. Freeman: Do you quantify the inventory write-down number for the year?

Speaker Change: Can you quantify the inventory write down number for the year.

George C. Freeman: It was earlier in the year, and I think it was a couple million dollars that were in there.

It was earlier in the year and I think it was couple of million dollars.

Speaker Change: That was in there.

George C. Freeman: Great. But then I don't know what lower new crop raw material prices mean.

Speaker Change: Alright, and then I don't know what lower new crop raw material prices means.

George C. Freeman: Well, across the board, for example, on the West Coast in Washington, there, Apple prices have dropped dramatically. And so, you know, you are buying the product, of course, cheaper, but your revenue will be down, your absolute dollar margin profit will be down. So that didn't exactly help this year, but that's the way it is. You know, it did help, on the other hand. For example, you can now more easily compete with some of the offshore areas that we compete with.

Speaker Change: Well across across the board it for example.

Speaker Change: And on the West Coast in Washington, There Apple prices have dropped dramatically.

Speaker Change: And so you are buying product a horse cheaper so but your revenue will be down.

Speaker Change: Your absolute dollar margin profit will be down so that didn't exactly help this year, but that's the way. It is it did help on the older hand. For example, you can now more easily compete with some of the offshore.

Speaker Change: Areas that we compete with.

Ann Holden Gurkin: Okay, and then. You highlighted the aseptic packaging opportunity in the Lancaster facility. Does that mean you can process beverages? Can you package beverages like protein shakes?

Speaker Change: Okay, Okay and then.

Speaker Change: You highlighted the aseptic packaging opportunity in the Lancaster facility does that mean, you can you can perhaps a beverage can you packaged beverages like protein shakes.

George C. Freeman: We can produce all kinds of things, exactly what it is, and I can't tell you everything, but certainly, our guys are very excited about the possibilities there. And again, that whole setup is unique because we can do everything in that one facility. So we, that aseptic packaging is often a separate line somewhere, and now we can extract the product and pack it all aseptically on that one line, which is something.

Speaker Change: We can produce all kinds of things.

Speaker Change: Exactly what it is.

Speaker Change: I can't tell you everything.

Speaker Change: But certainly our guys are very excited about the possibilities there and again that whole setup is unique because we can do everything in that one facility. So that a septic packaging. All finished is a separate line somewhere and now we can extract the product and pack.

Speaker Change: All are receptive, we only had one line, which is something unique.

George C. Freeman: With the strong growth in the protein shake market, I was hoping you had signed some protein shake customers. We are, we are talking to all those folks currently. Okay.

Speaker Change: With the strong growth on the protein shake market I was hoping you had fun protein shake customer.

Speaker Change: Okay.

Speaker Change: We are talking to all of those folks right currently okay.

George C. Freeman: And so, we're making strides there to get those folks on board. But again, the facility is not up and running yet. So we will have to see, you know, what we can do there. But we are just, you know, talking to all those folks, and we know healthier and protein and all those things are out there. So we're certainly trying to pursue, you know, every area that we think we can produce. Fantastic. And then operational in Q3 of fiscal 25, or is it slipping to Q4 in fiscal 25? He said the second half of it.

Speaker Change: And we're making strides there to get those folks on board, but again until he is not up and running yet so we'll have to see.

Speaker Change: What we can do there, but we just we are talking to all of those folks and we know healthier in protein and all those things are out there. So we're certainly trying to pursue.

Speaker Change: Every.

Speaker Change: The area that we think we can we can produce.

Speaker Change: Fantastic and then operational on in Q3 of fiscal 'twenty, five or is it slipping to Q4 and fiscal 'twenty five.

Speaker Change: He said that.

Speaker Change: Yes.

George C. Freeman: We still believe it will be fully operational in the hour. Q3, so the December quarter. And we hope to anticipate that a little bit, but you know, you always, when you build something new, there's going to be a couple of snags here and there. So, but we haven't heard anything that it's going into Q4 yet.

Speaker Change: We still believe it will be.

Speaker Change: Fully operational in the our Q3, so the December quarter.

Speaker Change: And we hope to anticipate that a little bit but.

Speaker Change: You always when you build something new there is going to be a couple of snacks here and there so but we haven't heard anything that is going into Q4 yet.

Ann Holden Gurkin: I'm just curious if you can help me at all with any kind of expectation for an uptick in margins for the ingredients business. How should I think about that?

Speaker Change: Alright, I'm, sorry, I'm just curious if you can help me at all with any kind of expectation for an uptick in margins for the ingredients business Chuck how can I think about that.

George C. Freeman: Well, like I said, on the gross profit percentage margins, they have been fairly steady, and it's all in SG&A where there's an uptick in the cost, both SG&A related to the platform on the R&D and the commercial team side, as well as, you know, just corporate overhead allocation that's being put on that ingredients segment. Again, we believe that, you know, we have the inventory right down. We have to be stocking early in the year.

Speaker Change: Like I said on the gross profit percentage margins.

Speaker Change: Been fairly steady.

Speaker Change: It's all in SG&A, where there is an uptick in the cost both SG&A related.

Speaker Change: The platform on the R&D and the commercial team side as well as just corporate overhead allocation, that's being put on that beyond that the ingredients segment. So.

Again, we believe that we have the inventory write down we had the destocking early in the year again.

George C. Freeman: Again, the numbers didn't come out like we wanted, so certainly we expect them to be up next year, you know, even without the line being closed, product coming off the line, and being able to sell that product. So, you know, we do expect an uptick, but the vast majority of the performance off that line will come in fiscal year 2016.

Speaker Change: The numbers didn't come out like we want it so certainly we expected to be up next year.

Speaker Change: Even without the deadline.

Speaker Change: Being.

Speaker Change: Product coming off the line and being able to sell that product. So we do expect an uptick but the vast majority of the of the performance of that line will come in fiscal year 'twenty six.

Ann Holden Gurkin: Okay, great. That's great. That helps. Thank you. And then, just kind of a bigger picture, I saw you increase the dividend, and you all commented on the increase in working capital needs for the accelerated tobacco-based buying in Brazil. I was just wondering if you could review the overall capital allocation priorities again for the company, if you don't mind.

Speaker Change: Okay, Great. That's great that helps thank you and then just kind of a bigger picture.

Speaker Change: So you increased the dividend.

Speaker Change: <unk> commented on the increase.

Speaker Change: And working capital needs for the bank.

Speaker Change: Celebrated leaf tobacco leaf buying in Brazil, I was just wondering if you could review overall capital allocation priorities again for the company if you don't mind.

George C. Freeman: We have not changed from what we announced in 2018.

Speaker Change: We have not changed from what we announced in 2018.

George C. Freeman: I'm very proud of the dividend increase announced earlier today, our 54th consecutive increase, so I'm really proud of that, and the board was proud to be able to make that announcement.

Speaker Change: Okay.

Speaker Change: Proud of.

Speaker Change: The dividend increase.

Speaker Change: <unk> announced earlier today that our 54th.

Speaker Change: So really proud of that.

Speaker Change: The board was.

Speaker Change: We're proud to be a.

Speaker Change: But to make that announcement.

Ann Holden Gurkin: Great. And then, I'm sorry, CapEx for fiscal 25. I'm sorry if I messed up.

Speaker Change: Great and then Capex for fiscal 'twenty, I'm, sorry, if I missed that.

Jennifer Rowe: I think it's 55-65, right Jennifer? Yeah, 55-65, between 55-65.

Speaker Change: I think it's $55 55 are doing this dropped 65 to $2 55 to 65.

Ann Holden Gurkin: Okay, great. Great

Speaker Change: Okay, great great. Thank you all for your time I appreciate it.

Ann Holden Gurkin: Thank you all for your time. I appreciate it. Thanks, and I appreciate it.

Speaker Change: Thanks I appreciate it.

Ann Holden Gurkin: Thank you, and I appreciate it.

And it does appear that there are no further questions at this time I would now like to turn it back to Jennifer for any closing remarks.

Operator: And it does appear that there are no further questions at this time. I would now like to turn it back to Jennifer for any closing remarks. Airton Hentschke, Jennifer Rowe, Airton Hentschke, Jennifer Rowe, Airton Hentschke,

Jennifer Rowe: Thank you for joining us on our call today.

Speaker Change: Thank you for joining us on our call today.

Speaker Change: Okay.

Operator: This does conclude today's program. Thank you for your participation. You may just disconnect at any time and have a wonderful evening.

Speaker Change: This does conclude today's program. Thank you for your participation you may disconnect at any time and have a wonderful evening.

Speaker Change: [music].

Operator: This does conclude today's program. Thank you for your participation.

Speaker Change: This does conclude today's program. Thank you for your participation you may just disconnect.