Good afternoon. Thank you for attending today's Universal Corporation Q4 fiscal year 2022 earnings call. My name is Foram, and I will be your moderator for today's call. All lines will remain muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. It is now my pleasure to pass the conference over to our host, Candace Formacek, Vice President and Treasurer of Universal Corporation. Ms. Formacek, please go ahead.
Thank you, Foram, and thank you all for joining us. George Freeman, our Chairman, President, and CEO, Airton Hentschke, 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 August 25th, 2022 . 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. This is of particular note during the current ongoing COVID-19 pandemic when the length and severity of the crisis and resultant economic and business impacts are so difficult to predict. 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, 2021 , as well as our Form 10-K for the year ended March 31, 2022 , which we expect to file with the SEC later this week. Such risks and uncertainties include, but are not limited to, the ongoing COVID-19 pandemic, 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 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. We are proud of our fiscal year 2022 results, which were generally comparable to those in fiscal year 2021. During fiscal year 2022, we continued to face a very challenging logistical environment in many of our key tobacco regions. Strong performance from our ingredients operations segment offset some challenges that reduced results in our tobacco operations segment. Our plant-based ingredients platform is coming together nicely and is exceeding our expectations.
With the acquisition of Shank's Extracts LLC, Shank's, we are now positioned to offer our customers a broad range of products from fruit and vegetable juices, concentrates, and dehydrated ingredients to botanical extracts and flavorings. In fiscal year 2022, the ingredients operations segment saw increased demand for organic-based products and continued strong volumes for human and pet food categories as well as for vanilla extracts. Ongoing shipping constraints reduced our tobacco operations segment results for the year and quarter ended March 31, 2022 as a result of continued limitations in worldwide shipping availability stemming from the COVID-19 pandemic. You may recall that due to the logistical constraints in fiscal year 2021, we had carryover tobacco volumes which shipped in fiscal year 2022.
Similar logistical constraints impacted fiscal year 2022, which led to an even larger amount of tobacco volumes reflecting a difference of about $70 million in revenue, which did not ship in fiscal year 2022 compared to the carryover volumes from fiscal year 2021. Tobacco shipment volumes in fiscal year 2022 were also reduced due to smaller African burley crops. We experienced volatile tobacco and currency markets in Brazil during the Q4 of fiscal year 2022. Appreciation of the Brazilian currency, coupled with strong demand for leaf tobacco, led to unprecedented increases in green prices for leaf tobacco and earlier purchasing of the 2022 Brazilian crop, resulting in disruptions to market dynamics.
To fulfill our customers' orders, leaf tobacco purchases from our contracted farmers this season have been at the prevailing inflated market price for all leaf tobacco, regardless of the quality of that leaf tobacco. This resulted in larger inventory write-downs in the quarter ended March 31, 2022, compared to the prior year's Q4 . Turning to our results, net income for the year ended March 31, 2022 was $86.6 million or $3.47 per diluted share, compared with $87.4 million or $3.53 per diluted share for the year ended March 31, 2021.
Excluding restructuring and impairment costs and certain other non-recurring items detailed in other items in today's earnings release, net income and diluted earnings per share decreased by $10.8 million and 46% respectively for the year ended March 31, 2022, compared to the year ended March 31, 2021. Adjusted operating income, also detailed in other items of $173.6 million, increased by $0.7 million for the year ended March 31, 2022 compared to adjusted operating income of $172.9 million for the prior fiscal year.
Net income for the quarter ended March 31, 2022 was $25.8 million or $1.03 per diluted share, compared with $39.4 million or $1.58 per diluted share for the quarter ended March 31, 2021. Excluding restructuring and impairment costs and certain other non-recurring items detailed in other items in today's earnings release, net income and diluted earnings per share decreased by $15.3 million and 62 cents, respectively, for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021.
Adjusted operating income, also detailed in other items of $57.1 million, decreased by $8.2 million for the Q4 of fiscal year 2022 compared to adjusted operating income of $65.3 million for the Q4 of fiscal year 2021. Consolidated revenues increased by $120.2 million to $2.1 billion for the year ended March 31, 2022 compared to the year ended March 31, 2021 due to the addition of the businesses acquired in the Ingredients Operations segment and lower tobacco sales volumes, partially offset by higher average sales prices in the Tobacco Operations segment.
In the quarter ended March 31, 2022, consolidated revenues also increased by $29.4 million to $647 million compared to the quarter ended March 31, 2021 on the inclusion of the Shank's acquisition in the ingredients operations segment and higher tobacco sales prices. Turning to the segments. Tobacco operations. Segment operating income for the tobacco operations segment decreased by $11.1 million to $157.8 million and by $9 million to $52.2 million respectively for the year and quarter ended March 31, 2022 compared to the same periods in fiscal year 2021.
Tobacco operations segment results declined largely due to tobacco shipment timing, as well as some tobacco inventory write-downs, partially offset by increased value-added services to customers in the year and quarter ended March 31, 2022 compared to the prior fiscal year ended March 31, 2021. Africa sales volumes were lower in the year and quarter ended March 31, 2022 compared to the same periods in the prior fiscal year on smaller burley crops as well as slower shipment timing. Sales volumes for Brazil were lower for the year ended March 31, 2022 compared to the previous fiscal year, in part due to lack of vessel and container availability. In addition, inventory write-downs resulting from volatile market conditions in Brazil negatively impacted results for the year and quarter ended March 31, 2022.
In Asia, although trading volumes were down on higher freight costs, our operations saw a more favorable product mix as well as increased value-added services for customers during the year and quarter ended March 31, 2022 compared to the same periods in the prior fiscal year. Our operations in Europe experienced significantly higher energy costs in the quarter and year ended March 31, 2022 compared to the same periods in the prior fiscal year. Selling, general and administrative expenses for the tobacco operations segment were higher in the year ended March 31, 2022 compared to the year ended March 31, 2021, primarily due to unfavorable foreign currency exchange comparisons, mainly remeasurement, offset in part by the effects of currency hedging activities.
Our uncommitted tobacco inventory levels, about 60% of tobacco inventory at March 31, 2022 remained well within our target range. Turning to the ingredients operations. Operating income for the ingredients operations segment was $16.6 million and $6 million, respectively, for the year and quarter ended March 31, 2022 compared to operating income of $0.4 million and $5.1 million, respectively, for the year and quarter ended March 31, 2021. Results for the segment include our October 2020 acquisition of Silva International, Inc., Silva, and our October 2021 acquisition of Shank's.
For both the year and the quarter ended March 31, 2022, our ingredients operations saw strong volumes in both human and pet food categories, as well as some rebound in demand from sectors that have been impacted by the ongoing COVID-19 pandemic. In addition, the segment saw strong sales of organic-based products, certain dehydrated products, and botanical extracts and flavorings. Selling, general, and administrative expenses for the segment increased in the year and quarter ended March 31, 2022 compared to the same periods in the prior fiscal year on the addition of the acquired businesses. Looking forward, as we move into fiscal year 2023, we are seeing strong demand for our plant-based ingredients and tobacco products. We believe leaf tobacco supply for flue-cured, burley, dark air-cured, and Oriental tobaccos to be in an undersupply position.
At the same time, we continue to see opportunities to increase market share and expand the supply chain services we provide to our customers. We expect continued logistical constraints as well as higher costs, particularly freight, raw materials, labor, fertilizer, and energy in both our tobacco and ingredients businesses. We are actively working to mitigate these challenges and are confident that we can deliver another good year. We remain focused on returning value to our shareholders and promoting sustainability in our operations. We are extremely proud to deliver value to our shareholders through dividend increases, such as our 52nd annual dividend increase announced today. Increasing our strong dividend remains one of the strategic priorities of our capital allocation strategy.
We have also achieved some important milestones in our sustainability efforts in fiscal year 2022, notably releasing goals and targets around agricultural labor practices and environmental performance and publishing our 2021 sustainability report in December. We were also named a 2021 Supplier Engagement Leader by CDP, earning recognition for our work in engaging our suppliers on climate change. We look forward to attaining new achievements with our sustainability programs in fiscal year 2023. At this time, we are able to take your questions. Operator?
Perfect. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from the line of Ann Gurkin with Davenport. Ann, your line is now open.
Thank you. Good evening, everybody.
Evening.
Hey, good evening, Ann.
Hi, congratulations on the nice margin improvement in the ingredient segment, both sequentially and year over year. You highlighted improving demand for ingredients for human and pet food, but is there anything else in that margin, pricing or improved capacity utilization or accelerated orders, new business orders, anything else that you can call out behind that margin improvement?
Ann, this is really the start of the platform. We now have the three legs and we can build on that. You know, you can see the margin improvement and, you know, it only included six months of Shank's, of course. Year-over-year or the prior year, Silva was only in there for six months. You know, it's gonna take a couple of quarters to really get to the bottom of how this whole thing looks. You know, we're very happy about how this whole thing is developing. We're looking at it hard. We're looking at expanding it in the future, and we believe that, you know, there is organic growth there in all kinds of areas, but we have to tie it all together.
You know, we're still integrating and, you know, we're doing some back office stuff that, you know, really will improve that and, you know, it's really positive the way that thing is going at the moment.
Can you call it out? Have you won any new business or?
Those guys are always working hard on all kinds of things. You know, we're looking at getting platform people to help out on that as well. You know, there is lots of positives there in the future.
Do you wanna tell me where you expect the margin to go for this business? Like, pick your timeline, 3 years, 5 years, 10 years?
It remains to be seen. That's a long way out. Again, you know, it looks really positive. We believe there is organic growth that we have there. You know, there is gonna be some headwinds there with regard to, you know, just inflationary pressures and all those things. You know, the world is not in a perfect spot at the moment, but we're really, you know, positive about the outcome for this year and going forward.
Do you think you can drive higher margins, improved margins in fiscal 2023 versus 2022 for the ingredient segment?
We certainly hope so. Again, there is gonna be some margin pressures. You know, it all depends on shipping constraints. Are those going to disappear? We certainly have no impact from that. You know, they did a hell of a job this year. You know, if they stay steady or improve slightly, we'll be very happy.
Great. It looks like y'all bought back some stock in the quarter. Does that reflect at all on opportunities in terms of M&A? Is there any kind of change in thought process of cash used for the balance sheet used for acquisitions versus share repurchases?
No, you know, I do know, you know, we, as Johan mentioned, we're working on integrating these three recent acquisitions. I also note, you know, in this world we live in with inflation and rising interest rates, it costs more, takes more money to do the same amount of business. We're cognizant of that, and, you know, I'm sort of conservative on expenditures right now.
Great. That's a great segue to my next question about interest rates. How do I think about interest, given you have, I think, a term loan that's a variable loan rate? Like, how do I think about that for fiscal 2023?
Well, we swapped some of it out to fixed in the past. We took on some new, which was floating, so we're quite happy with what we got. The revolver is due next year sometime, so we will be looking at that in the near future. We're looking at that whole package going forward to see what we need, and then we'll determine with the banks where the rates are gonna go. You know, with the rates going up, we certainly on variable piece, we expect interest to tick up slightly.
Great. With respect to tobacco, including your comments from your release about Ukraine uncertainty and suspension of orders and transfer of tobacco leaf to other markets for customers, those comments combined with what could be a consolidation between Philip Morris and Swedish Match. I guess it raises concern for me about the potential for a near-term slight backup and oversupply of leaves. I know the global situation is very favorable, supply-demand across all the different types of leaves. I guess, can you walk me through kind of the thought process of kind of a near-term concern about a slight oversupply or weaker demand for leaf from customers?
Oversupply is not something I'm worried about right now. In fact.
Right. I guess demand from customers, I guess, for leaf purchases.
No, we do see and, you know, a great opportunities in our tobacco segment. We have increased our market share this year. As we stated, we do see, you know, the different varieties of tobacco. We now own the supply situation, and we have a good outlook going into the fiscal year 2023. You know, I mean, we already position ourselves with buying, you know, fertilizer where we finance the fertilizer for the farmers. And our challenge and our position right now is to increase some of this crop to cope with the demand that is out there. We are very positive about the tobacco.
That's fantastic. Can you access the fertilizer you need? I know there's a shortage.
Yes. Yes. Yes, we can. We already. In the main markets, we already negotiated prices, and we already received some of the fertilizer that is needed where we supply it to the farmers. Yes.
That's great. Can you help at all with the outlook for SG&A expenses for fiscal 2023? Should the piece for ingredients come down a little bit because of maybe a pause in M&A activity?
Certainly there will be a bit of an M&A activity there. Again, you're gonna add six months of Shank's. You'll be traveling more, hopefully. You know, that will have a little bit of an impact. You know, I think fiscal year 2022 is more representative than fiscal year 2021 with regard to SG&A.
For sure.
You know, of course, it leveled out a bit with also with regard to remeasurement and stuff like that. You know, there's gonna be a couple of things where we, of course, see certainly some uptick in labor cost around the world. You know, we'll have to see where that ends up. Right now, you know, it's the whole thing, the whole picture for us looks fairly positive.
Great. If I missed it, I apologize. The CapEx number for fiscal 2023. Did I miss that? Sorry.
2023, I think it's between $40 million and $50 million.
Okay. Great. Candace, worldwide uncommitted inventory level.
Yes. That's at 62 million kilos at March 31st. That's up 7% from the December 31st.
Great. That's great. I appreciate y'all taking all these questions. Thank you so much.
Oh, thank you, Ann.
Thanks for asking.
Thank you for your question, Ann. Our next question comes from the line of Steve Marascia with Capitol Securities . Steve, your line is now open.
Thank you. Good afternoon, everyone, and congrats on a good quarter and raising the dividend. Just a rather pedestrian question because I forgot how your balance sheet works. For the quarter, your cash was down about $106 million, and your tobacco was up $180 million. Is that traditional for the Q4 in terms of swings of that much?
Steve, working capital was certainly up. We had to buy, start buying earlier in Brazil. Pricing was also up with regard to exchange as well as, you know, pressure on the market there. Keep in mind that, you know, we bought Shank's on October fourth. You know, we had to go out and use some cash as well as some debt there to finance that deal.
Okay. Thank you very much.
You're welcome. You're welcome, Steve.
Thank you for your question, Steve. There are currently no further questions registered. As a brief reminder, it is star one on your telephone keypad. There are no more questions waiting at this time. I will pass the call back to Ms. Formacek for closing remarks.
Thank you, Foram, and thank you all for joining us. Have a good evening.
This concludes the Universal Corporation Q4 fiscal year 2022 earnings call. Thank you for your participation. You may now disconnect your line.