Hello. Hello all. Thank you for your patience, and a warm welcome to Universal Corporation Second Quarter Fiscal Year 2023 earnings call. My name's Luisa and I'll be your operator today. If you wish to ask a question, you'll have the opportunity to do so at the Q&A portion. Please press Star followed by One on your telephone keypad if you wish to ask a question. Now I have the pleasure of turning the call today to Candace Formacek, Vice President and Treasurer at Universal Corporation. Candace, please go ahead.
Thank you, Luisa. 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 February 3rd, 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. 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 Form 10-K for the year ended March 31, 2022, as well as our Form 10-Q for the quarter ended September 30, 2022. 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 our investors, our comments today may include non-GAAP financial measures. For detail on these measures, including reconciliations to the most comparable GAAP measures, please refer to our current earnings press release. Moving to the quarter. Demand for both our tobacco and plant-based ingredients products remains very strong, and we are excited about how our fiscal year 2023 is developing. We are seeing improvement in shipping availability, particularly in Brazil, where we're able to ship large amounts of carryover tobacco in both the six months and quarter ended September 30, 2022. We also remain very pleased with our strategic investment in our plant-based ingredients platform.
Our ingredients operations diversifies our earnings and delivered higher results driven by higher sales in both the six months and quarter ended September 30, 2022, compared to the same periods in the prior fiscal year. We believe we are through our peak seasonal working capital requirements for fiscal year 2023, and we expect a considerable reduction in debt levels over the next two fiscal quarters. We have already seen significant working capital receipts in October 2022. Our tobacco shipments, which are weighted to the second half of our fiscal year, should enable us to reduce our debt levels from the elevated September 30, 2022 levels as payments are received from our customers.
Operating income for our tobacco operations segment for the six months and quarter ended September 30, 2022 was up significantly compared to the comparable periods in the prior fiscal year, driven by increased tobacco shipments. Improved container and vessel availability in Brazil enabled us to ship a greater amount of tobacco, particularly in the second fiscal quarter. A large portion of the tobacco we shipped during the six months and quarter ended September 30, 2022 was carryover tobacco, and some tobacco we shipped was lower margin tobacco. While we are still having some shipping challenges in certain areas around the world, we are encouraged by the global easing of shipping constraints. All types of leaf tobacco are currently in an undersupply position.
We have worked diligently to secure the leaf tobacco desired by our customers, and our tobacco inventories were nearly 90% committed for sale to our customers at September 30, 2022. Burley tobacco crops have been particularly short in Africa, largely due to weather conditions, which has limited our sales opportunities there. Our ingredients operations segment again delivered healthy results in the six months and quarter ended September 30, 2022. Demand for our ingredients products remains strong, and we continue to capitalize on synergies across the plant-based ingredients platform. We have seen inflationary cost increases, particularly for raw materials and labor, but margins have held up nicely.
As these businesses continue to find success with their established products, we are working to grow the platform offerings by investing in key sales and product development personnel to promote and expand the full range of our ingredients capabilities across the platform. Net income. Turning to results.
The net income for the six months ended September 30, 2022 was $28.7 million or $1.15 per diluted share, compared with $25.9 million or $1.04 per diluted share for the six months ended September 30, 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 increased by $4.1 million and $0.17, respectively, for the six months ended September 30, 2022, compared to the six months ended September 30, 2021.
Adjusted operating income, also detailed in today's earnings release, of $51.2 million increased by $9.5 million for the first half of fiscal year 2023 compared to adjusted operating income of $41.6 million for the first half of fiscal year 2022. Net income for the quarter ended September 30, 2022 was $21.9 million or $0.88 per diluted share, compared with $19.5 million or $0.78 per diluted share for the quarter ended September 30, 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 increased by $5.3 million and $0.22, respectively, for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021.
Adjusted operating income, also detailed in today's earnings release of $37.9 million, increased by $8.9 million for the second quarter of fiscal year 2023 compared to adjusted operating income of $29 million for the second quarter of fiscal year 2022. Consolidated revenues increased by $276.8 million to $1.1 billion and by $197 million to $651 million, respectively, for the six months and quarter ended September 30, 2022 compared to the same periods in fiscal year 2022 on higher tobacco sales volumes and prices, as well as the addition of the business acquired in October 2021 in the ingredients operations segment. Turning to the segment detail.
Operating income for the tobacco operations segment increased by $6.1 million to $41.9 million and by $6.9 million to $33.8 million, respectively, for the six months and quarter ended September 30, 2022 compared to the same periods in the prior fiscal year. Tobacco operations segment results improved largely due to substantial shipments of both carryover and current crop tobacco. While sales volumes were higher in the tobacco operations segment in the six months and quarter ended September 30, 2022 compared to the same periods in the prior fiscal year, the sales included some lower margin tobacco. Unfavorable foreign currency comparisons due to the strong U.S. dollar also negatively impacted tobacco operations segment results in the six months and quarter ended September 30, 2022.
Carryover and current crop tobacco shipments from Brazil were up significantly in the six months and quarter ended September 30, 2022 compared to the same periods last fiscal year. While in Africa, carryover and current crop shipments from Mozambique and Malawi were lower in the six months and quarter ended September 30, 2022 compared to the same periods in fiscal year 2022 due to smaller crop sizes as well as some logistical delays. In North America, sales volumes were down in part due to shipment timing, and the sales mix included some lower margin tobacco in the six months and quarter ended September 30, 2022 compared to the same periods in fiscal year 2022.
Trading business was up in Asia in the first half of fiscal year 2023 compared to the first half of fiscal year 2022. Selling, general, and administrative expenses for the tobacco operations segment were higher in the six months and quarter ended September 30, 2022 compared to the six months and quarter ended September 30, 2021, primarily due to unfavorable foreign currency comparisons. Operating income for the ingredients operations segment was $9.1 million and $4.5 million, respectively, for the six months and quarter ended September 30, 2022 compared to $7.1 million and $2.7 million, respectively, for the six months and quarter ended September 30, 2021.
Results for the ingredients segment improved compared to the same periods in the prior fiscal year on the inclusion of the October 2021 purchase of Shank's Extracts LLC. For both the six months and quarter ended September 30, 2021, the ingredients operations segment continued to see strong demand and volumes in both human and pet food categories. Despite higher costs for raw materials, labor, travel, and marketing, margins for the ingredients operations segment in the first half of fiscal year 2023 continued to hold up well compared to those in the first half of fiscal year 2022. Selling, general, and administrative expenses for the segment increased in the six months and quarter ended September 30, 2022 compared to the same periods in the prior fiscal year, primarily on the addition of Shank's.
Moving forward, Universal remains focused on integrating sustainability into all aspects of our business. A key part of our sustainability efforts is reducing global emissions. To support us in developing our long-term strategy for reducing our global emissions footprint, we have engaged a third party to develop a low-carbon transition plan and to prepare for updated guidance on meeting future net zero targets. At this time, we are available to take your questions.
Thank you, Candace. If you wish to ask a question, please press star followed by one on your telephone keypad now. Our first telephone question comes from Ann Gurkin of Davenport. Ann, please go ahead with your question.
Good evening to everyone.
Hey.
Good evening, Anne.
Congratulations on nice results. Hi.
Thank you.
I just wanted to start with a big picture question. Looking at your investor presentation on slide 26, where you outline progression of revenues and then a three-year average operating income number. What would it take to get back to that three-year average operating income number, which I think is around $200 million? What are the key drivers we should look for? Can you return to that number?
Ann, Again, in this current environment, I believe that the, you know, supply and demand, we are certainly in a shortage of supply. As we call out in the press release, margins are holding up really nicely. It's all about, you know, can we get the volume to reach these numbers? Everything looks really positive at the moment, for the year.
Okay. It looks like if you increase tobacco volume will help drive you back to that three-year average number if crop sizes increase?
Well, the crop sizes this year.
Because your margins look great, yeah.
Our efforts were a bit down. Yeah, based on what we're seeing, we should be able to achieve those, yes.
Okay, great. In terms of the ingredient operating margin, is it still possible to hit high single digits% for the full year?
Well, the thing that we told you previously, Ann, is, you know, especially with Silva, they are sitting on a fairly large amount of inventory. That's their operating model. You know, some of that inventory that they have in inventory right now, as we have pointed out in previous calls, you know, was brought in with fairly high shipping costs. You know, those margins have held up nicely, better than we had anticipated. Whether or not they hit exactly those numbers that you're talking about, we just don't know yet. It looks really positive for the year.
Okay, great. You highlighted that you're adding, or investing in sales people and development, folks and opportunities. Is that something you will do organically, or will you need to do M&A to fill in white spaces? What is the current capacity utilization of your existing ingredient, offering, sorry.
We filled some of those positions by, you know, through outside hires.
Yeah. The intention certainly is, Ann, that we will grow both organically as well as through acquisitions going forward. You know, we have made these three acquisitions. They are working extremely well. We're really pleased with how it's developing. There clearly are synergies to be had in the existing platform as it stands. We will, you know, go both ways, and we are hiring some folks in order to just achieve the goals that we have set for ourselves.
In terms of development, you have opportunities to leverage the platforms you have as well as maybe make some tuck-in acquisitions or add some additional product lines?
The tuck-in acquisitions at this point in time with the depth levels we have, you know, that certainly is. We have to put a pause on those. We were certainly looking at all those things that we can do organically where we can grow, where we can add. We have capacity, but certain capabilities are just not there yet, so we're looking at those type of things going forward.
Okay, great. Capacity utilization at your current processing plants, do you have room to add?
It-
Additional fields line?
It differs across the platform. Some of them are close to capacity on certain products, and others might be at 50%. It all depends on where we're looking and what we're looking for. We certainly are trying to fill that capacity with all the products, and we are successful in some of those efforts.
Okay, great. Are you getting ready to raise prices again going into calendar 2023 for the ingredients business?
That all depends on which products you're talking about. You know, some of the products that we're looking at have probably reached a level that they're coming slightly back down. We are seeing some lower crops in apples, so those prices seem to come down. But in others, you know, it all depends, some of the stuff that is coming out of some of the other origins, it all depends. Energy prices and all these other things remains to be seen. We're contracting that at this point in time, and we're talking to customers about that at this point in time.
Switching to tobacco customers talking about moving into non-combustible tobacco offerings. How do you position Universal to participate in the customer movement or focus on non-combustible tobacco offerings?
Yeah. Today we have a portfolio of products and services that we participate on the combustible and the non-combustible. We have two sheet operations in Europe, where we do supply services and products for these new generation products. We also have the Amernic that continue developing for the vaping industry. Those are the areas that we are positioned today, with raw material for combustible and non-combustible and services for the new generation products.
Okay. In this world of rising interest rates, what percentage of your debt is fixed or your lines of credit are fixed, or how do I think about interest expense over the next 12-18 months for y'all?
Well, we actually swapped some of that, which is in the 10-K. You can look up that number in the 10-K. The debt levels of course are significantly higher than what we like. We like to keep a fairly large portion of it variable because, again, that works better.
Yep.
For our the way we work.
The interest expense we see in this quarter is something we carry forward or should I move it higher?
Keep in mind that, you know, the balances are fairly high, so we certainly expect considerable decreases in those balances the latter part of this fiscal year.
Okay. SG&A expense, which you talked about a little bit on the call, was ahead of what I was expecting. I was using more of a run rate that we saw last quarter. Should I think of it more of a run rate as what we saw this latest quarter, given currency in the numbers?
Well, again, there were certainly inflationary increases. You know, you saw some increases, we saw some increases in travel and those type of things for sure. The big driver certainly for this quarter versus last year was certainly Shank's as well as the negative variance with regard to the FX, the currency, the negative currency comparison. Strong dollar-
Okay.
Has an impact on that thing.
Okay. Nice to see the board approved the share repurchase program, but are y'all ever gonna buy back stock?
When we have excess cash, Anne, we will certainly be thinking about it.
Okay. Candace, the worldwide uncommitted lease inventory number. I always get that.
Yes. I think it's the same as reported previously, but just to, yeah, be clear, that's 49 million kg as of June 30, 2022, which is down 13 million kg from March 31, 2022. That should be about the same as we gave you before. Nothing new this quarter.
Okay, great. Congrats again. Thank you for taking all these questions.
Sure. Thank you.
Thanks, Ann.
Thanks.
Thank you for your question, Ann. If you wish to ask a question, please press star followed by one on your telephone keypad now. It seems we have no current questions, so I'd like to turn the call back to Candace Formacek and the team for any final remarks. Thank you.
Thank you, Luisa, and thank you all for joining us today. We'll be talking with you again next quarter. Have a good evening.
Good night.
Thank you all for joining today's call. You may now disconnect and have a good day.