Thank you, Daniel. Welcome, everybody. Thank you for joining Universal Corporation today. As Daniel said, I'm Preston Wigner. I'm Chairman, President, and CEO of Universal, and I'm excited to be with you today to tell you about the Universal story. We are having some technical issues. Daniel is controlling our slides, so thank you, Daniel. If you could go to the company overview slide for us. I'm seeing the title page.
Sorry. Which slide would you like to be on, Preston? My apologies.
No problem. Next slide, please. That's perfect. Universal is a global business-to-business agriproducts company. We've been supplying products, innovative solutions for well over 100 years. Our global diverse footprint covers five continents, over 30 countries, and serves as a key strength and competitive advantage for our company. Our roots are in tobacco. We're the world's leading global leaf supplier. Our tobacco business produced strong and consistent cash flows for decades. It's the backbone of the company. We're dedicated to proactively growing our company. Our strong tobacco business provides us many opportunities with our broad global customer base. We've created and are growing our new plant-based ingredients business, Universal Ingredients. We don't talk about our business without talking about sustainability. Our commitment to sustainability is also a strength and competitive advantage for the company, especially with our tobacco business.
We see sustainability as good for business, and it's good stewardship with the farmers, communities, and the operations we support around the world. Next slide. In simple terms, Universal is the global consumer products customers. We link farmers and suppliers to the global marketplace by sourcing their raw materials. By processing and delivering those raw materials, we link our customers to the agriproducts they need around the world to meet their requirements. Next slide, which is our business strategy. Our business is guided and driven by our three pillar corporate growth strategy: maximizing and optimizing our tobacco business, growing our ingredients business, and strengthening the company for the future.
Through our maximizing and optimizing tobacco pillar, our focus is to increase our sales volume and market share, expand the services we perform, and pursue value chain opportunities with our customers, participate in our customers' next-generation product supply chain, and pursue operational efficiencies to optimize our global footprint. Through our growing ingredients pillar, our focus is to grow organically by leveraging our platform resources and increasing development of value-add product solutions using our broad product portfolio. We also target growth through acquisitions in the future to build scale and increase margins with value-added products. In strengthening for the future, we seek opportunities to improve and strengthen our company for the next 100 years.
Areas of focus include creative and efficient financial management to support the company, enhancing human resources and human capital management as strategic business drivers for our business, utilizing technology, including AI, to gain efficiencies and effectiveness, and to pursue opportunities over time to connect our tobacco and ingredients businesses. Next slide, please. Next slide, I'll talk about our tobacco business. I'll explain the strength and drivers of our company by starting with our global tobacco business. As I said, we're the world's leading global leaf tobacco supplier. We buy the vast majority of our raw tobacco directly from contracted farmers. This gives us a unique, solid relationship with our global grower base. The global market for leaf tobacco, excluding China, consists of three competitor segments: global leaf suppliers, local and regional suppliers, and vertically integrated customers. Roughly a third of the world's leaf tobacco is purchased by each segment.
For the global leaf suppliers, there are only two, us and another U.S. company. We operate in similar markets, but we're the largest, and we believe we're the best at what we do. That belief stems from the quality and depth of our programs and operations and our global footprint, as well as the stronger balance sheet, which allows us to take advantage of opportunities while creating. They don't have a diversity of business or the sustainability programs that we do. They may be cheaper, but often much less value for the customers, and they often have no operational support. No factories, agronomy teams, and no sustainability programs or resources. Sustainability is very important to our largest customers, and that importance is growing with the other customers around the world. For our vertically integrated customers, some of them do have vertically integrated operations in certain origins.
We believe we have more efficient operations, and we can increase volume to their benefit. That contracted tobacco is purchased on a run of crop, meaning you buy everything that the farmer produces, not just the specific leaf qualities and positions that our customers need. Our vertically integrated customers, they have to buy that whole plant, and they buy leaf tobacco that they don't really need. Our value to them in being able to move up that value chain and take over some of those positions they have, is that we've got the benefit of scale with our operations and all of those leaf positions we can disappear to our vast portfolio of customers, which should be more efficient to those customers that are vertically integrated.
The advantages we have compared to the different competitor segments in the industry position us well to capitalize on those long-term trends in the industry and execute our maximizing and optimizing pillar of our strategy. Next slide, please. The strength of our business is the global robust tobacco business we have that we have built over more than 100 years, provides us with strengths and creates barriers to entry. Across that commercial flow of our business, we highlight today four key strengths, sourcing, agronomy, processing, and logistics. For sourcing from our farmers, that global reach we have and diverse footprint provides us all the styles of tobacco our customers need, and we are in all the major tobacco markets. Our backbone is the strong local management teams around the world. Their deep knowledge and commitment to on-the-ground programs provide us consistency and agility across market cycles.
Our broad customer base supports our global footprint, providing a home for what we buy on a run of crop basis to meet our customers' unique needs. Our agronomy teams support our farmers because farmer success is our success. They provide farmer production support, on-farm good agricultural practices, farmer yield improvements, and competitive business returns for our farmers. This support has strengthened our long-standing farmer relationships. They also support farmer compliance and sustainability through on-farm education and monitoring, which includes agricultural and sustainability monitoring. Our teams conducted almost 2 million field visits this last fiscal year. Our processing facilities provide scale and capabilities that distinguish us from our competitors. Our large efficient factories help us meet customer demanding specs, and they are located in the strategic major tobacco markets in our footprint.
They also support our ability to provide packed leaf by-products and tobacco sheet, and through partner facilities, we provide liquid nicotine processing for the next-generation product markets. Finally, logistics as a key support for us and supports that vital link between the farmers and the customers. Our expertise in logistics and infrastructure enables us to connect hundreds of thousands of farmers in remote areas around the world with that global market, and to deliver goods efficiently to customers to meet their production needs. Our operational strengths support our long-standing large customer relationships, and they create those barriers to entry that protect our leading market position. On the next slide, Daniel, I will talk about our ingredients business, which is the other side of our company. We are proud of the progress we have made with the creation of Universal Ingredients. Next slide, please. In 2018, we had a strategy.
A few short years later, we acquired three companies and began integrating them, and now we are focused on growing that business. Our ingredients growth strategy complements our mature tobacco business. We saw adjacent markets and industries that could leverage our core agricultural processing capabilities and experience. We identified plant-based ingredients as the strategic direction for us to pursue. We began a thoughtful and intentional process of acquiring three companies to build a solid base for our ingredients platform, which includes concentrate, not from concentrate, fruit juices, purees, essences, and dry products through FruitSmart; dehydrated vegetables, herbs, and spices through our Silva International acquisition; and flavors, extracts, and nutraceuticals through Shank's Extracts. Those three companies created the solid base for Universal Ingredients. We then invested in the tools Universal Ingredients needs to grow. Commercial sales and marketing resources.
They help our go-to-market strategy with sales across the platform, targeting broader markets and raising awareness of our capabilities and solutions. With R&D and product development resource investments, we offer product concepts across different product lines, matching flavors and proactive product development to support evolving customer needs and customer trends. We have expanded and enhanced our facilities, including our $30+ million expansion of our extracts and flavors operation, which added innovative extract, bulk blending, and aseptic packaging capabilities. Next slide, please, Daniel. By forming a business with such a broad variety of products and capabilities from our three acquisitions and our platform resource investments, we believe we offer a unique value proposition to customers in numerous large end markets. Our strategy provides Universal Ingredients with breadth of products and value-added services to support broad markets with diverse customers, and the flexibility to meet our customers' and their consumers' evolving needs.
Universal Ingredients is designed to support customers in different segments across the industry, including consumer product manufacturers, private label, retail companies, and food service distributors, as examples. We have strategically targeted key markets aligned to our breadth and flexibility to support our growth with Universal Ingredients. They include food, beverage, animal nutrition, food service, retail, and ingredients in specialty markets. Next slide, please. Through Universal Ingredients, our strategic objective is to provide a fully innovative suite of solutions and value-added products, leveraging the capabilities across our entire platform, which will give us opportunities to grow through higher margin, value-added products and solutions. We believe we can compete and win business by leveraging three core areas. First, our large and diverse product portfolio.
Our diverse and expanding portfolio of natural and functional ingredients allows Universal Ingredients to compete in a highly fragmented market and meet the rising demand for healthier, clean label options while achieving product and solution synergies across the three business units created by our acquisitions. Second, we offer customized solutions through customer co-creation with commercial, marketing, and R&D, and product development support. Customer co-creation is supported by our commercial and marketing teams, who proactively partner with customers to design, test, and scale solutions tailored to their needs and evolving market trends. Our R&D and product development teams support and partner with our commercial and marketing teams to use science, application labs, and technical expertise to accelerate innovation and differentiation. Our third core area is innovative technology.
We have invested in innovative and efficient packaging solutions, like aseptic packaging, that add value and support customer logistics efficiencies as we extract, bulk blend, and aseptically fill all in one location, while we also offer innovative natural and organic sterilization capabilities at our operations. Next slide, please. As I mentioned earlier in my presentation, sustainability is strategically important to Universal's business. Next slide, please. We primarily focus our sustainability efforts today on supporting our contracted tobacco farmers, strengthening communities, and optimizing our operations. We are committed to setting high standards, promoting a sustainable supply chain, and providing transparency about our sustainability efforts through the publication of our annual sustainability reports on our corporate website, which are publicly available. Sustainability is a significant competitive advantage for our tobacco business. Our large customers value our programs, and they place business with us based on our sustainability commitment, practices, and performance.
We also see opportunities in the future to lever our expertise and apply our sustainability knowledge to our ingredients business, as sustainability becomes more important over the years to customers and consumers. These are the reasons why we believe sustainability is good for our business, as well as representing good stewardship in the communities in which we operate. Next slide, please. That's a quick overview of the company and our strategy and our story. I thank you for listening to me today. I invite you to join Universal. We're the leading global leaf tobacco supplier with longstanding farmer and customer relationships. Our defensible leaf tobacco market position is protected by competitive advantages and strong barriers to entry. Our experienced corporate, regional, and local management teams have deep knowledge and proven track records.
Our growing ingredients business has breadth and flexibility to create value-added products across many food and beverage markets. And we're proud of our established history of returning value to our shareholders. With the time we have remaining, I'm happy to take questions from the audience.
Preston, thank you so much. As a reminder to everybody in the audience, if you do have any questions, please type those into the Q&A box. We do have a little over 10 minutes remaining, so we should be able to get to just about everything. Preston, I'm going to just start kind of a little bit more high level. I understand that you've spent a good deal of time kind of giving us an overview of the business. But can you kind of walk us through in a little bit more detail the important role you play between the farmer and the end customer, and really what these customers are paying you to do?
Yeah. We see our value chain with our customers, with our growers, we see them as strategic partners. This is not a transactional relationship, it's a strategic partnership. And that link between the two is the value we provide to both, and that's why both growers and customers rely on us, and we have such longstanding relationships with them. With our customers, we work hand-in-hand with them to understand their needs, both in the upcoming season as well as long term, what their evolving customer needs are, what their product needs are, and more importantly, where those needs need to be met across our global diverse footprint. Tobacco is not a commodity, so what's grown in one country is different than what's grown in another.
But based on the blends of their products, we work hand in hand with them to know where those trends with their products are going, what types of tobacco they need, what styles, characteristics do they need. We can match those styles and characteristics and volumes with our global footprint and replicate that year after year after year through different market cycles. On the grower side, same type of partnership. But on the grower side, we work hand in hand with our growers to make them sustainable, not just ESG sustainable, but sustainable as a business. For us, our focus is to make sure the grower has a good, healthy margin that keeps them in the supply chain and keeps them growing tobacco while they also look at competing food crops in all the areas where we operate. Our support for those growers is central.
Our agronomy teams work hand in hand with those growers to help them be better business partners. So we help them with good agricultural practices, knowing how best to grow the high-quality tobacco we need consistently year after year, as well as how to increase their yields so they can produce more tobacco on the same land than they could without our help, which helps us understand crop size and crop availability. Because we do not buy tobacco on a speculative basis. We go to our farmers knowing what our customers need, and we contract the volume we need from our growers the same fashion. For sustainability.
Sustainability is a lot of work for us and for our growers, but we've helped them understand the vital part that sustainability plays in the global market, as sustainability makes their tobacco marketable versus growers in the same country who don't follow those practices and procedures that we help them implement. Our monitoring of them is not just looking over their shoulder, but is partnering with them to educate them on those practices, help them achieve those practices, and then replicate those practices year after year. For us, that longstanding grower relationship, it's not just important to have consistent quality from those growers, but so they understand those sustainability programs and they keep them versus constantly teaching new growers year after year these sustainability programs. So that's that vital link that we play. That's the value that we provide to our customers and to our growers.
No, that's very helpful, Preston. Thank you. Covering Universal, I've learned firsthand that the company's results really aren't spread evenly across the year. So for an investor newer to your story, can you try to explain at a high level how the crop and shipment cycle drives seasonality in the business and why any single quarter could look different from the full-year picture?
Yes, I can hop in there and talk a little bit about seasonality. If you think about where we source tobacco, five continents all around the world. For us, as you come into the spring in the U.S., that's our first big market that happens is in Brazil, southern Brazil, and it's a big market for us. Then it kind of moves over into Africa, then up into Asia and then Europe and North America. So you've got activity kind of flowing through the year, and that's going to impact when we are investing in working capital, when we are shipping the tobacco that we process to customers. That can also shift, as it has, particularly these last two years, based on what's happening in the market. So we had an undersupply situation going back the last couple years. So there's demand for the tobacco.
The farmers are bringing it in. We're buying it earlier. We're processing as fast as we can, and we're shipping. Then you have a couple big crops like we've had, and as we come into this year, you saw that we had a very slow first quarter, and that was just due to the dynamics of what was happening with the crop seasons, particularly in Brazil. You had a lot of wait and see as the market shifted from this undersupply into balance and now into an oversupply. Everybody's kind of waiting. Okay, where's pricing going to land? The farmers are trying to figure out when they want to deliver. The customers are thinking about what prices they're going to pay and when they're going to buy.
So you had this kind of shift out this year, which is why you heard us on the last call talking about we're going to have a very heavy second half of the year, and that's why. This year is going to represent something more again to what we have historically normalized been at.
Versus the last couple years prior, which were maybe a little bit more accelerated than what we historically had, given the undersupply situation. Now we're shifting more into balance and even pushing into this oversupply that we're talking about. So you've got a year that looks traditionally more normal and maybe even a little bit slower in the first half than what we've seen recently.
Yeah. Because of that cycle, at a 30,000 foot level, to Steve's point, historical norms. First quarter, even into our second quarter, it's the tobacco's in the ground, it's starting to be purchased. It's a lot of investment in the crop. The second half of the year is where we're shipping and then recognizing those sales. Traditionally, the second half of the year is where the bulk of our results are, third quarter and certainly into the fourth quarter. Then shipping, we're always working through shipping timing. So if you have shipments that are intended to go in the fourth quarter, but they slip into the first quarter, because that first quarter is relatively quiet for us in terms of sales, shipments into the first quarter, they can bounce around. If you have a lot of carryover sales into the first quarter, then the first quarter goes up.
But traditionally, it's quiet. So even just shipment timing quarter-to-quarter can impact performance on a quarter-to-quarter basis. But generally speaking, first quarter is quiet, second quarter ramps up. Third and fourth quarter for us, that's where everything happens.
Yeah. In particular, we just saw that in the first quarter, when you look at a comparable basis. For our fiscal year that ended in March 2025, we had a fair amount of that carryover in that fiscal year's first quarter that wasn't here this, well, I guess fiscal 2027, sorry, the first quarter. So on a comparable basis, it looked like things were down. It was really just a shipment timing issue. It wasn't a fundamental or across the entire crop year issue.
Yeah
with what was happening.
Yeah. I'd say the market did not, from my opinion, read it the right way based on the impact of the stock price for the first quarter results.
Following up on that a little bit, obviously throughout the company's history, it's had to withstand periods of oversupply and undersupply. We went from a market that was undersupplied to now we're oversupplied. Can you just maybe talk a little bit more about what drives those cycles and then why maybe Universal is so well-positioned to manage through them? I guess finally, why Universal has even said in the past that it even prefers or works well in a market that might be a little bit oversupplied, especially considering that up until this year we were undersupplied.
Yeah. I think for us, regardless of market cycles, for us, the key first is access to the tobacco we need, whether it's undersupply or whether it's oversupply. It first starts with access to the tobacco we need. With oversupply, the dynamics are both in terms of customer production needs, but also what those crops produce as an agricultural product. Weather impacts, supply and demand, external pricing and cost to the grower, all those impact those markets year after year. With oversupply, what we had seen was, certainly during the COVID years, an unexpected, unplanned from our customer's perspective, increase in consumption, increase in production during a time where there were undersupplied markets, which drove up supply, I mean, drove up demand and supply had to catch up.
We saw a sharp increase in demand with the trailing supply, which over time, because prices for the farmers increased during that time, the crops got bigger. We transitioned these last couple of years from undersupply very quickly to balance to oversupply, all really in one, for us, one fiscal year, where now we're in oversupply. Now you have large crops. Customers have primarily met their unmet, unfulfilled prior demand. From that point of view, now we're navigating through large crops and moving that tobacco to our customers, both in terms of the largest customers as well as all of our smaller customers around the world. So they all catch up to their untapped demand from the prior years of short crops, and that cycle will continue. We've seen cycles for the last 100 years, and we'll see them for the next 100 years.
For us, the stability we try to provide both to our growers and to our customers is consistent supply, so that the market might be in oversupply for the industry, but not for us in terms of moving the tobacco that we've bought. Because we don't buy on a speculative basis, so we don't have tobacco that we buy that we don't think we're going to have a home for it. We hold it. Whatever we have during the year, we could always have sales throughout the year. We've got big indications from our customers. We fulfill those, and then as the year goes on, there might be certain qualities that they need.
In a perfect world for us, the world would always be in a slight oversupply, so that access to the tobacco for us is not an issue, but we always have access to a little bit more, so we can satisfy those spot needs throughout the years. When the customers come in during the year and they tell us, "We're a little short of this quality. Can you get us that quality?" In that slight oversupply situation, we have full access to the tobacco. We can get that. When you're in under supply, as we have in years past, there was just unfulfilled demand. If we could access it, we could have sold it. It just wasn't the access because of the size of the crops.
No, that's very helpful. We're up on time, but Preston, Steve, Woosh, Jennifer, Taylor, thank you guys so much for sharing this presentation and sharing Universal's story. For those of you in the audience, we really appreciate your participation and the questions that you put in. But guys, on behalf of Sidoti and everybody that attended the presentation, thank you so much for your time today. We're excited that you joined the conference, and we look forward to following you in the future.
Well, we're excited to be here. We really thank you for the opportunity. We've enjoyed the meetings we've had this morning and this afternoon. We welcome anybody in the group who's listening. We're always happy to talk. Please reach out to us. A special thank you, Daniel, for helping us with our slides today.
My pleasure. Thank you everyone. Have a great day.