Universal Corporation, the leading global leaf tobacco supplier and provider of plant-based ingredients, has delivered a strong finish to its fiscal year 2024, showcasing notable financial and operational performance. Universal Corporation's tobacco business continued to thrive, driven by a favorable product mix, robust customer demand, and the sale of larger crops in Africa compared to the prior fiscal year. Meanwhile, Universal Corporation's ingredients business made significant strides, with progress on its state-of-the-art expansion project and continued investment in the commercial sales team and research and development function.

Financials

For the fiscal year ended March 31, 2024, Universal Corporation reported net income of $119.6 million, or $4.78 per diluted share, and revenue of $2.75 billion. While Universal Corporation's operating cash flow was negative $74.6 million, its free cash flow stood at negative $140.6 million, reflecting the increased working capital requirements to support its accelerated tobacco leaf buying in Brazil.

In the fourth quarter of fiscal year 2024, Universal Corporation's net income was $40.3 million, or $1.61 per diluted share, on revenue of $703.9 million. Excluding certain non-recurring items, adjusted net income for the quarter increased by $20.3 million, and adjusted diluted earnings per share increased by $0.82, compared to the same period in the prior fiscal year.

Business Overview

Tobacco Operations

The Tobacco Operations segment was the primary driver of Universal Corporation's strong performance, with operating income increasing 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 to the respective periods in the prior fiscal year. This was largely attributable to higher tobacco sales prices, a more favorable product mix, and larger African crops, partially offset by lower tobacco sales volumes.

Ingredients Operations

The Ingredients Operations segment, however, faced some challenges, with operating income of $4 million for the fiscal year and an operating loss of $1 million for the quarter ended March 31, 2024. These results were negatively impacted by higher costs related to infrastructure investments, lower new crop raw material prices, and inventory write-downs, partially offset by margins on new products. Customer inventory recalibrations in the first half of fiscal year 2024 also weighed on the segment's performance.

Outlook

Looking ahead, Universal Corporation remains steadfast in executing its strategy of maximizing opportunities in the tobacco business while growing the ingredients segment. Universal Corporation believes its leading market position, global footprint, and proven sustainability practices will continue to enable it to generate stable cash flow from its tobacco operations. In the ingredients business, Universal Corporation is well-positioned to deliver high-quality, innovative products that drive top-line growth, margin expansion, and earnings stability, particularly with the anticipated completion of its state-of-the-art expansion project at the Lancaster manufacturing facility in the second half of fiscal year 2025.

Recent Developments

The tobacco market continues to face tight supply and elevated green tobacco prices, which Universal Corporation is navigating through its diverse global footprint and financial flexibility. During the fourth quarter of fiscal year 2024 and into the first quarter of fiscal year 2025, Universal Corporation accelerated its buying in Brazil to ensure access to the tobacco needed to serve its customers. This accelerated buying, combined with higher green tobacco prices, resulted in increased working capital usage and higher debt levels at March 31, 2024. However, Universal Corporation expects the net impact on working capital from this strategy to naturally unwind over the next two years, and it remains committed to supporting its tobacco business while efficiently managing working capital and reducing leverage levels.

In the ingredients business, Universal Corporation's vision is to be a provider of a complete, innovative suite of solutions and value-add products. The investments made in the commercial sales team and research and development function are expected to deliver value over time, as evidenced by the new partnerships and new product sales that helped offset lower revenues from sales in fiscal year 2024 due to customer inventory recalibrations and lower raw material prices.

Geographical Presence

Geographically, Universal Corporation's tobacco operations span the globe, with significant presence in Africa, South America, and Asia. Universal Corporation's diverse footprint and flexibility in sourcing tobacco from multiple origins have been crucial in navigating the tight supply conditions. In the ingredients business, Universal Corporation's operations are primarily focused in the United States, with its key facilities located in Washington, Pennsylvania, and California.

Revenue Breakdown

From a revenue breakdown perspective, the Tobacco Operations segment accounted for approximately 63% of Universal Corporation's total revenue in fiscal year 2024, while the Ingredients Operations segment contributed the remaining 37%. Within the Tobacco Operations segment, flue-cured and burley tobaccos remained the primary revenue drivers, used principally in the manufacture of cigarettes, while dark air-cured tobaccos were mainly used in cigars, pipe tobacco, and smokeless tobacco products. In the Ingredients Operations segment, Universal Corporation's fruit and vegetable processing, as well as flavor and extract services, provided a range of ingredient products to its customers.

Liquidity

In terms of financial ratios, Universal Corporation maintained a strong balance sheet, with a current ratio of 2.96 and a quick ratio of 0.98 as of March 31, 2024. Universal Corporation's debt ratio stood at 0.36, and its interest coverage ratio was 3.32, indicating a solid financial position to support its operations and growth initiatives.

Conclusion

Overall, Universal Corporation has demonstrated its ability to navigate the challenges in the tobacco market while investing in the growth of its ingredients business. Universal Corporation's diverse global footprint, strong customer relationships, and commitment to sustainability position it well to continue delivering value to its shareholders. As Universal Corporation executes on its strategic priorities, investors will be closely watching the progress of the ingredients business expansion and Universal Corporation's ability to manage the tight tobacco supply conditions.