Universal Corporation (NYSE: UVV) 2025 10‐K Review

Executive Summary

Universal Corporation reported solid results for fiscal year 2025, reflecting its position as the leading global leaf tobacco supplier and a growing presence in plant‐based ingredients. Key highlights:

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• Consolidated revenues: $2.95 billion, up 7% year-over-year • Operating income: $232.8 million, up 5% • Net income attributable to Universal Corporation: $95.0 million • Adjusted diluted EPS: $4.63, down 9% (non-GAAP) • Tobacco Operations operating income: $240.2 million, up 8% • Ingredients Operations operating income: $12.3 million, up 212%

Universal’s three‐pronged strategy—maximizing Tobacco Operations, growing Ingredients Operations and strengthening the organization—laid the foundation for healthy cash flow, investments in growth, and a share repurchase program.

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Business Overview

Tobacco Operations

Universal sources, processes, blends and ships flue-cured, burley, dark air-cured and oriental tobaccos to major cigarette, cigar and next-generation product manufacturers. It operates in all major leaf origins—Africa, Brazil, the United States, Southeast Asia, Europe and beyond—and handles roughly 20–45% of worldwide flue-cured and burley exports (excluding China).

• Key services: custom farmer contracts, agronomic and sustainability training (GAP and ALP code), processing, blending, testing, just-in-time delivery • Market position: #1 global leaf tobacco supplier—strong customer relationships with the top five customers accounting for >50% of revenue

Ingredients Operations

Universal Ingredients—formed by the acquisitions of FruitSmart (liquid fruit/berry ingredients), Silva (high-volume dehydrated vegetables) and Shank’s Extracts (botanical and flavor extracts)—supplies the food, beverage and pet-food markets with juices, concentrates, dry powders, flavors and extracts. The segment is building a solutions-based “one-stop” platform:

• 2025 CapEx: Major facility expansion in Lancaster, PA, adding aseptic bottling, extraction, blending, and cold storage • Commercial support: expanded R&D and platform sales to drive custom formulations and end-market insights

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Fiscal Year 2025 Results

Consolidated Performance

Metric	FY2025	FY2024	Change
Revenue	$2,947.3 M	$2,748.6 M	+7%
Gross margin	18.6%	19.5%	–90 bps
Operating income	$232.8 M	$222.0 M	+5%
Adjusted operating income^	$243.4 M	$230.3 M	+6%
Net income (GAAP)	$95.0 M	$119.6 M	–21%
Adj. EPS (Non-GAAP)^	$4.63	$5.08	–9%

^ Excludes restructuring, impairment, pension settlement and one-time VAT settlement items. See Non-GAAP reconciliation below.

Non-GAAP reconcil iation highlights: In 2025, Universal recorded a $14.1 M non-cash pension settlement charge and $10.6 M of restructuring costs, partially offset by lower VAT settlement costs (nil vs. $4.8 M in 2024).

Tobacco Operations (79% of revenues)

Metric	FY2025	FY2024	Change
Revenue	$2,608.7 M	2,438.8 M	+7%
Segment Op. Inc.	$240.2 M	$222.4 M	+8%

• Average leaf sales price: +12% y/y • Volumes: –4% y/y (carryover inventories, seasonal shipping mix) • Processing & SG&A benefits: +$12.2 M net recoveries of farmer advances, absence of prior year VAT costs

Global leaf demand remains firm, with projected crop expansions in 2026 in Africa, Brazil and U.S., moving supply toward balance.

Ingredients Operations (11% of revenues)

Metric	FY2025	FY2024	Change
Revenue	$338.6 M	$309.8 M	+9%
Segment Op. Inc.	$12.3 M	$3.9 M	+212%

• New product sales & higher volumes in beverages • Facility expansion operational late in 2024 to drive flavor, aseptic, cold-chain volumes • Inventory write-downs down $2.8 M vs. prior year

Plant-based ingredients growth remains diversified across CPG, retail, food service, and pet-food end markets.

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Cash Flow & Capital Allocation

Metric	FY2025	FY2024
Cash flow from operations	$327.0 M	–$74.6 M
CapEx	$62.6 M	$66.0 M
Free cash generation, pre-restructuring	~$264 M	~$8 M
Share buyback	–	$4.7 M
Dividends paid	$79.7 M	$78.4 M
Net debt / cap	36%	41%

Key points:

1. Negative working capital in 2024 on accelerated Brazil purchasing — freed ~ $265 M of seasonal cash for 2025.
2. Central liquidity: $260 M cash on hand, $270 M undrawn revolver, $271 M uncommitted foreign lines.
3. Share repurchase: newly author­ized $100 M program through November 2026.
4. Disciplined $13.1 M of non-GAAP operating income growth delivered despite ongoing headwinds.

Pro forma net debt: $817 M vs. net cap $2.275 B (36%), funding potential for acquisitions in ingredients and continued shareholder returns.

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Financial Health & Covenants

• Revolver: $530 M facility maturing Dec 2027; no Easter termination • Term loans: $275 M (5-yr) + $345 M (7-yr) maturing Dec 2027/29; SOFR + credit spread; 60% hedged to fixed • Financial covenants: tangible net worth, max leverage — in compliance at March 31, 2025

Forward currency contracts and interest rate swaps reported at fair value in other comprehensive income; derivatives are hedges for interest cost and exposure on tobacco purchases.

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Balance Sheet & Working Capital

Working capital: $1.4 B, up $15 M y/y • Cash and cash equivalents: $260 M (vs. $56 M) • Net trade receivables: $626 M (vs. $525 M) • Tobacco & materials inventory: $996 M (vs. $1,264 M)

Seasonal funding dynamically managed through revolver, short-term lines and cash.

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Key Risks & Outlook

Risks:

• Tobacco regulation & tobacco demand decline
• Agricultural/weather risks in global tobacco crops
• Currency volatility and hedging effectiveness
• Pension plan de-risking and funding requirements
• Political instability and trade barriers in leading leaf origins
• Integration and execution of plant-based ingredients investments

Outlook:

• Uncommitted tobacco crops 2026 projected to rise ~20–35% for flue-cured/burley — approach balance of supply & demand
• Ingredients segment targeting double-digit growth in beverages and value-added botanical lines
• Continued shareholder returns: stable dividends, moderated buybacks

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Non-GAAP Reconciliations

Adjusted Operating Income

FY2025: $232.8M  + $10.6M (Restructuring & impairment) = $243.4M
FY2024: $222.0M  +  $3.5M (Restructuring & impairment) + $4.8M (VAT) = $230.3M

Adjusted Diluted EPS

FY2025 GAAP EPS $3.78  + $.30 (O.I.) + $.55 (Pension) = $4.63
FY2024 GAAP EPS $4.78  + $.19 (O.I.)        = $5.08

Net Debt & Net Cap

Net debt @ 3/31/25 = Debt $1,073M  + Customer advances $4M  – Cash $260M = $817M
Net cap = $817M + Equity $1,459M = $2,275M (36% net debt)

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Investment Score: 7.5/10

Strengths: Market leadership in tobacco, margin resilience, robust cash generation, ESG & sustainability credentials, growing ingredients platform with differentiated capabilities. Challenges: Highly regulated industry, agriculture risk, slower topline growth in core tobacco, integration risks in ingredients, currency fluctuations.

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Bottom Line

Universal remains a cash-generative global supplier with a measured strategy: optimize mature tobacco operations, invest in the growing plant ingredients business, strengthen margins with hedges and operational efficiencies, and return capital via dividends and buybacks. Continued stability in tobacco demand and favorable crop tenure should sustain top-line growth, while facility expansions and R&D investments in the ingredients platform position the Company for diversified growth beyond tobacco.

Net income attributable to Universal Corporation: $95.0 million

For detailed financials, charts, interactive materials, and holistic analysis, read the full 2025 10-K Review at [BLOGPOSTURL].