Universal Details Tobacco Strategy, Ingredients Growth at Sidoti Conference

Universal (NYSE:UVV) outlined its strategy to build on its global leaf tobacco business while expanding its plant-based ingredients platform during a Sidoti conference presentation led by Chairman, President and CEO Preston Wigner.

Wigner described Universal as a business-to-business agriproducts company with operations across five continents and more than 30 countries. The company’s tobacco operations remain its foundation, he said, providing consistent cash flow and supporting its effort to grow Universal Ingredients, its plant-based food and beverage ingredients business.

Tobacco Business and Competitive Position

Universal is the world’s largest global leaf tobacco supplier, according to Wigner. The company purchases most of its tobacco directly from contracted farmers and processes and delivers leaf tobacco to customers globally.

Wigner said the company’s business model links farmers with consumer-products customers by sourcing raw materials, processing them and managing delivery. He characterized the company’s relationships with growers and customers as strategic partnerships rather than transactional arrangements.

“Tobacco is not a commodity,” Wigner said, noting that tobacco grown in one country differs from leaf grown in another. Universal works with customers on the qualities, styles and volumes needed for their products and uses its global footprint to source those requirements, he said.

The company cited several operating strengths supporting its tobacco business:

• Direct grower relationships and sourcing operations in major tobacco markets.
• Agronomy teams that provide production support, agricultural-practice guidance and yield-improvement assistance.
• Large-scale processing facilities that can meet customer specifications and produce leaf by-products and tobacco sheet.
• Logistics infrastructure connecting growers in remote areas to global customers.

Wigner said Universal’s agronomy teams conducted nearly 2 million field visits during the last fiscal year. The company also uses partner facilities to provide liquid nicotine processing for next-generation tobacco products.

Universal competes with another global leaf supplier, local and regional suppliers, and vertically integrated tobacco customers, Wigner said. He argued that Universal’s scale, factory network, grower support and sustainability programs differentiate it from smaller suppliers and can create efficiencies for vertically integrated customers that purchase entire crops but may not need every leaf quality produced.

Ingredients Growth Strategy

Universal began building its ingredients platform in 2018 and has since acquired FruitSmart, Silva International and Shank’s Extracts. The businesses provide products including fruit juices, purees, essences, dehydrated vegetables, herbs, spices, flavors, extracts and nutraceuticals.

Wigner said the acquisitions created the base for Universal Ingredients, which is intended to complement the company’s mature tobacco business and provide opportunities in higher-margin, value-added products. The company has invested in sales, marketing, research and development, product development and facility capacity to support the platform.

Among those investments was an expansion of more than $30 million at its extracts and flavors operation, adding extract production, bulk blending and aseptic packaging capabilities, according to Wigner.

Universal Ingredients targets food, beverage, animal nutrition, food service, retail and specialty ingredient markets. Wigner said the platform aims to differentiate itself through a broad portfolio of natural and functional ingredients, customer co-creation and technologies including aseptic packaging and natural and organic sterilization capabilities.

Sustainability and Crop Cycles

Wigner said sustainability is a competitive advantage, particularly in tobacco, where large customers consider the company’s programs and practices when placing business. Universal’s sustainability efforts are focused primarily on contracted farmers, communities and operations, and the company publishes annual sustainability reports on its website.

The company also views sustainability as a future opportunity for its ingredients business as customers and consumers place greater emphasis on supply-chain practices, Wigner said.

Chief Financial Officer Steve Diel discussed the seasonality of Universal’s operations, which reflects tobacco crop cycles across different regions. Brazil is generally an early major market during the spring, followed by activity in Africa, Asia, Europe and North America, he said. Those cycles affect working-capital requirements, processing activity and shipment timing.

Diel said recent years have included a shift from undersupply to more balanced conditions and then oversupply. In an undersupplied market, Universal purchased, processed and shipped tobacco more quickly to meet demand. Larger crops and changing customer purchasing decisions have contributed to a slower first quarter in the current year, he said, while the company expects a heavier second half.

Wigner said Universal prefers a market with slight oversupply because it provides access to additional tobacco for customer spot needs. He emphasized that the company does not buy tobacco on a speculative basis, instead contracting with growers based on expected customer requirements.

About Universal (NYSE:UVV)

Universal Corporation (NYSE: UVV) is a global agricultural company that supplies processed tobacco leaf and related products to manufacturers of cigarettes, cigars, pipe tobacco, heated tobacco products and other tobacco products. The company purchases tobacco from growers, provides agronomic and technical support, and processes, blends, packs and stores leaf tobacco to meet customers’ specifications.

Through its Universal Leaf Tobacco subsidiaries and affiliated operations, Universal serves tobacco markets across multiple regions, including North and South America, Europe, Africa and Asia.