UNIVERSAL CORP /VA/ (UVV)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless the context otherwise requires, the terms “we,” “our,” “us,” or “Universal” or the “Company” refer to Universal Corporation together with its subsidiaries. This Quarterly Report on Form 10-Q ("Form 10-Q") and the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Among other things, these statements relate to the Company’s financial condition, results of operation, and future business plans, operations, opportunities, and prospects. In addition, the Company and its representatives may from time to time make written or oral forward-looking statements, including statements contained in other filings with the Securities and Exchange Commission (the "SEC") and in reports to shareholders. These forward-looking statements are generally identified by the use of words such as we “expect,” “believe,” “anticipate,” “could,” “should,” “may,” “plan,” “will,” “predict,” “estimate,” and similar expressions or words of similar import. These forward-looking statements are based upon management’s current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results, performance, or achievements to be materially different from any anticipated results, prospects, performance, or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: product purchased not meeting quality and quantity requirements; reliance on a few large customers; anticipated levels of demand for and supply of our products and services; tobacco growing conditions and customer requirements; major shifts in customer requirements for leaf tobacco; higher inflation rates, tariffs and other pressures on costs; weather and other conditions; exposure to certain legal, regulatory and financial risks related to climate change; industry-specific risks related to our plant-based ingredients businesses; disruption of our supply chain for our plant-based ingredients; success in pursuing strategic investments or acquisitions and integration of new businesses and the impact of these new businesses on future results; our ability to maintain effective information technology systems and safeguard confidential information; our inability to attract, develop, retain, motivate, and maintain good relationships with our workforce; our dependence on a seasonal workforce; epidemics, pandemics or similar widespread public health concerns; government efforts to regulate the production and consumption of tobacco products; government actions on the sourcing of leaf tobacco; economic and political conditions in the countries in which we and our customers operate, including the ongoing impacts from international conflicts; sustainability considerations from governments and other stakeholders; changes in tax laws in the countries where we do business; failure of our customers or suppliers to repay extensions of credit; changes in exchange rates; changes in interest rates; and low investment performance by our defined benefit pension plan assets and changes in pension plan valuation assumptions. For a further description of factors that may cause actual results to differ materially from such forward-looking statements, see Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2026 (the "2026 Form 10-K"). We caution investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made, and we undertake no obligation to update any forward-looking statements made in this report, except as required by law. This Form 10-Q should be read in conjunction with our 2026 Form 10-K.

Amounts described as net income (loss) and earnings (loss) per diluted share in the following discussion are attributable to Universal Corporation and exclude earnings related to non-controlling interests in subsidiaries. References to adjusted operating income (loss), adjusted net income (loss) attributable to Universal Corporation, adjusted diluted earnings (loss) per share, and the total for segment operating income (loss) are references to non-GAAP financial measures. These measures are not financial measures calculated in accordance with generally accepted accounting principles ("GAAP") and should not be considered as substitutes for operating income (loss), net income (loss) attributable to Universal Corporation, diluted earnings (loss) per share, cash from operating activities or any other operating or financial performance measure calculated in accordance with GAAP, and may not be comparable to similarly-titled measures reported by other companies. Reconciliations of adjusted operating income (loss) to consolidated operating (income), adjusted net income (loss) attributable to Universal Corporation to consolidated net income (loss) attributable to Universal Corporation and adjusted diluted earnings (loss) per share to diluted earnings (loss) per share are provided in Other Items below. In addition, we have provided a reconciliation of the total for segment operating income (loss) to consolidated operating income (loss) in Note 12. "Operating Segments" to the consolidated financial statements. Management evaluates the consolidated Company and segment performance excluding certain significant charges or credits. We believe these non-GAAP financial measures, which exclude items that we believe are not indicative of our core operating results, can provide investors with important information that is useful in understanding our business results and trends. References to net debt, net capitalization, and net debt to net capitalization ratio are also references to non-GAAP financial measures. These measures are not financial measures calculated in accordance with GAAP and should not be considered substitutes for total debt, total capitalization, total debt to total capitalization ratio, or any other operating or financial performance measures calculated in accordance with GAAP, and may not be comparable to similarly-titled measures reported by other companies. Reconciliations of net debt to total debt and net capitalization to total capitalization are provided in Other Items below. We believe these non-GAAP measures are meaningful indicators of liquidity and financial position.

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Results of Operations

Overview

We are starting fiscal year 2027 with confidence in the long-term strategic direction of our company. We are focused on creating sustainable value through disciplined execution across our businesses. In tobacco, we believe that our long-standing market expertise and measured approach position us well to navigate current oversupply conditions, make prudent buying decisions, and be a trusted, full-service partner to our customers. In ingredients, we are leveraging our platform growth investments and focusing on improving commercial execution, facility utilization, and financial and operational efficiencies. We expect certain of our improvement efforts to continue through fiscal year 2028.

Our results for the quarter ended June 30, 2026, reflected the expected timing and market dynamics in our tobacco business, in comparison to our first quarter fiscal year 2026 results, which we believe were exceptional. Purchasing activity was slower as we and our customers evaluated green tobacco price trends amid oversupply conditions in flue-cured and burley markets and monitored potential weather impacts on next season’s crops. We are pleased with our current customer indications and commitments, and we expect customer demand to remain consistent with our fiscal year 2027 sales plan. In our ingredients business, in the quarter ended June 30, 2026, revenue was down slightly, in comparison to the quarter ended June 30, 2025, and results continued to be negatively affected by persistent consumer market headwinds, high fixed costs at our expanded Lancaster facility, and longer-than-anticipated product development cycles. We continued to implement our initiatives to strengthen the ingredients platform for long-term success, which include enhancements to leadership, systems, operational capabilities, and commercial execution. During the fiscal quarter ended June 30, 2026, our liquidity position remained strong, and our debt levels were down, compared to the quarter ended June 30, 2025, due to reduced working capital usage, driven by tobacco crop purchase timing and lower green tobacco prices.

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Quarter Ended June 30, 2026, compared to Quarter Ended June 30, 2025

Consolidated Results

Revenue decreased by 12%, or $70.0 million, in the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025, primarily driven by lower tobacco sales volumes, down 9%, and tobacco sales prices, down 6%.

Operating income decreased by 93%, or $31.5 million, in the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025, on a less favorable product mix and lower sales volumes in the Tobacco Operations segment and continued market headwinds and high fixed costs in the Ingredients Operations segment.

Selling, general, and administrative expenses were up by 2%, or $1.6 million, primarily due to unfavorable foreign currency comparisons of $4.8 million and lower recoveries on advances to suppliers of $1.7 million, partially offset by lower compensation costs of $3.0 million and lower legal and professional fees of $1.2 million in the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025.

Adjusted operating income was down by $32.6 million and adjusted net income attributable to Universal Corporation was down by $14.6 million in the quarter ended June 30, 2026, com

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with, Item 1, “Business” and Item 8, “Financial Statements and Supplementary Data.” For information on risks and uncertainties related to our business that may make past performance not indicative of future results, or cause actual results to differ materially from any forward-looking statements, see Item 1A, “Risk Factors.”

OVERVIEW

Universal Corporation is a global business-to-business agriproducts company with over 100 years of experience supplying products and innovative solutions to meet our customers’ evolving needs. With operations in over 30 countries on five continents, we believe we are uniquely positioned to leverage our worldwide network to access a diverse, reliable supply of plant-based materials. This presence, combined with our supply chain expertise, integrated processing capabilities, and commitment to sustainability, enables us to deliver high-quality, customizable, and traceable value-added agriproducts essential to our customers’ success. We operate in two segments: Tobacco Operations and Ingredients Operations. Our Tobacco Operations segment primarily focuses on procuring and processing flue-cured, burley, dark air-cured, and oriental leaf tobacco for consumer product manufacturers. Our Ingredients Operations segment, through the Universal Ingredients platform, produces and supplies a broad portfolio of products, including fruit and vegetable juices and concentrates, purees, dehydrated products, botanical extracts, flavorings, colorings, and other customized, value-added ingredient solutions to the food and beverage industry.

RESULTS OF OPERATIONS

Amounts described as net income (loss) and earnings (loss) per diluted share in the following discussion are attributable to Universal Corporation and exclude earnings related to non-controlling interests in subsidiaries. Adjusted operating income (loss), adjusted net income (loss) attributable to Universal Corporation, adjusted diluted earnings (loss) per share, and the total for segment operating income (loss) referred to in this discussion are non-GAAP financial measures. These measures are not financial measures calculated in accordance with GAAP and should not be considered as substitutes for operating income (loss), net income (loss) attributable to Universal Corporation, diluted earnings (loss) per share, cash from operating activities or any other operating or financial performance measure calculated in accordance with GAAP, and may not be comparable to similarly-titled measures reported by other companies. Reconciliations of adjusted operating income (loss) to consolidated operating (income), adjusted net income (loss) attributable to Universal Corporation to consolidated net income (loss) attributable to Universal Corporation and adjusted diluted earnings (loss) per share to diluted earnings (loss) per share are provided in Other Items below. In addition, we have provided a reconciliation of the total for segment operating income (loss) to consolidated operating income (loss) in Note 16 to the consolidated financial statements in Item 8. Management evaluates the consolidated Company and segment performance excluding certain significant charges or credits. We believe these non-GAAP financial measures, which exclude items that we believe are not indicative of our core operating results, provide investors with important information that is useful in understanding our business results and trends.

References to net debt, net capitalization, and net debt to net capitalization ratio are also references to non-GAAP financial measures. These measures are not financial measures calculated in accordance with GAAP and should not be considered substitutes for total debt, total capitalization, total debt to total capitalization ratio, or any other operating or financial performance measures calculated in accordance with GAAP, and may not be comparable to similarly-titled measures reported by other companies. Reconciliations of net debt to total debt and net capitalization to total capitalization are provided in Other Items below. We believe these non-GAAP measures are meaningful indicators of our liquidity and financial position.

Fiscal Year Ended March 31, 2026, Compared to the Fiscal Year Ended March 31, 2025

Executive Summary

Our fiscal year 2026 performance reflected solid execution across much of our business amid a markedly different operating environment than fiscal year 2025. Coming off what we believe was exceptionally strong performance for our Tobacco Operations segment in fiscal year 2025, our disciplined marketplace management helped mitigate the impact of oversupply for certain tobacco styles, resulting in only slightly lower Tobacco Operations segment revenues and sales volumes in fiscal year 2026 compared to fiscal year 2025. Our Ingredients Operations segment delivered growth in revenues and sales volumes despite persistent market headwinds. Fiscal year 2026 results were negatively impacted by a non-cash, goodwill impairment charge related to our Shank's operation, as well as increased tobacco inventory write-downs, primarily for non-wrapper, dark air-cured tobacco.

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*See Reconciliation of Certain non-GAAP Financial Measures in Other Items below.

Consolidated Results

Revenues for fiscal year 2026, decreased by 1%, or $22.8 million, compared to fiscal year 2025, on lower tobacco sales volumes and prices. Operating income for fiscal year 2026, decreased by 28%, or $64.3 million, compared to fiscal year 2025, driven by inventory write-downs of $52.0 million, primarily of non-wrapper, dark air-cured tobacco, an increase of $32.2 million from fiscal year 2025, and a $41.1 million non-cash, goodwill impairment charge, related to our Shank's operation.

Selling, general, and administrative expenses were down by 2%, or $4.6 million, on $8.8 million of lower sales commissions, $5.1 million of lower compensation costs, and $3.5 million of favorable foreign currency comparisons, offset in part by $4.3 million of lower recoveries on advances to suppliers and $2.0 million of higher customer claims.

Adjusted operating income was down by 13%, or $32.0 million, in fiscal year 2026, compared to fiscal year 2025, largely on the inventory write-downs. Net income attributable to Universal Corporation was down by 66%, or $62.4 million, for fiscal year 2026, compared to fiscal year 2025, primarily on the non-cash, goodwill impairment charge and the increase in inventory write-downs.

Tobacco Operations Segment

Revenues for the Tobacco Operations segment decreased by 1%, or $32.3 million, in fiscal year 2026, compared to fiscal year 2025, on a 2% decline in both tobacco sales volumes and average tobacco sales prices, partially offset by an increase in third-party tobacco processing revenues and product mix. Operating income for the segment decreased by 12%, or $28.6 million, in fiscal year 2026, compared to fiscal year 2025, as lower sales of dark air-cured tobacco and inventory write-downs primarily related to non-wrapper, dark air-cured tobacco more than offset firm demand for most tobacco styles and solid results from flue-cured and burley tobaccos. Tobacco inventory write-downs of $43.4 million in fiscal year 2026, were up $24.7 million, compared to fiscal year 2025. Softer than anticipated customer demand for certain styles of dark air-cured tobacco coupled with longer sales and inventory cycles characteristic of this type of tobacco drove the lower sales as well as the inventory write-downs of non-wrapper, dark air-cured tobacco in fiscal year 2026. Selling, general, and administrative expenses were up 1%, or $2.2 million, in fiscal year 2026, compared to fiscal year 2025, largely on higher compensation costs of $4.5 million and higher provisions for advances to suppliers of $4.3 million, but partially offset by lower sales commissions of $8.6 million. Corporate overhead allocation to the segment was $3.3 million lower in fiscal year 2026, as compared to fiscal year 2025, largely on lower allocated compensation costs.

Ingredients Operations Segment

Revenues for the Ingredients Operations segment increased by 3%, or $9.5 million, in fiscal year 2026, compared to fiscal year 2025, on increased sales volumes. Operating income for the segment decreased by 73%, or $ 9.1 million, in fiscal year 2026, compared to fiscal year 2025, due to product mix, high fixed costs, including additional depreciation from our expanded production facility, as well as inventory write-downs of $8.6 million. Steady performance across much of our ingredients business was offset by slower than anticipated sales growth, high fixed costs related to our expansion investments, and inventory write-downs, at our Shank's operation. Persistent customer market headwinds, including tariff impacts and broader softness in the

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consumer-packaged-goods sector, impacted demand at Shank's for both traditional core products and new offerings in fiscal year 2026. Selling, general, and administrative expenses were down 6%, or $3.1 million, in fiscal year 2026, compared to fiscal year 2025, largely on lower compensation costs of $1.5 million and amortization of intangibles of $1.8 million. Corporate overhead allocation to the segment was 4%, or $0.4 million, lower in fiscal year 2026, compared to fiscal year 2025, largely on lower allocated compensation accruals.

Additional Items

Cost of goods sold increased by 1%, or $13.8 million, in fiscal year 2026, compared to fiscal year 2025, largely on a $32.2 million increase in inventory write-downs partially offset by lower tobacco prices.

A non-cash, goodwill impairment charge of $41.1 million was recognized in fiscal year 2026. Restructuring and impairment costs of $10.6 million in fiscal year 2025 were related to the consolidation of the Company’s European tobacco sheet operations.

A non-cash pension settlement charge of $14.1 million was recognized in fiscal year 2025.

The consolidated effective tax rate for fiscal year 2026 was 45.5%. The consolidated effective tax rate for fiscal year 2025 was 26.6%. The consolidated effective tax rate for fiscal year 2026 was higher than the consolidate

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