Pyxus International Q2 Earnings Call Highlights

Key Points

• First-half results declined: Sales fell to $972 million from $1.079 billion and adjusted EBITDA dropped to $71 million from $84 million, as shipment delays and fewer kilos shipped shifted activity into the second half. Lower crop costs and favorable product mix nevertheless lifted leaf gross margin to 14.4% from 13.5%.
• Outlook reaffirmed: Pyxus maintained full-year sales guidance of $2.3 billion to $2.5 billion and narrowed adjusted EBITDA guidance to $215 million to $235 million. Nearly 95% of processed inventory is committed to customers, supporting management’s expectation for a stronger second half.
• Balance-sheet measures improved: Trailing 12-month adjusted free cash flow rose to $8.4 million from cash usage of $141.5 million, and leverage improved to 5.86 times from 6.54 times. The company also announced a capital-structure transaction intended to strengthen its balance sheet, extend maturities and improve financial flexibility.

Pyxus International OTCMKTS: PYYX said shipment delays and extended tobacco purchasing seasons weighed on first-half sales and adjusted earnings, but lower crop costs improved margins and supported its outlook for a stronger second half of fiscal 2027.

The company reaffirmed its full-year sales guidance of $2.3 billion to $2.5 billion and tightened its adjusted EBITDA guidance to $215 million to $235 million. Nearly 95% of processed inventory was committed to customers, President and CEO Pieter Sikkel said on the earnings call.

“We closed the first half of fiscal 2027 with strong customer commitments, lower-cost inventory, and improved margins, positioning the business to execute a heavily weighted second half,” Sikkel said. He added that the company plans to maintain low levels of uncommitted processed tobacco through year-end.

First-Half Sales and Earnings Decline

Sales for the first six months fell to $972 million from $1.079 billion a year earlier, while adjusted EBITDA declined to $71 million from $84 million. CFO Dustin Styons attributed the declines primarily to fewer kilos shipped and lower third-party processing business.

Extended crop buying seasons and global shipping constraints moved some leaf shipments into the second half and delayed some processing activity, Styons said. He noted that the company’s sales profile is typically weighted toward the second half, but that it is more concentrated there this year.

Profitability on the leaf tobacco Pyxus sold improved despite the lower volume. First-half leaf gross profit per kilo rose to $0.89 from $0.82, while leaf gross margin increased to 14.4% from 13.5%. Favorable product mix and lower purchasing costs contributed to the improvement, which was partially offset by lower processing and other revenue, particularly in Africa and South America.

In the second quarter, leaf gross profit per kilo increased 17.5% to $0.94. Consolidated gross profit was $79 million, while selling, general and administrative expenses rose to $43 million from $40 million a year earlier. Styons cited higher personnel costs, foreign exchange effects and legal and professional fees for the increase.

Quarterly net income was $4.1 million, compared with a $900,000 loss a year earlier, primarily reflecting a gain on the sale of a Brazilian facility and lower income tax expense.

Inventory and Shipment Plans

Pyxus’ tobacco inventory value was $72 million lower than a year earlier, reflecting lower purchasing costs and disciplined buying, Styons said. In response to an analyst’s question, Sikkel said inventory volume was higher even though its value had declined.

Sikkel said the company had the inventory needed to meet its guidance. Some of the slower first-half buying was deliberate, he said, but higher logistics costs and limited container and vessel availability also delayed shipments.

Power outages in Malawi have kept a factory from running full shifts, delaying processing and exports, Sikkel said. Despite those challenges, he said management was confident in its plans to move committed inventory in the second half, barring an unusual disruption.

The company also completed the sale of its Araranguá factory during the quarter, finishing the consolidation of its Brazilian processing operations. Sikkel said Pyxus is pursuing factory automation intended to improve utilization and reduce conversion costs in future periods.

Cash Flow and Capital Structure

On a trailing 12-month basis, adjusted free cash flow improved to $8.4 million from cash usage of $141.5 million a year earlier. Free cash flow before changes in working capital rose to $27 million from $14 million.

Styons said leverage improved to 5.86 times from 6.54 times a year earlier, while interest coverage rose to 1.57 times from 1.48 times. He said working capital is expected to convert to cash during the second half as shipments are completed and receivables collected.

Pyxus announced an agreement in support of a capital structure transaction that Styons said would strengthen the balance sheet, extend maturities and enhance financial flexibility. Asked about the interest rate on new notes in the exchange, he referred an analyst to the agreement and said the company planned to formally launch the transaction in a few days, with more details to follow.

Sikkel said Pyxus is monitoring weather patterns, including potential El Niño-related effects in key markets, and can adjust sourcing and purchasing plans as conditions evolve.

About Pyxus International (OTCMKTS:PYYX)

Pyxus International, Inc is an international agricultural company focused primarily on the sourcing, processing and distribution of tobacco leaf. Through its operations and supply-chain relationships, the company provides tobacco products and related services to cigarette and other tobacco-product manufacturers.

The company works with tobacco growers and suppliers in major producing regions and operates a global network of procurement, processing and logistics activities. Its offerings have included flue-cured, burley and oriental tobacco, as well as other leaf products tailored to the specifications of tobacco manufacturers.

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