Pyxus International Q2 2026 Earnings Call - Confident Outlook Amid Large Crop and Potential Oversupply

Operator: Good day, and welcome to our second quarter fiscal 2026 earnings conference call. Today’s call is being recorded. After our prepared remarks, we’ll open the call for questions. If you have dialed in and would like to ask a question, you may press star one at any time during today’s call. I’d now like to turn the call over to Tomas Grigera, Vice President, Corporate Treasurer.

Tomas Grigera, Vice President, Corporate Treasurer, Pyxus International: Thank you, Operator. Joining me today are Peter Sikkel, our President and CEO, and Dustin Steins, our CFO. Before we begin discussing our financial results, I would like to cover a few points. You may hear statements during the course of this call that express belief, expectation, or intention, as well as those that are not historical fact. These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from these forward-looking statements. These risks and uncertainties are described in detail, along with other risks and uncertainties in our filings with the SEC, including our most recent Form 10-K. We do not undertake to update any forward-looking statements made on this conference call to reflect any change in management’s expectations or any change in assumptions or circumstances on which these statements are based.

Included in our call today may be discussion of non-GAAP financial measures, including earnings before interest, taxes, depreciation, and amortization, commonly referred to as EBITDA and adjusted EBITDA, and adjusted free cash flow metrics, which are not measures of results of operations under generally accepted accounting principles in the United States and should not be considered as an alternative to U.S. GAAP measurements. Reconciliations of these disclosures regarding these non-GAAP financial measures are included in the appendix accompanying this presentation, which is available on our website at www.pyxus.com. Commencing this quarter, we are also showing free cash flow adjusted for changes in working capital for relevant periods. We have included reconciliations of that non-GAAP measure in the appendix. Any replay, rebroadcast, transcript, or other reproduction of this conference call, other than the replay as provided by Pyxus International, has not been authorized and is strictly prohibited.

Investors should be aware that any unauthorized reproduction of this conference call may not be an accurate reflection of its contents. Now I’ll hand the call over to Peter.

Peter Sikkel, President and CEO, Pyxus International: Thanks, Tomas, and thank you, everyone, for joining. We are pleased to report solid second quarter results, continuing the company’s track record of consistent execution and financial achievement, and providing the momentum necessary to achieve another high-performing year. Our year-to-date performance, combined with improved near-term visibility, enables us to increase our sales guidance to $2.4 billion-$2.6 billion and raise the lower end of our adjusted EBITDA guidance by $10 million to a new range of $215 million-$235 million. During the quarter, we delivered healthy sales results, strong gross profit per kilo, and a higher gross margin %. Throughout the first half, we achieved earlier buying and processing in key markets. This acceleration supported our increased inventory position, consistent with larger crops and balanced customer demand, ensuring we are well prepared to fulfill customer orders during the second half of the fiscal year.

Balanced demand is expected to persist in the near term. However, with another large crop projected next season, there is the potential for the market to shift towards oversupply. We are confident in our ability to excel in an evolving market environment, with the scale and diversity of our global footprint and customer base serving as key differentiators. This enables us to maximize the value of larger crop volumes and deliver continued performance regardless of market dynamics. The first half of fiscal 2026 was a strong indicator of this ability. We successfully executed in the large crop environment by capturing mix-related opportunities that supported higher margins and returns, expanded third-party processing for our customers, and improved fixed-cost absorption across our operations. For the second half of fiscal 2026, we expect strong sales and cash generation as we ship inventory to meet demand.

We will remain focused on optimizing our operating cycle times and accelerating the repayment of our seasonal credit lines to deliver credit profile improvement by our fiscal year-end. We also look forward to providing an update in the coming weeks on our refreshed global sustainability strategy. This update follows our achievement of various sustainability goals, such as our water and waste targets, and reflects the results of a recent materiality assessment, which evaluates how our business affects people and the environment, and how sustainability issues may influence our company’s financial performance. We believe this strategic enhancement will drive further business integration, innovation, operational efficiency, and alignment with key stakeholders as we work together to grow a better world. With that, I’ll hand the call over to Dustin to discuss the quarter in more detail.

Tomas Grigera, Vice President, Corporate Treasurer, Pyxus International: I’ll start by reiterating Peter’s comments. We achieved solid second quarter results, which contributed to our strong first half performance and positions the business to confidently deliver the balance of fiscal year 2026 in line with our raised guidance. Second quarter sales were $570.2 million, up $3.9 million versus last year, reflecting higher volumes at lower average sales prices. Gross margin improved to 15.4%, up from 13.3% in quarter two of fiscal year 2025, driven by improved returns on the current crop and increased third-party processing volumes. Year-to-date sales were $1.1 billion, down $122.2 million versus last year, as accelerating shipments on the larger current crop have not yet fully offset lower carryover sales from the prior year. Year-to-date, gross margins are 14.2% versus last year’s 13.3%. This gain reflects improved product mix and is positively weighted by current crop sales in the second quarter.

Second quarter operating income was up 41.5%, or $13.7 million to $46.7 million versus the prior year. Adjusted EBITDA increased 23.6%, or $10.5 million, to $54.8 million versus last year. Year-over-year increases for the quarter were driven by higher volumes, stronger gross margin, and relatively flat SG&A. Our year-to-date operating income was down $5.8 million to $67.7 million, and adjusted EBITDA was down $15.1 million to $84.2 million, primarily driven by the first quarter’s lower carryover sales from the prior year. Consistent with larger crops in South America and Africa, our working capital investment peaked in quarter two. Inventory was up $160.6 million versus prior year to $1.14 billion, which positions us to execute shipments in the second half. Our seasonal lines were up $163.3 million versus last year to $908 million, which is consistent with our inventory position through quarter two.

Our operating cycle improved by 12 days, decreasing to 167 days compared to last year. Our liquidity remained strong, with no outstanding borrowings on our $150 million ABL at the end of the quarter. Both our leverage of 6.54 turns and interest coverage of 1.48 turns are as expected and reflect the seasonal profile of the working capital investment needed for this year’s larger crop. We expect second-half sales and the release of working capital to support an accelerated paydown of seasonal lines, generating significant improvement in leverage. Our quarter two and year-to-date cash flows reflect concentrated and incremental first-half purchasing. A rolling 12-month view best represents the timing of inventory seasonality and highlights our continued year-over-year improvements in free cash flow adjusted for changes in working capital, driven by our commercial strategy. We remain on track to deliver higher shipment volumes in the second half.

Our third-party processing initiatives are capturing performance opportunities, and we continue to progress in price negotiations with key customers, improving visibility for the remainder of the year. This increased visibility supports our decision to raise full-year sales guidance to $2.4 billion-$2.6 billion, up from the initial range of $2.3 billion-$2.5 billion. We are also tightening the bottom end of our adjusted EBITDA guidance to $215 million-$235 million, up from $205 million-$235 million, representing continued improvement versus prior year adjusted EBITDA of $208 million. I’ll now hand the call back to Peter.

Peter Sikkel, President and CEO, Pyxus International: Thanks, Dustin. Our second quarter performance reflects disciplined delivery against our plan and positions us with the inventory necessary for a strong second half. With support from our experienced teams, robust global infrastructure, and disciplined execution, we are confident in our ability to reach our improved sales and adjusted EBITDA guidance. This positions us for one of our strongest years on record, marking another year of growth. Looking ahead, we will remain focused on capturing opportunities for growth while maintaining an efficient operating cycle, strengthening liquidity, and improving our credit profile. We expect a balanced market through the remainder of the fiscal year and the potential shift to oversupply next year as another large crop is anticipated. We see this shift as an opportunity to leverage our global farmer base and procurement and processing footprint to drive cost efficiency for the business and deliver value to our customers.

These actions underscore our position as an industry leader and enable sustainable, profitable growth well into the future. Operator, please open the line for questions.

Operator: Thank you, Peter. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please signal by pressing Star 1 on your telephone keypad. If you’re using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press Star 1 to ask a question, and we’ll pause for just a moment to assemble the queue. Our first question comes from Oren Shaked with BTIG.

Oren Shaked, Analyst, BTIG: Hey, good morning, everyone. Peter, you mentioned the potential shift to an oversupply position in the market. You talked about that a couple of times. It’s obviously been a while since we’ve seen that. How should we think about the business and the competitive environment should that come to pass in a few quarters from now?

Peter Sikkel, President and CEO, Pyxus International: Hi, Oren. Thanks very much for the question. In short, we see that as an opportunity. If you look historically at our business in years of oversupply, we’ve tended to perform at our best. That is really a reflection of the opportunity at that time to really improve cost. When you look on the demand side, it’s very stable. When you’re looking into the oversupply situation, your base cost of raw material from farmers is appropriate for the quality of the tobacco that you’re purchasing. The opportunity for additional third-party processing volumes exists, and you can see that reflected in the quarter two results of this year. The cost structure through our very large-scale facilities around the globe comes down, so we’ve got better fixed-cost absorption. All in all, you end up with increased volumes, improved margins, and through lower costs.

We prefer that situation, frankly, to the shortage of supply that we’ve seen in the recent past.

Oren Shaked, Analyst, BTIG: All right. That’s super helpful. Then, Dustin, you referenced higher shipment volumes in the second half. It was obviously nice to see that inflect positive on a year-over-year basis in fiscal 2Q. Were you referencing higher volumes in the second half versus the first half, or were you referencing higher volumes year-over-year?

Tomas Grigera, Vice President, Corporate Treasurer, Pyxus International: Hi, Oren. Thanks for the question. I think when we look at the second-half shipments on a volume basis, as we’ve indicated with the higher crops, larger crops this year, we would expect to see higher volumes on the back half as well as for the full year.

Oren Shaked, Analyst, BTIG: Oh, got it. Okay. You should expect to see volume increase for the year as well. Okay. That is helpful. Obviously, a lot of inventory left to be monetized. Clearly, with the increased guidance, it feels like the confidence level in being able to do that seems very high.

Tomas Grigera, Vice President, Corporate Treasurer, Pyxus International: I think you’re thinking about that correctly.

Oren Shaked, Analyst, BTIG: Perfect. Appreciate the time, everyone. Thank you so much.

Tomas Grigera, Vice President, Corporate Treasurer, Pyxus International: Thank you.

Peter Sikkel, President and CEO, Pyxus International: Thank you.

Operator: Once again, ladies and gentlemen, if you would like to ask a question, please signal by pressing Star 1 on your telephone keypad. It appears there are no questions at this time. I’ll now hand the call back to Mr. Grigera for closing remarks.

Peter Sikkel, President and CEO, Pyxus International: Thank you again for joining our fiscal year 2026 second quarter call. We look forward to sharing future updates with you following the third quarter.