Pyxus International (OTCMKTS:PYYX) executives said the company delivered a strong third quarter for fiscal 2026 and remains positioned to finish the year as one of its strongest on record, citing steady customer demand, a larger crop environment in key growing regions, and contributions from third-party processing.
On the company’s fiscal third-quarter earnings call, President and CEO Pieter Sikkel said adjusted EBITDA matched last year’s record third quarter, which he characterized as evidence of “consistent execution” as supply conditions shift from recent years’ undersupply to larger crops in major markets. CFO Dustin Styons added that the quarter reflected “solid earnings quality” and reiterated full-year guidance.
Large crops lift working capital, set up fourth-quarter shipments
Styons said the additional volumes purchased earlier in the year are on schedule to ship in the fourth quarter, which he said should convert inventory into cash, reduce seasonal debt, and lower leverage at year-end. In response to analyst questions, he confirmed the operating cycle increase during the third quarter should improve as inventory sells through in the fourth quarter.
Third-quarter results: lower sales, stable adjusted EBITDA
Pyxus reported net sales of $655.8 million for the fiscal third quarter, down about $123 million from the prior-year period. Styons attributed the decline primarily to lower average sales prices and shipment timing. Gross margin per kilo was $0.80, slightly below last year, which he said reflected changes in product and customer mix, while gross margin percentage improved modestly to 15.2% on the benefit of larger South American crops and higher third-party processing.
SG&A expense was $38.3 million, an $8.2 million improvement year over year that Styons said was largely due to lower incentive compensation accruals. Operating income was $51.3 million for the quarter. Net interest expense rose to $36.6 million, up $3.7 million, which Styons tied primarily to elevated seasonal funding to support higher crop purchases. He also said improved borrowing costs helped keep year-to-date interest expense “relatively flat” despite higher average seasonal line borrowings.
Equity pickup from unconsolidated affiliates increased $8.1 million to $12.4 million. Styons said the increase was driven primarily by strong performance at China Brasil Tobacos, the company’s joint venture with China Tobacco International, which benefited from larger South American crops.
Adjusted EBITDA was $80 million, essentially consistent with the prior year, supported by lower SG&A and the increased equity pickup, according to Styons.
Year-to-date trends and processing contribution
For the year to date, Pyxus reported sales of $1.7 billion, down about $245 million from the prior year. Styons said larger crops in South America and Africa had not yet fully offset the decline in carryover volumes experienced in the first quarter and the effects of shipment timing. Gross margin per kilo was $0.81 versus $0.85 last year, which he attributed to product mix, including a higher portion of byproduct volumes, while gross margin percentage improved to 14.6% from 13.9% on increased third-party processing.
Sikkel highlighted expanded third-party processing as a key contributor in a large crop environment, citing improved fixed-cost absorption. He said third-party processing contributed approximately $7 million of third-quarter margins and $28.8 million year to date, and described the results as evidence of the value of Pyxus’ processing expertise and flexible global platform. He also said the company continues to progress on centralizing and automating processing and receiving capabilities in South America to drive longer-term efficiencies and reduce costs.
Inventory, liquidity, and guidance reaffirmed
Styons said the company’s latest 12 months adjusted free cash flow represented a use of cash of $186 million, including a $181 million use from changes in working capital. He said the year-over-year inventory increase of $207 million was the principal driver and was funded by increased seasonal borrowings. Uncommitted inventory remained low at 3.6% of processed inventory in the third quarter, management said.
Liquidity was described as strong, with Styons noting no borrowings on the company’s $150 million asset-based lending facility and $130 million of cash available to fund increased fourth-quarter shipments and seasonal line maturities. He said leverage of six turns and interest coverage of 1.4 turns were consistent with the year’s working capital cadence and are expected to improve at year-end.
Management reaffirmed full-year fiscal 2026 guidance:
- Net sales of $2.4 billion to $2.6 billion
- Adjusted EBITDA of $215 million to $235 million
In the Q&A, Sikkel acknowledged fourth-quarter results implied by guidance would be notably higher than prior years, attributing the expected step-up to the larger African crop and the related inventory build. He said shipping in the first several weeks of the quarter was running according to plan but noted that African port logistics can be less reliable and may be affected by weather.
Asked about fiscal 2027, Sikkel said the company is seeing customer requirements at similar levels to fiscal 2026 amid a slight downward global consumption trend. He said markets in South America have opened “relatively slow,” crops are good, and flue-cured volumes are similar to last year, while the company anticipates acquisition prices may be lower than last year given expected high crop sizes, particularly in flue-cured tobacco. He also said burley is already showing a “considerable reduction” this year, and the company sees strong demand for oriental tobaccos.
Styons said SG&A appears stable, with some year-over-year reductions tied to accrual dynamics, while also noting potential effects from foreign exchange. He also said “other expense” in the quarter was elevated largely due to the settlement of a long-standing customs resolution, alongside FX-related variability.
On refinancing, Sikkel said the company feels well positioned but did not provide timing, stating it remains “top of mind” as the company focuses on executing what it expects to be a record year.
Sustainability update highlighted
Sikkel also pointed to the company’s fiscal 2025 sustainability report, saying Pyxus achieved its 2030 operational waste reduction targets ahead of schedule and continued to reduce greenhouse gas emissions. He said the company recycled 30,000 metric tons of waste last year and decreased Scope 1 and 2 emissions by approximately 7,800 metric tons. Pyxus also announced a refreshed sustainability strategy intended to focus on areas with the biggest impact and further integrate sustainability into its value creation framework.
About Pyxus International (OTCMKTS:PYYX)
Pyxus International, formerly known as Alliance One International, is a global supplier and processor of leaf tobacco products. The company sources, grades, blends and sells a wide range of flue-cured, burley, oriental and dark tobacco leaf to manufacturers of cigarettes, cigars and other tobacco products. In addition to leaf sales, Pyxus provides comprehensive supply chain management and technical services, including agronomic guidance, quality assurance and warehousing solutions to its customers worldwide.
In recent years, Pyxus has expanded its portfolio beyond traditional tobacco leaf to include pharmaceutical- and specialty-grade nicotine products.
