Q1 2020 Earnings Call
[music].
Welcome to vector Group limited first quarter 2020 earnings conference call.
During this call the terms adjusted operating income adjusted net income adjusted EBITDA and tobacco adjusted operating income will be using these terms, our non-GAAP financial measures and other should be considered in addition to but not as a substitute for other measures of financial performance the purpose.
You heard in accordance with GAAP reconciliations to adjusted operating income adjusted net income adjusted EBITDA and tobacco adjusted operating income are contained in the Companys earnings release, which has been posted to the Investor Relations section of the company's website located at W. W. W.
Dod vector group limited Dot com before the call begins I'd like to read a safe Harbor statement. The statements made during this conference call that are not historical facts are forward looking statements that are subject to risk and uncertainties that could cause actual results to differ materially for those set forth in our implied by four.
<unk> looking statements in particular, the extent duration and severity of the spread of because the 19 pandemic an economic consequences stemming from the cup in 19 crisis, including a potential significant economic contraction as well as related risk and the impact of any of the for going on our business results of offer.
Patients and liquidity could affect our future results and cause actual results to differ materially from those expressed in forward looking statements.
These are risks are described in more detail and the company's security and Exchange Commission filings.
Now I'd like to turn the call ever to President and Chief Executive Officer effect or group Howard Lorber. Please go ahead.
Thank you good morning, and welcome to vector group's first quarter 2020 earnings conference call.
We'll begin I'd like to thank you for joining us. This morning, I know, we hope to you in your families are safe.
Theres two months have been challenging I know there's change the way we live in work. During this time, our exceptional organization has risen to the challenge and demonstrated resilience and compassion.
With me today, our Nick and since the President Chief operating Officer, Liggett vector brands I'm Bryant Kirkland read the group's Chief Financial Officer.
Ron Bernstein senior advisor to Liggett vector brands will join us during the Q and <unk>.
Oh, you know the cold in 19 pin done it has affected virtually every business in the United States and we are no exception.
Well real estate transactions have slowed throughout most of the country New York City has been particularly hard hit and this has impacted a real estate segment.
During this time, we have connected with our teams and their families I remain impressed by the dedication I mean should evolve our employees and agents who are bouncing significant work responsibilities with many personal commitments in challenges. We will work through this time together and later on the call I will discuss your initiatives already taken a dozen or so.
And I'm pleased to report that tobacco business remains strong and had an excellent first quarter with substantial year over year gains in tobacco adjusted operating income and higher unit volume.
I will now turn to review of our business for the first quarter of 2020.
Nick will then summarize the performance of the tobacco business.
Related to vector group's operations first as costs, how liquidity and capital structure.
Update you about recent events I will then review our operations for the first quarter ended March 31st 2020.
As of March 31st 2020 vector group maintained significant liquidity with cash and cash equivalents of $467 million, including cash or 49 million that Douglas Elliman, and 69 million that like it and investment securities and investment partnership interests with a fair market value of 153 million.
In April we use 170 million of cash to retire our convertible notes upon maturity.
Now turning to vector group's operations for the first quarter.
Vector group's revenues for the first quarter ending March 31st 2020, 454.5 billion compared to 420.9 million and its 2019 period.
The company recorded adjusted EBITDA of 60.2 million compared to 49.7 million into 2019 period.
Adjusted net income was 39.9 billion or 27 cents per diluted share compared to 13 billion or seven cents per diluted share and it's one of the 19 period.
The company reported adjusted operating income of 53.3 million compared to 42.6 million into 2019 period.
Well the first quarter of 2020, Douglas Elliman reported 165.6 million in revenues and adjusted EBITDA loss of 7.7 million compared to 161.9 million in revenues on an adjusted EBITDA loss of nine point Onemillion and its 2019 theory.
The covert 19 pandemic is having a good profound effect on the global economy, and financial and especially in markets and especially in New York Real estate market were approximately 70% of Douglas elements brokerage revenues are derived.
In response to the pandemic various governmental agencies and the New York Metropolitan area I know the markets, where does this element offerings have instituted restrictions on individuals and on the types of businesses that can operate which impacted Douglas elliman its ability to do business.
Well good Tom and began to experience is via decline you close sales volume in mid March and this continued in April in May.
We anticipate that this sales volume will continue to be slow until the fall possibly longer.
Consequently in April 2020, we made significant operating adjustments that Douglas elliman, including a reduction of staff by approximately 25% and reducing all of the salaries by approximately 15%.
We're also consolidating some office locations I know, we're in discussions with our landlords regarding rent reductions deferrals or holidays I don't know hopeful we can read your fair and reasonable resolution landlords across the country.
Because of these factors, we will continue to evaluate the impact of the rapid development of the cold in 19 pandemic on a real estate segment.
Now I will turn the call over to Nick to discard start tobacco business Nick.
Thank you Alan and good morning, everyone.
Personally I'd like to Echo How's earlier was some hope that you and your family Oh safe and well.
While these are undoubtedly difficult times I'm very proud of the way organization has responded to this challenge.
Our employees, who remain focused on the task at hand, and embraced a tremendous team spirit no doubt these qualities will help fill through this crisis.
And what indicated.
Like the many difficulties associated with the cobot 19 pandemic.
Looking at performed well in the first quarter.
Year over year volume and market share increased during the period, which contributed to a 50% increase in tobacco adjusted operating income.
[noise] on operating basis, we may various adjustments during the quarter children's health and safety issues for our employees as well as those with whom we do business.
As we continue to walk to maximize our business <unk> business performance.
And in show business continuity, we will follow applicable state wide orders and regulations as well as ongoing CDC guidelines.
As a coke in 19 situation on folded in March there were some anticipatory wholesale or retail and consumer buying related to initial concerns of the ongoing availability of cigarettes.
These concerns have proven on founded basketball and we've continued to ship products as usual. However, we estimate that approximately 60% of like this year over year owning increase was the result of this buying patterns.
It should be noted that as a bold in the second quarter Lygus on the line shipments remained stable.
As noted on previous calls we're on the income growth phase, while Eagle Twentys business strategy.
Many pleased with the results we have achieved thus far.
We began increasing prices on the brand in late 2018, and then from volume share and profit since then.
[noise] on market programs and promotions have proven successful and we remain optimistic about Eagle Twentys continued growth going forward.
I'll now turn to the can combine tobacco financials of liggett grew from back to tobacco.
The three months ended March 31st 2020, Liggett revenues were 287.1 million compared to 256.8 million for the corresponding 2019 period.
Tobacco adjusted operating income for the three months ended March 31st Twentytwenty was 69.2 million compared to 60.1 million for the corresponding period a year ago.
In addition to the inventory adjustment Tailwinds previously mentioned Lygus higher earnings resulted from increased pricing strong underlying product demand efficiencies and promotional spending amongst the settlement agreement benefits.
According to management Science Associates, a rule industry wholesale shipments for the first quarter were up 7%.
Well liggett's wholesale shipments increased 8.2% versus the prior year quarter.
The increase in wholesale shipments are a reflection of the buying patterns previously mentioned.
As we regularly.
We believe retail shipments or a better indicator of industry trends.
Various actions by manufacturers and wholesalers can impact trade volumes.
These effects, so typically less pronounced with retail shipments.
Well retail shipments in the first quarter was somewhat affected by the accelerated buying pattern. The effect was much less than a wholesale level.
So the first quarter Liggetts retail shipments increased 2.2% over the prior year quarter, while industry retail shipments decreased 2.4%.
As a bomb study first 2020, liggetts retail share increased 11 basis points to 4.3%.
Eagle Twentys retail volume for the first quarter grew by more than 10% compared to the prior year period and it remains a third largest discount brand in the U.S.
Eagle Twentys is now sold in approximately 77000 stores nationwide and its growth continues to provide an effective volume of profit complement to pyramid another liggett brands.
Despite managed and anticipated volume declines we remain pleased with the performance of pyramid.
The brand continues to deliver substantial profit a market presence with the company has strong distribution is currently sold in approximately 100000 stores nationwide.
We continue to see little impact from premium economy brands, such as much for special blend Newport Red and various camera line extensions.
Well I'll first quarter 2020 results had limited impact from small with deep discount focused companies. This market segment remains the industry's most active.
Very small companies Cray pricing pressures they seek to undercut the market in targeted geographic markets.
They get as market place advantages relative these companies, including all strategic approach. The board makes about distribution on consumer focused promotional programs and the technological and executional capabilities of all sales force.
As you're all aware that continues to be a range of negative developments in the face a category and we remain pleased to have no exposure to that segment.
Today, we have not seen any material impact 12 business from favorable or other non combustible products.
We're very pleased with our first quarter 2020 performance, particularly in light of the current macroeconomic environment.
Our results continue to validate a market strategy and as we look ahead, we remain focused on generating operating income from the strong sales and distribution base of pyramid, while delivering volume sham profit growth from Eagle Twentys.
As mentioned earlier, we have implemented what plays protocols that meet or exceed state and federal guidelines.
Factory protocols, among other things required employee health evaluations and physical distancing.
We have made arrangements for rapid medication any issues that may arise.
We are well equipped to manage contingencies.
In addition, we always subject to industry and general market risks and remain confident that we haven't effective programs to keep up business operating while supporting market share in profit growth.
Thanks drew attention and back to you out.
Thank you Nick.
We continue to believe that vector group is well positioned to generate long term value for stockholders.
We have strong cash reserves have consistently increased out tobacco unit volumes in profit and have taken the necessary steps to position our real estate business for continued success.
As previously noted effective in the first quarter of 2020, we adjusted our quarterly cash dividend target from 40 cents per share to 20 cents per share.
We are pleased with how long standing history of paying a quarterly cash dividend. It remains an important component of our capital allocation strategy.
Well, we will continue to evaluate a dividend policy each quarter.
Expectation that out policy will continue well into the future.
Now operator would you please open the call for questions.
Yes at this time, we will open the floor for questions. If you like to ask a question. Please press the star key followed by the one key on your Touchtone phone now.
Questions will be taken in the order in which they are received if at any time you would like to remove yourself from the question in queue. Please press star too.
Again to ask a question. Please press star one now.
Our first question comes from and so you know Oppenheimer.
Hi, guys. This is Uh huh.
Hey, Good morning, guys. This is mark on true yeah. Thanks for taking your questions on whole policy you. All you got to sustain say Oh. So good to see continued performance on tobacco can you guys just give a sense of the pricing trend a meal and tobacco for the quarter.
And then you know what's or the expectations are going forward I'm, just given the impact of coal good Oh, and then the outbreak and then youre sort of what the customer or sort of something that is in the market. Thanks.
Sure good.
Good morning, so with respect to a pricing train trends during the the for first quarter industry did take a EUR 80 cents per carton price increase a mid February.
And looking forward I think I think its oh hell of a moment walk the well Dean just for is Gonna do obviously these are.
Uncertain times and Ah the.
The expectation of a continued to deliver a profit is a is very high so I think that.
It's it's it's it comes on what the a the various companies are gonna do at the moment, but where we're staying focused on the on all brands.
Oh, no on pyramid, and Eagle Twentys, and we're hoping to.
Continue to deliver a profit as we have done in the past.
Okay, Great. That's very helpful. But then I guess on any sort of insight on.
And then society problem No choice pricing and then you know any shifts in terms of your strategy, just given where the market us. Thanks.
Yeah, well just to I mean, obviously to read right. What we talked about we had a very very strong quarter here in a in the first quarter certainly seems some some pay back in the second quarter, but.
Good news is where we're very very happy with the underlying trends have continued yeah in the a in the second quarter basically both.
Pyramid and Oh.
And Eagle Twenty's volumes remain remained very stable.
And you know as a company we've always been a very focused on providing <unk>. They can seem with value and a you know based on the current economic environment.
We believe were well positioned in the marketplace at the moment.
Okay, perfect and then just quickly shifting over to real estate, if I could for all the details on New York City and the trends here, but you got share any color. It's on the trends outside of New York, maybe like you know dogs for a dog and other markets. Thanks.
Yeah I.
I mean.
Florida, or it's been a little easier to do business California's been easy to do business, New York has been toughest as it relates to not being able to show anyone's apartment.
So we've gone to a.
Who electronic showing okay, which.
It is a little difficult, but having said that it surprises me, we've actually done a few pretty nice size sales that way. So people are starting to get used to it.
I'm I'm imagining that that New York, we'll open up by probably the latest the middle of June when the brokers can really get back to a showing the apartments and also the industry makes you know they sort of.
Make a big deal about the fact that listings are down a lot well listings are down a lot because we are not encouraging people to put their places on the market now we don't think it really makes sense, if they want us to well do it but we're really looking to the top when we can really go back to work and then I think you'll see a surgeon listings and generally.
He is getting a surge of listings.
Will be good for us because there are will be a lot of people in the marketplace.
Okay. That's very helpful. And then just a quick one on the liquidity profile. If you guys just kill the Sun. So you know any access to liquidity you, whether it's on the revolver or at least four wheel sources of funding aside from cash on hand, and then also can enjoy just give a pro forma liquidity.
Sure Pro form of course, the debt required a retired.
Recently thanks.
Okay I handle that yes, okay. So as Howard mentioned total cash plus investments was 620 million at March 31st opt out number 69 million wasn't like good I'm 49, not Douglas Elliman, So our liquidity now on a consolidated basis using those numbers.
After $170 million, a payment would be 450 million [noise].
In addition to that currently we have about 130 million of cash and availability under the revolver at legacy.
Which is up significantly and our largest piece of that relates to we're not pay where do we can differ excise tax payments until July.
Great. Thanks for that Brian and Oh, now I guess on having you on the line I'm just another quick housekeeping can you guys just give us the shares outstanding for the quarter. Thanks.
Sure for computing they'd be out there was 147.1 million I'm for computing equity it was a 148.1 million [noise].
Okay Awesome. Thank you guys very much.
Our next question comes from Jack One Crawford with Jefferies.
Hi, there.
Hi, there gradually she's done the strong quarter, especially here in tobacco I'm interested with more concerned about the economy and I realize it you said that you feel that you're positioned well and the discount category. That's just wondering if you could provide a little bit more information here. If you would expect to see more.
Smokers trade down.
The <unk> category or do you just kind of category within your products and if so if you're seeing any additional competition with any of your peers fighting for it be consumers here in any impact on price that you have seen or it might expect to see moving forward.
Hey, Thanks, Thanks, a question so I.
I would say you know says because as you know we've been we've been talking about Downtrading on other calls for a for a number of years now I'm you know within the discount segment. It sells off focus with a with Eagle Twentys has primarily been on the on the low end.
Things and Barry already preliminary signs all they have a broader discount market, increasing increasing as a whole as well.
Okay, well. Thank you and then I appreciate you providing that additional information on the cost saving at all and peppering interesting I, probably could you provide any more information that's too much to fix for some farewell call their f. real estate and tobacco.
I do you need the on your question you were breaking up.
Oh, sorry about that I'm, just saying could you. Please provide you fix versus variable costs breakout at both real estate and tobacco.
<unk>.
Sacco.
We we certainly don't have that that information to the to hand, I mean, we could we maybe follow without information related though.
Yeah, Yeah that that would be just fine and then just finally do you have any channel breakdown just amongst you know whether it be groceries or convenience stores, where you're tobacco products are sold and what you're what any impact you would expect traffic.
Various retailers to be having on moving it forward.
True so don't Wanna going to do more specifics about the a a bell the channel, but the good the good news is that.
So those little off three weeks, we really haven't seen a huge impact to those stores, but the way it doesn't business thing as I mentioned in my.
And my script, we'd probably go distribution about 127000 schools.
And you know anecdotally.
We <unk> you know, maybe one and a half the chief thousands stools tobacco stores will well impacted where we called on for the very very small percentage of a of a of a business. So the the good news is you know the distribution chain entering the supply chain and the distribution train.
Has remained open and really hasn't had any significant impact on a on all sales business.
If I could add this Ron <unk> initially that there were there were a number of tobacco outlets that that we're not foods sellers that that needed to shut down. His next said it was a small percentage of our business, but virtually all of those are coming back on line or back online now.
And just looking at the the arc of the situation since since the the pandemic became a part of our reality is that is that the worst of it from from the standpoint of of the the the flow in the market and the cigarette marketplace. It looks to be passed so so.
So the anticipation is is that the market will only get stronger and broader as would go forward.
Okay, well, thank you for that.
[noise] Oh next question comes from <unk> Trucker with Barclays.
[laughter].
Hey, Thanks for Ah, taking a question first one I was wondering what the kinda dynamics, you've seen around I guess, what what you need pantry loading a first and then also.
Did you see any you know.
Positive benefit from these stimulus checks that started anything accounts and mid April and.
Windows does yeah do you think you know that this concert market benefited or you think there's maybe a trade of a sector.
I'm sure we'll again the destroy recently sold significant Pan Freeloading in the in the back off of the last two weeks of of miles from we have seen.
Payback of that and again that pantry loadings oppose the wholesale and on the retail level.
It's very very difficult to to to tell whether schools that have been paid back I think there's so many competing variable was going on.
In the in the market place at the moment very very tough to to to see like true consume underlying friends at the moment, so trying to to pass out the effect of the of the additional stimulus to actually increased unemployment benefits.
You know really honest on sort of it's a it's too early for self we're going to need to get a little bit more data over the course of a of q. to to really get an understanding as to how those how those that additional money within the economy and specific to the discount segment is a is impacting the business.
Great and then.
You know.
Given maybe you know what what could be a potential recession upcoming does that change your your.
Ability to come to market and kind of play book to bring a new products to market and you have any new products in the.
And the boat that you're looking to get out and then near term.
[noise] well, it's certainly not going to going to to any specifics with respect to the new products that obviously, we're looking at the marketing we're always looking at at opportunities I mean, you honestly at the moment with limited sales people out in the failed the ability to execute.
Brand launches a is limited but.
You know again.
Though were very very happy with the all too brand strategy, you know eagle twenties, and pyramid performing very well. So there's there's the brand we're focused on at the moment and again, we think with <unk> the market place.
Based on the current economic situation.
Thanks to my last question go into real estate market I was wondering how we should think about.
Ah you know the real estate market over the next six months do we think about it like an l. eight or nine recession in kind of play book or or is that completely off base and this is you know completely new <unk>. How are you thinking about it going forward.
Well because this is something that really none of us have experience, it's hard to predict.
But having said that we feel that although a lot more when when we're able to actually show a pause and try to sell houses they taught to base. It on what we're saying today, because when I'd seen that much today.
I I would say that the markets will rebound.
I can't tell you how quick it's going to rebound, but in certain markets, you're pretty sure how U.M.T. people.
Are looking for.
Second homes and a lot of our markets the ones that are in the city now that work in the city you live in the city.
And there are so there's a that market is is pretty strong the suburbs around New York City has picked up pretty well so that one's pretty strong and what remains to be seen is how to city does because in the city you know, it's it's been attacked besides.
From the <unk>.
It's been attacked from.
The the political part of the city side with.
Putting in taxes, and so forth that you know have hurt the market.
Last June they put in this increase in the way they call the mansion tax.
Which is quite a bit bills too high price departments, but Joe last year with like our biggest month that we've ever had in business.
Cause everyone bullet before the time that they would have to pay.
The the increase mansion task, so that'll be a bad cop. It will never be backed up again that that was a huge huge them off so.
So so besides the <unk> say to them fast besides the pandemic. We now we also have to concern and sounds about the state.
Places, where a market so I like the city, okay, especially on the financial and because if they start talking right away to.
Tax increases and stuff I, obviously that'll make it more difficult.
I think they're much.
[noise] Hi next question comes from Robert Sullivan with mid Ocean.
[laughter] hi, thanks, the real steep operating selling G.N.A. accents, which was roughly $260 million in 20 minutes, you know spring break that out and it's just a broad categories for us just in in trying to model.
Kind of catch Burlington real speech.
Okay.
Oh.
Yeah, So Robert about.
34 million, a dot related or property.
<unk>.
Advertising, where the mother or 25 million.
That their dogs charge about a trophy up to mail yet at the end appreciation in that number is about 8.6 smell yet.
So you're lost was about 193.6 million after that.
And then.
As we said no earlier conference call about 4 million last year, what spend on another U.P.R.P. system. So about 189 million that's comprised primarily a raft.
And salaries.
I'm in and just cost around the offices.
Although that number might look fixed we can go when that that number.
By consolidating offices by reducing our workforce by what we what appears to be about 40% of salaries and we can make part of that number variable.
I did obviously on the call so cells number that's all commission so that's all variable.
[noise] does that answer your question Huh.
It does thank you and and assuming you were to have no no revenues for some time in real estate I guess, what did your twin around increasing look what did he or [noise].
Or for that division.
[noise] well Robert as you know we have significant liquidity about her and of course, we always evaluate the capital markets on an ongoing basis.
Got it okay. Thank you.
Oh No question comes from Chris Call, then with the I.C.N.
[laughter].
[laughter].
[laughter]. Thanks for taking my questions sort ask you to repeat this again, so caching investments with 620 million does that include.
Fair value of the investments like what what's the break out of that again or.
It doesn't have to 153 million of involves spots about 10 million was an equity securities 95 million wasn't investment right out and 49 million was on her trucks.
[noise] into deal worry about any type of markdowns or did you see any mark down from those and do you worry about that.
Especially if the market turns again.
Under generally accepted accounting principles, they are carried a market value.
[noise] doesn't investments.
Okay.
And then nobody sorry, yeah.
And then net distributions from real estate this year any sense of what those will be.
[noise] as far as the first and obviously I, what Howard speak to your as far as a first quarters are very slow quarter.
Since we're about 650 million.
Whereas only and those were primarily three projects that were just receiving a distribution. So it's like liquidate and we only made one talk on investment during the quarter.
Yeah, you said 650 million I think you Miss about.
[laughter], Yeah 650000 gracious.
Thanks, Howard everything everything is gonna be delayed projects, which we were hoping you know we'd be are starting to do the sales and starting to you know get some money back from Oh right. So.
Really.
I see what's gonna happen this year.
Makes sense and then two questions only tobacco segment I didn't quite follow in the beginning and they call. You said there was it sounded like a 60 per cent boost.
Whether it was from retailers stockinger consumers <unk> can you go back to that.
Based on.
Yeah.
So just in relation to our euro veering Crazy. So you have your own anything increase was about $9 million. We estimate the just over about $5 million with that related to the the the pantry loading with respect to the wholesale and retail.
Okay, and and is there any kind of seasonality in that business.
Well historically a season alibey for the for the cigarette business is in the middle of the yeah. What around June that's when it picks up the the high season during during the sum of money. My name was back in the in in in the pool in the window <unk>. So there's a normally a gradual season.
Multi build.
Around the March April timeframe.
Up to up to mid year around June but.
Now the would not be impacted the the the big inventory junk food that we store and those last two weeks in March.
Got it and then last question just thinking longer longer term do do you have any concerns about.
Just.
People being more health conscious and not wanting to smoke cigarettes I mean.
Is there any concerns about that.
Well, we're not we're not seeing that the moment, let's say the the industry is is is performing strongly and and within the industry or a all sales are extremely stable. So I know there's been a lot of press about that but there's plenty of time, we're not seeing any any negative effects whatsoever.
<unk>, where are you are seeing negative effects is on the vapor side because the the the association the problems that we're developing prior to coded have just been reinforced in I think that it's it put a heavy heavy burden on on the on the bay per category.
If you if you look if you look at at where things are with cigarettes. I think that you know generally speaking in the course of of of a crisis people typically don't smoke less and they don't drink less and they don't eat less so you know they they they short term looks looks looks salad and there's no reason to.
Really believe that anything's gonna change afterwards.
Yeah, Great alright, well thanks for the colors.
[laughter], ladies and gentlemen that those are all the questions that we have for today.
Thank you for 20 minutes to an factor grips earnings conference call that will conclude our call.
On behalf as all of us at the vector grip like it and Douglas element, we have that everyone remains healthy unwell.
Thank you all for your participation and you May now does connect.
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