Q3 2020 Vector Group Ltd Earnings Call

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And uncertainties that could cause actual results to differ materially from those set forth in or implied by forward looking statements.

These risks are described in more detail in the company's Securities and Exchange Commission filings.

Now I'd like to turn the call over to the President and Chief Executive Officer of vector Group Howard Lorber, you may begin.

Thank you good morning, and thank you for joining us on our third quarter Twentytwenty earnings Conference call.

With me today are Nick Anderson, President and Chief operating officer of Liggett vector brands.

Bryant Kirkland vector group's Chief financial Officer.

381 million or 25 cents per diluted common share compared to net income of $36 million or 23.

Diluted common share in the third quarter of 2019.

The company recorded adjusted EBITDA of 103.3 million compared to 73 $7 million in a prior year.

It just it net income was $38 $3 million or 25 per diluted share compared to 36.2 million or twenty-three precluded chair and a 2019 period.

For the nine months ended September 30th 2020 vector group revenues 145 billion and were flat when compared to 1.46 billion in the 2019 period.

Our tobacco segment reported an increase of $63 $9 million in revenues and a real estate segment reported a decline in revenues of $80 million.

2 million and adjusted EBITDA of $5.3 million compared.

Compared to 606 million of revenues net income of $6.6 million.

And adjusted EBITDA of $11 million.

In the first nine months of 2019.

Douglas elements net loss for the nine months ended September Thirtyth 2020 included pretax noncash impairment charges of $58.3 million and pre tax restructuring charges of $3.3 million.

Phase of our Eagle Twentys business strategy I remain very pleased with the results to date.

Our market specific retail programs have proven successful and we remain optimistic about eagle twentys, increasing profit contributions and long term potential.

Our results also reflect the resilience of pyramid, which continues to deliver substantial profit a market presents to the company.

Pyramid has strong distribution and is currently sold in approximately 98000 stores nationwide.

I will now turn to the combined tobacco financials for Liggett group and vector tobacco.

During the same period.

Like it's retail share in the third quarter declined slightly to four 2%.

The modest decline and Legace thirdquarter year over year retail share with anticipated with ego twenties volume growth slowing due to increase in half pricing.

This is consistent with our income growth strategy for ego twenties, which began in the second half of 2018 Eagle.

Eagle twenties is now price and the aperture of the USD discounts segment.

Nonetheless, ego twenties retail volume for the third quarter increased by approximately 2% compared to the 2019 period and it remains the third largest discount brand in the U S. And is currently being sold in approximately 84000 stores nationwide.

The continued growth of vehicle twenties. Despite increased pricing also reinforces the effectiveness of a long term strategy to continue to build volume and margin for our business using well positioned discount brands providing value to adult smokers.

With that in mind and after identifying volume growth opportunities in the USD discounts segment in August we expanded the distribution farmed antico brand by 10 states primarily in the southeast.

Prior to August Montego resolved and target markets and only four states.

Won't take I will be competitively priced and the grown deep discount segment, and we will take a measured approach with further expansion.

Martiga represented about six 8% of Legace volume for the third quarter of 2020, and 5.6% of Legace volume for the nine months ended September 30th 2020.

To date, we are pleased with the initial wholesale retail and consumer response to Montego and I will provide further updates in the coming quarters on our progress.

In summary, we are very pleased with our third quarter of 2020 performance, particularly in light of the current macroeconomic environment are results can continue to validate our market strategy and reflect how competitive advantages within a deep discount segment, including a broad base of distribution consumer focused programs in the.

<unk> capabilities of our sales force.

As we look ahead, we remain focused on generating incremental operating income from the strong sales and distribution base of both pyramid and ego twenties.

Finally, while we are always subject to industry in general market risks, we remain confident that we.

But we have effective programs to keep our business operating efficiently, while supporting market share and profit growth.

Oh, yes, Ron or Nick you want to answer yeah, absolutely. So a profit is a problem as you know he was a ballot initiative out in a in Colorado.

And it actually passed on a on Tuesday night on the face of it it was a build to increase the the state excise tax on cigarettes, and also introduced Oh, the taxes on the tobacco products.

What are the main complaint that we had from office back. David also contained a provision buried in that bill that contains a minimum price on cigarettes, Colorado, which essentially going to increase the price of a pack of cigarettes to $7.

Beginning January five.

I mean, certainly they're all all the states around the the country that are regulated their their prices of cigarettes. So they've always done it in a way whereby they allowed.

Allows the price competition to remain so this is this this is a unique situation.

And it's certainly in city as part of the Bill here. So that's that's why we're challenging yet.

Okay, and there is a menthol bands that had gone through a recently as well you know could you remind us again at what menthol is as a percentage of your your sales and and and what's the status of the the menthol Ben.

Out there.

In any way, even before Corbett renting down from the highs of everyone has a different idea when the high point was probably around 16 or 17 was the high point and starting in 18, and 19 and 17, it really sort of started a little bit once you had the launch of the salt deductions.

So and then you had you mentioned tax last year. So we're heading that way and then Colby just stopped completely until we were able to reopen and it is recovering.

Not as fast as we'd like to see it.

It is recovering.

And were in good position because of our strategy of.

Being in other markets.

And the other good good markets and just about every one of our other markets is performing well.

Some of them multiple times of what they were before especially South Florida. As you can imagine you know started performing well before but really took off when the the covisint a cut down in New York City, but their role and the smaller markets are doing very well so.

Aspen.

The hamptons other parts of long island.

So were California is performing okay I'm sorry.

I'd say, we're in pretty good shape, because we managed to make up a lot of what we lost in New York well up to now in these other markets.

Thank you very much guys appreciate it.

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Thank you. Our next question about having found that Hale Holden Barclays.

[laughter]. Thanks for taking my call I just had two for you guys I just wanted to confirm that I heard correctly that there was a 20 million dollar sales on the Hampton sales. It was on the piano and revenue Miss out on the real estate revenue.

Some more color on that.

Yeah that was a piece of land, we had bought and how to house built and sold it and I will tell you why are we didn't make any money on it or that was just about what we had and they maybe we made of $2, but it was not great because the markets sort of.

Collapsed went down after that.

Hampton, So Ah, but that was that was the price of the house that we sold.

Okay.

And then my second question was on Monkey go is that what should we consider that your new growth brand, but overtime.

We're going to see expanded distribution sort of following on in early glide path of Eagle Twentys performance.

HM.

That's unclear at the moment, where we we was a as you know we will take an opportunistic approach to the to the marketplace, whether that will be expanded to two on national brands.

It's unclear at the moment.

You know, there's always a like I say, we always take an opportunistic approach to the marketplace and sometimes as opportunities for growth in other times the market facilitates a profit taking but yeah. We specific to Montego Bay, we kind of see this is a unique opportunity to.

Potentially capitalize on some loan growth based on the current.

Economic conditions I mean, those those 10 states, where we have expanded montijo some of the holiday dates.

In the cobot error economics, and they were but rather than over 40% of the the loan categories.

You know we saw this as an opportunity to develop that price fighting brand and an expanded there on a on a very manageable measured approach.

And make sure we positioned LTB to get its fair share or more of a future lowering drugs code no no plans at this point to or to expand on it a nash.

Yes, just to add to that I'm sorry, the if he does back and you look at the history of the growth brands that that Lincoln has had over the last 20 years, they've all follow different curves and they're all based upon the opportunities that the market affords in constant analysis.

Of of how we can best maximize our position relative to two to those opportunities <unk> as Nick said, there's clearly there's clearly a ah Ah increased.

Increased demand in the low end segment and then you mentioned in his prepared remarks.

Eagle Twenty's is now is now a brand that is is is the live is on the high end of the deep discount segment. So it makes sense to have the brand's position and as Nick said that they'll evaluate where the opportunities are and and advance it as it makes sense or not.

What's the price difference between Montego when Eagle Twentys in the same market.

[laughter].

Well I don't want to get into the specifics on that and the pricing and the strategy because it will vary based on different retailers.

And the programs that we present, so I don't want to get into the specifics of that at this.

But again just to reiterate it will be it will be competitive place down there that the discount market.

Okay sounds good thank you [laughter].

Thank you our.

Next question will come some time of Madonna Barclays.

Yeah.

Good morning, the fill kilometers from Barclays on behalf of God. Okay.

A question on the BLS temp business did.

So do you have that said when does have that or did another long call no 9 million into your peers that are these losses hockney nine Hobyo Magnone. Andy condos are you what are you seeing downward withdrawn Douglas elliman.

BK you why don't we answer [laughter], yes.

Good morning, Paul how are you.

Oh, thank you.

Excellent.

As far as the real estate.

We we had losses in real estate ventures, or 8.5 million during the third quarter and about <unk> of that was non cash impairments.

Impairment charges, but really if you look at the big picture most.

Most of that relates to either investments that we have in ventures that operate in industries, such as hotel or retail that have been impacted by the COVID-19 pandemic and then another 6 million relates to.

Right to losses from a real estate property at the New York Metropolitan area.

Sure. Thanks.

On the cost of sales into the analyst said business.

How do you then massive increase to 70 Portlethen ducktail on.

This was around 68% in the probably I'll call. It does so what is causing that increase.

Oh, yes.

Thank you and.

The increase is caused by two factors.

The most important increases as Howard indicated earlier the sale of the property in the Hamptons was at breakeven. So we recognize 20 million of revenues.

Many million a corresponding cost themselves. In addition to that we have seen a migration of ourselves at Douglas Elliman from the higher margin New York Metropolitan area, the lower margin areas, such as South, Florida, and Southern California.

Sure. Thank you if I can just ask one last question on the tobacco business.

So you have to you as I've had the price increases on things you had been blended rent.

Or do you think the Ukraine. Thank you then every yard as a new norm now and how much have you increased prices by intended Wendy.

Sure so.

Yeah. So the for the last couple of years now Weve screened the industry goes to two to three price increases are great.

So we've seen as volumes decline, we've seen the price increases.

The higher and more frequent and Wall Street was the first time, we sold three price increases.

And you're right, we will we've now seen pretty price increase.

For for this year I think you know when we're not seeing a we're not seeing a change and that's a that's happening.

On the street volumes.

And we have taken those three price increases going all brand this year.

But as we always do we after we take those price increases we evaluate the out of the marketplace and we're looking to the value of that and potentially and some of that money back in areas could eat it to spend back and we've done that and what these price increases. So if we've taken a three price increases.

Yeah, but we've taken the opportunity to spend back where we think strategically ignite and to spend back.

Sure. Thank you.

Thank you very much.

Ladies and gentlemen that does have all the questions that we have for today. Thank you for joining us on vector group's third quarter earnings Conference call. This will now conclude our call on behalf of all of us that vector group Liggett's and Douglas Elliman.

I hope that everyone remains healthy and well.

Thank you all for your participation and you may now disconnect.

Thank you everyone.

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