Q1 2021 Vector Group Ltd Earnings Call
[music].
And I said EBITDA and tobacco adjusted operating income are contained and the company's earnings release, which has been posted to the Investor Relations section of the company's website located at Www Dot vector group L. T D Dot com before.
Before we begin and 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 risks and uncertainties that could cause actual results to differ materially from those set forth and or implied by forward looking statements.
These risks are described in more detail and the company Securities and Exchange Commission filings.
Now I'd like to turn on the call over to the President and Chief Executive Officer, a vector group Howard Lorber.
Good morning, and thank.
You for joining us on our first quarter 2021 earnings conference calls.
With me today or would you lamp and our Chief operating Officer, Brian Kirklin, Archie Financial Officer, and Nick and since President and Chief operating officer of look at vector brands.
Ron Bernstein's junior adviser to look at vector brands will join us during the Q&A.
During this call I will review, Arkansas, Bi-daily and financial results for the first quarter and then discussed other settlements financial performance for the three months ended March 31st 2021.
Nick will then summarized the performance of the tobacco business.
I will then provide closing comments and afterwards, we will open the call for questions.
Now turning to vector groups consolidated balance sheet.
A balance sheet on March 31, 2021 remains strong as we maintain significant liquidity with cash and cash equivalents of 382 million, including cash of $83 million and like we also held investment securities and investment partnership interest with a fair market value of Georgia and 6 million.
At March 31 2021.
As previously announced and the first quarter of 2021, and we took advantage of favorable capital markets and issue and 875 million of 5.75% senior secured notes do 2029 [noise].
All proceeds we used to retire older notes.
And addition leg and amended his credit facility to increase its borrowing capacity from $60 million and $90 million.
Closed sales continued to improve and major markets, such as New York City, The Hamptons Palm Beach, Miami and Los Angeles for Aspen.
Commissions from our New York City business were up 34% during the first quarter and this trend seems to be continuing.
And April 2021 average daily cash receipts from New York City, as well as South, Florida, and Aspen and were up significantly from the first quarter of 2021.
Now I will turn the call over to Nick to discuss our tobacco business Nick.
Thank you Howard and good morning, everyone.
Liggett performed very well during the first quarter of 2021 with a significant increase in earnings despite a difficult year over year comparison, and a challenging marketplace.
On a market specific retail programs have proven successful and we remain confident on our brand portfolio is well positioned to meet evolving market demands.
And the first quarter of 2021 Eagle Twenty's delivered significantly higher margins, while maintaining stable market share and pyramid continues to deliver substantial profit and market presence for the company.
We are also pleased with the performance of our strategic price fighting brand and Montego as we build targeted geographic distribution with a measured approach.
Industry pricing actions and concerns over further potential COVID-19 restrictions.
Conversely towards the end of the first quarter and 2020 wholesale inventories increased reflecting the effects of widespread pantry loading and the start of the pandemic.
The cumulative effect of the separate events led to lower 2021 first quarter wholesale shipments compared to last year for both liggett and the industry.
As we regularly note, we believe retail shipments from better indicator of short term industry trends.
Because inconsistent hocevar Patton's typically do not impact retail sales.
For the first quarter legates retail shipments declined by five 3% from 2020, while industry retail shipments decreased two 9% during the same period.
As a result, legace retail share and the first quarter declined slightly to for one 8% from 428% and the same period last year.
As noted on previous calls, we anticipated modest declines and legacy year over year retail sure due to increased net pricing consistent with our successful income growth strategy.
Despite price increases ego twenties retail volume and remains strong and.
Is currently the third largest discount brand and the U S and and sold and approximately 84000 and stores nationwide.
Noting the continued market expansion on the discount segment and August of last year, we increased distribution of our strategic price finding brand mantega.
Montego is competitively priced and the growth deep discount segment, and we're taking a target approach with its expansion.
Today, we are pleased with the market's response to Montego, which is now sold and over 26000 and stores.
Montego delivered 10% of legacy volume for the first quarter of 2021 compared to 5% and the first quarter of last year.
Regarding the current regulatory environment last week, the FDA made the long anticipated announcement that they plan to proceed restrictions on mental and cigarettes.
This issue has been considered by the FDA since 2009 and by statute. The agency is required to apply a scientific approach to this and any question involving public health.
Please open the call for questions.
Thank you Sir if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again. Please press star one to ask a question, we'll pause for just a moment to allow everyone the opportunity for Cigna.
For questions.
Okay.
Yeah.
Thank you our first question will come from Ian Zaffino with Oppenheimer.
Hi, great.
Yeah.
Yes.
Hi, Thank you very much.
Couple of questions for you.
Yes, Howard Thanks for the details on New York City being up 34%.
Can you maybe tell us what's.
What some of your best markets were actually up like you mentioned and South, Florida, and they may be asking.
And just kind of directionally, how much more what were they up.
And then also you know.
It's more on M I C and as far as detail.
And I have trends continue to accelerate and in April.
And what's sort of the backlog looking like for the rest of the quarter and then I have some cigarette and questions as well.
Sure.
Yeah, as far as and different markets.
South Florida was up I think on VK correct me, if I'm wrong up about 45, 46%.
The South Florida for the first quarter was up 125% or 46 million.
46 million Oh, Im sorry, okay.
And then.
Yeah.
Go ahead Greg.
The northeast region.
<unk> was up 21, and a half million dollars for 62%.
Citi was up and commissioned $20 million for 34% cash.
California, and Colorado were up $16 million or 61%.
[laughter].
So it seems to and it seems to be and continuing into April and it definitely looks like that's continuing into April and I think as you know the city comes back to life, that's going to keep going.
It is interesting, though for you know south, Florida, we're probably doing on a monthly basis about the same volume and.
And New York City and were.
We're doing the same volume and basically South, Florida, which is really mostly Miami and Palm Beach. So it's sort of caught up but I think the trend right now is for and that that I think has to level out at some point.
I think New York City has a lot further to go.
Okay.
And then on the on the low.
Liggett side.
You know I know you try and next to impossible to figure this out but and then.
And then any studies on.
What like from work from home and has done for the business.
And maybe what return to work would do to dismiss and then on the menthol side Youre clearly under indexing to the industry. So I know, what you're going to take years.
The same type of policies been going through and that would ban menthol and but given that you're under indexed would you actually expect to see some share gains in your business you should menthol smokers transition to traditional cigarettes.
Sure.
I appreciate the question. So we haven't done any specific studies with respect to work from home and obviously there is.
Still a lot of uncertainty with regards to how the pandemic will will shake out here over the course of this year, but obviously last year was Ah and extraordinary gear for the for the cigarette industry.
And the strong performance was undoubtedly the result of the pandemic where we.
Clearly witnessed significantly changed consumer behavior, and purchasing patterns and you know through the through the first quarter of this year. The industry has continued to be strong as I mentioned in my remarks down about 3% on a on a year over year EBITDA basis.
Obviously, there's a lot of factors that's going to affect the industry. This year I think it remains fluid, but our general feeling is that we are.
We expect the industry to normalize over the balance of this year as these kind of COVID-19 related consumption.
Consumption sales wins start to dissipate.
With respect to commence I'll at this point and time.
Thank you.
It is too early to tell you are right we are on.
Under index, which which is a good thing but the reality is this is something that's been discussed.
Uh huh.
And the FDA for quite some time now as I mentioned, it's a very complex and nuanced issue with a lot of conflicting data and I think we were many years away from from any impact or potential impact of this when you consider the process within the FDA and the potential for litigation.
Okay. Thank you very much and this is very helpful.
Okay.
Sure.
Thank you again as a reminder, please press star one if you would like to join the question and you are.
Our next question comes from <unk> Martinson with Jefferies.
Just stock on the day.
For all of the FDA regulations I mean, what is the next step for the process or what's the timeline that we should be looking at just in terms of the headlines for this.
Sure.
The news that came out was that the.
<unk> planned to come out with a proposal within within the next year or so.
That point and time days, then the opportunity for comment and.
And based on on previous comments I would imagine that there will be.
Significant amounts of comment there and a significant period at which point the FDA would take those comments under advisement.
And then come out with a final a final ruling.
And then typically following a final ruling is another potentially another year or so before it gets implemented.
At retail and that of course doesn't doesn't factor and the potential for litigation challenge and so again I think I think with many years away from from this potentially.
Being an impact.
Okay.
And then.
Staying with <unk>.
Tobacco or and what is it.
And the impact on your sales and Colorado from the day minimum price.
Being implemented while you guys legally challenge, where did you see and the first quarter.
Sure.
So overall and Colorado.
And the industry was down about 20% I mean that that is skewed to some degree because looking at this this particular market. We did see some significant buying some pantry loading throughout the course of.
At December and anticipation of the of the large stating state excise tax increase and the minimum price.
But overall.
Both our pyramid and and Liggett Liggett.
Liggett brands.
And well and where we're basically holding our own and and tracking to the market. At this point. So we will continue and will continue to see how things go.
We look back on previous states with large ICT.
Increases and it typically takes about seven to eight months for the for the market to settle after there's been that pantry loading so.
We'll see how things shake out, but we're relatively pleased to date tracking to the market and holding our own and at a very difficult situation.
And is there any update in terms of where the legal process stands for Colorado.
Not really from from from from the first quarter here. We continue we continue to challenge that law.
The litigation is moving.
Moving relatively slowly at this point and time.
And we are.
We're waiting to see with respect to some rulings on the defendant's motion to dismiss at this point in time, but it's moving relatively slowly at this point.
Okay, and just on real estate, you guys had a day and aggressive cost.
On cutting program last year as you look at the.
And the rates of increase in New York started to come back and whats.
What's the thought process on and perhaps some of those costs coming back can you operate at these kind of levels with the infrastructure that you have or do we need to add costs back to the.
<unk>.
Well, we've already added back.
Quite a bit of the of the cost.
I think the only I think with as volume increases and as we're doing more business.
I think the biggest increase and spend is on the marketing side.
Because our brokers are doing a lot more business day or a lot more listings they have to get them out there. So we follow that and also there are certain events that.
And didn't happen last year that saved us money like art, Basel, and Miami, which now is going to happen this year and December.
Mike and the Hamptons and enhancing classic.
Horse event, that's going to happen and.
I think first couple of days of September over the last couple of days of August. So we have definitely some more money that we're going to have to spend but the way things are looking at this particular point.
It seems to be.
Somewhat insignificant compared to the amount of revenue increases that we're seeing.
Okay.
Thank you very much guys I appreciate it.
Thank you. Our next question comes from how Holden with Barclays.
Thanks for taking my call I had.
Two questions for.
One is you guys addressed menthol pretty well, but.
And I realize there was no there was no movement on it but there were headlines around the potential for low nicotine and Lee.
Limitation and I was wondering.
And what your initial thoughts on those type of changes might be.
Sure.
I think it's really the same answer with respect to.
Mental and its obviously youre right. There was no specific proposal put out there.
And that's really not surprising and I think that this issue is even more complex and nuanced than the mental issue and a lot of conflicting studies and studies and a lot of study, saying that this may not even be.
And be able to be practically implemented so.
Again, I think that we and many years away based on the process and also the complexity of the issue.
For this potentially to impact our business.
Great. Thank you.
Teekay, you're on a run rate on a pretty low leverage by the end of the year.
Lower than you've been historically for some time.
So I was wondering if maybe you could give us on update on capital allocation thoughts are.
We're excess cash Michael.
As you move towards that or have you changed your levers thoughts.
Yes, great.
Great question, Hal and you are absolutely correct. We are at the lowest levels we've been.
And many years.
Looking at our leverage on <unk>.
We are at about on a secured basis and is that a gross about a 233 and a 3.86 on a total basis.
If you look at the press release.
EBITDA.
As far as going forward, we're going to continue to be opportunistic and our capital allocation.
And we'll continue to look at investments, we think would add to stockholder value and both the real estate side as well as on the property technology side.
Great. Thank you I saw you guys announcement on the revenue kind of property and you see how much you had bought some.
I appreciate the time.
Yeah, we're really excited about that and how that will be complementary to elements business.
Great.
Yes.
Thank you. Our next question will come from Gaurav Jain with Barclays.
Hi, good morning, Thanks, a lot other few questions. So.
One is on the tobacco business and and at this time to understand Columbus strength, which are happening to your market share was down which is one of the few times debt doesn't happen and I would say on the last few years.
The earlier pricing is very strong and that is despite more people moving from 5% share to a 10% share so.
And pricing on Eagle and parameters, even a stronger sales.
And it's fair to say that lifestyle youre out on the prop.
Maximizing cycle and we could see your market share come off.
Net more from here.
But on your profits to grow faster and expectations.
Sure.
And direct correct growth we all.
And the and the income growth of Eagle Twenty's brand.
It was backing.
Kind of the back half of 2018.
Net.
We started with that process and started taking.
More pricing on that brand and we've been very pleased with the performance to date and in fact Eagle has outperformed.
With respect to continued growth, but obviously as we've taken pricing on that brand over the over the course of <unk>.
Last year.
The growth has slowed.
And as expected, we are sacrificing a little bit of market share but.
Our long term objective remains the same and we're looking to get that optimal balance between market share and on profit.
Yeah.
Sure.
Let me.
Second is on some of these for Bob for tax equity Act on some of these proposals which are they are and seek to.
Equalize tax and.
Across tobacco categories can you remind us what volume the outperformance and the last time go back what that says on <unk>, because I guess one constantly on me.
Is that because you're at a discount cigarette company.
Percentage increase and then the pricing for you in terms of any specific tax hike. It really much more for you then it will be for your competitors. So you would be adversely impacted.
Can you just help us remember what happened last time.
Sure and I would say.
First question I think.
Rob I would.
Remind you of the fact that obviously with the <unk>.
Absolute price of cigarettes going up substantially with the with the lost SVT increase I mean.
And that was significantly down from there was some significant down trading and made the discount segment more attractive look we've got on excellent.
Track record and performance with respect to the lost <unk> increase which is which is in 2009.
We saw an opportunity that we had planned for it we capitalize on that opportunity and we were able to grow both volume and ultimately profit with.
And without pyramid brand so.
And we have a track record of good performance and we know how to capitalize on those opportunities and and Youre right I think we're suddenly.
Don't fear a federal excise tax increase this time around especially.
Especially if they look to equalize the taxes and other tobacco products, such as mislabeled pipe tobacco.
And that hasnt been paying their fair share of taxes to date.
Products out there and Misbranded and.
They've had an advantage it's a equalize that I think thats, a tremendous opportunity for us to further capitalize and and gain share there.
No that's very helpful and.
Sure.
Yeah.
In terms of just debt capital allocation priorities and.
And I think Ron mentioned next generation products by drag and I think though and this question I think.
And Brian made the comment around investing in property debt and top and real estate, but did not and tobacco and.
And all the companies as I knocked off and how far some.
Some form of a smokeless future, taking prevalence rates down and transitioning the business.
And to reduce risk business, how are you thinking about the sort of longer term trends and.
And then back on vector.
Sure growth I mean, I think that.
We.
We always take and opportunistic approach, we're always looking at.
At opportunities out there and.
In the marketplace.