Q2 2021 Vector Group Ltd Earnings Call

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Hunter Group L T D Dot com.

Before we begin I'd like to read the Safe Harbor statement. The statements made during this conference call better not historical facts of forward looking statements that are subject to breast and uncertainties that could cause actual results of differ materially from those set forth in or implied by forward looking statements. These risks are described in the.

More detail and the company security and Exchange Commission filings.

Now I'd like to tell me the call over to the President and Chief Executive Officer of vector Group Howard Lorber.

Good morning, and thank you for joining us on our second quarter 2021 Earners conference call.

With me today, a lizard Lampion, our chief operating officer, Brian Kirtland, Our Chief Financial Officer of Nick Anson, President and Chief operating officer of Liggett vector brands.

Ron Bernstein senior adviser to look at vector brands will join us during the Q&A.

During this call I will review, our consolidated financial results for the second quarter, and then discuss the other elements.

Elements financial performance for the 3.6 in the last 12 months ended June 30th 2021.

Nickel then summarized the performance of our tobacco business.

I will then provide closing comments and open the cough of questions.

Now turning to vector group's consolidated balance sheet of June 30th 2021 of balance sheet remains strong.

We maintain significant liquidity with cash and cash equivalents of $490 million, including cash of 155 million that Douglas element and 108 million of like it.

We also of health investment Securities and investment partnership interests with a fair market value of 212 million at June 32021.

Turning to affect the group's consolidated results from operations for the 3 months and the June 30th 2021.

Vector group's revenues was $729.5 million compared to $445.8 million in the 2020 period the.

The choices of the third $283.8 million increase in revenues.

As a result of an increase of $266.8 million and the real estate segment and $17 million in the tobacco segment.

Net income attributed to vector group was $93.3 million or 61 cents per diluted common share compared to $25.8 million or 16 cents per diluted common share in the second quarter of 2020.

The company recorded adjusted EBITDA of $144.2 million compared to $76.5 million in the prior year.

Adjusted net income was $96.5 million.63 per diluted share compared to $28.7 million or 19 cents per diluted share in the 2020 period.

Moving onto the results for the 6 months ended June 30 of 2021 vector.

Vector group's revenues were 1.27 billion compared to $900.2 million in the 2020 period.

The $373 million increase in revenues were primarily attributed to the real estate segment.

Net income attributed the vector group was $125.3 million or 81.

Per diluted common share compared to $22.5 million or 14 cents per diluted common share in the 2020 period.

The company recorded adjusted EBITDA of $238.6 million compared to $136.7 million in the prior year.

Suggested net income was $141.8 million or 92 cents per diluted share compared to $68.6 million or 45 cents per diluted share in the 2020 period.

Moving on to the results for the last 12 months ended June 30 of 2021 vector group reported revenues of 2.38 billion net income of of 195.7 million and adjusted EBITDA of $435.3 million for the last 12 months ended June 30th 2021.

Now turning to Douglas elements financial performance for the 3.6 in the last 12 months ended June 30th 2021.

Or the 3 months ended June 30th 2021, Dover Salmon reported $392 million in revenues compared to $132.9 million in revenues and the 2020 period.

For the second quarter of 2021 does the southern reported net income of $43.2 million and adjusted EBITDA of $45.3 million compared to of net loss of 50, Oh excuse me net loss of $5 million, an adjusted EBITDA loss of $1.1 million in the second quarter of 2020.

The net loss for the 3 months ended June 30th 2020, and quoted pre tax restructuring charges of $3 million.

For the sixth of on the ended June 30 of 2021, the other salmon reported $664.8 million in revenues compared to $298.5 million of revenues and the 2020 period.

For the 2021.6 month period. The it was element reported net income of $57.1 million and adjusted EBITDA of $61.6 million compared to a net loss of $74.1 million and then adjusted EBITDA loss of $8.8 million in the 2020 period.

The net loss in the 2020 period included a pretax charges for non-cash impairments of $58.3 million and free tax restructuring charges of $3 million.

For the last 12 months ended June 30 of 2021, the other salmon reported 1.14 billion in revenues $83 million and net income of $92.4 million an adjusted EBITDA.

And of Dust. In addition dug of salmon reported closed sales of $42.9 billion for the last 12 months ended June 30 of 2021.

The oldest element strong year to date results were driven by continued momentum in all markets and both closed sales volume and revenues more than doubled from the comparable 2020 period.

We are particularly pleased with the continued strength of the South Florida market as well as the rebound of New York City. During the first 6 months of 2021.

In addition, Douglas elements gross margin of company dollar increase to $105.5 million in the second quarter of 2021 from $42.7 million in the second quarter of 2020.

For the sixth month ended June 30 of 2021 Douglas elements gross margin increased to $179.6 million from $95.9 million for the same period in 2020.

As Douglas elements revenues and gross margin significantly increased in 2021, we discontinued certain expense reductions implemented in the second quarter of 2020, including reductions to advertising and distress scenario of compensation.

Now I will turn the call over the neck to discuss our tobacco business Nick.

[noise]. Thank you Howard and good morning, everyone leave it continued its strong 2021 performance during the second quarter with another significant increase in year over year earnings.

Despite the challenging competitive marketplace I'll go to market strategy continues to prove successful and we remain confident of brand portfolio is well positioned to meet evolving market the commands.

In the second quarter of 2021.

<unk> 20th volumes remains stable and the brand delivered significantly higher margins, while pyramid continues to deliver substantial profit and market presence of the company.

We are also very pleased with the performance of our price fighting brand Montego as we expanded targeted distribution footprint.

I will now turn to the combined tobacco financials, the Likud group in vector tobacco.

For the 3 and 6 months ended June 30th 2021 revenues were 329, $5 million and $598 million, respectively, compared to $312.5 million and $599.6 million from the corresponding 2020 periods.

Tobacco adjusted operating income from the 3 and 6 months ended June 30th 2021 was $142 million and $182.1 million compared to 79.4 million of $148.5 million for the corresponding periods of a year ago.

Liggett second quarter earnings represent of 30% increase over the year ago period and work primarily the result of fire gross margins associated with higher pricing and promotional spending efficiencies. We also continue to manage of tobacco operations cost base effectively.

In addition to these factors increased wholesale inventories associated with the timing of all price increase of the end of June contributed to the quarter over quarter earnings increase the estimate that approximately 30% of the almost 24 million dollar earnings increase the result of these incremental wholesale purchases.

We expect us to reverse in the third quarter as inventories normalized.

According to the management Science associates overall industry wholesale shipments through June 30th 2021 were down approximately 5% compared to the last year, while liggett wholesale shipments decreased by 7.7% from the comparable period as we regularly note. We believe retail shipments are are better indicator of short term industry true.

Because inconsistent wholesale of purchase and patents typically do not impact of retail sales.

Liggett retail shipments through June 30th 2021 declined 6.4% from the year ago period, while industry retail shipments decreased 2.7% during the same timeframe.

As a result legacy of the date retail share has declined slightly to 413% from $4 to 9% in the corresponding period last year.

As noted on previous calls we anticipated modest declines in Lucas year over year retail share due to increased net pricing consistent with our successful long term income growth strategy. However.

However, we do expect this trend to abate throughout the second half of this year as we expand montego markets.

By price increases Eagle twenties retail volume of remains strong. It is currently the third largest discount brand in the US and is sold in approximately 85000 stores nationwide.

Montego is competitively priced and the growing deep discount segment and we are taking it carefully targeted approach with expansion to date, we remain pleased with the market's response to Montego, which is now sold the nearly 30000 stores.

Antigua delivered approximately 12% of Lucas volume for the second quarter of 2021 compared to 5% of in the second quarter of last year.

In summary, we are pleased with the operational and financial performance of our tobacco business. The second quarter results continued to validate our market strategy and reflect the competitive strength, we have in the deep discount segment, including a broad base of distribution conceive of focus programs in the scope and executional capabilities of.

Of all sales force as we look ahead, we remain focused on generating incremental operating income from the strong sales and distribution base of of all brand portfolio.

Finally, while we are all subject of industry regulatory in general market risks, we remain confident that we have effective programs and infrastructure in place to keep our business operating efficiently, while supporting market share and profit growth.

Thanks for your attention and back to you Howard.

Thank you Nick.

Vector group had an outstanding second quarter underscored by record quarterly revenues and a real estate segment and record operating income and both of our tobacco in real estate segments.

We have strong cash reserves have consistently increased our tobacco market share on profits over the long term and I've taken the necessary steps to position our real estate business for a future continued success.

We are pleased with our long standing history of painting of quarterly cash dividend. It remains an important component of our capital allocation strategy and it is our expectation that our policy will continue well into the future.

Now operator, please open the call for questions.

Thank you Sir if you would like to ask a question. Please signal by pressing star 1 on your telephone keypad, if you're using a speaker phone. Please make sure you heard me function as turned off by your signal to reach our equipment.

Dan Please press star 1 to ask the question what Paul for just a moment to allow everyone the opportunity to signal for questions.

Thank you. Our first question comes from the current Martinson of with Jeffries.

Hi. This is all of her on for current thanks for taking the questions. I was wondering if there are any updates on the potential down of menthol flavored cigarettes and initiatives of you may have in place of that regulation does pass how has your thinking changed on what the timeline is on that from.

Sure all of the no no changes really from the from what we talked about at the end of the of the first quarter.

We're still writing for a.

A ruling.

From the from the FDA.

They said previously that will take up to a year of that to come out and then as we have we've talked about previously we anticipate there will be some time before anything of finalize the especially based on the complex because the complexity of the issue and the the the prospect from the litigation from the in the.

<unk> so no updates of this point in time.

And the.

We're certainly keep you informed if if that changes, but nothing nothing nothing further at this point in time.

Okay, great Thanks and the.

You mentioned, how market share is down again, a little debt.

I understand the profit maximization mode on the tobacco side of the business Center.

How you mentioned the expecting montego at the helm share increase but how are you looking at market share of the hall, and where do you ultimately want to be with that.

I mean, we we.

We always taken opportunistic approach to the.

To the market I mean from from from our perspective.

It's it's obviously, we're looking to the to balance that and optimize the profit over the the the.

The long run when we see opportunities develop and the the marketplace will will take a advantage of that we want to make sure that.

Like it gets its fair share and of future growth, but it's it's of balancing act.

And again, we take we've taken opportunistic approach to that but again, we're looking to optimize share in profits over the the long run I mean, we're obviously with with with opt.

Optimistic about the discount segment.

It continues to grow over the course of this last year and we certainly tend to get our fair share of of that growth.

Over the over time.

But the surround Bernstein just to add.

Or a long period of time, we've we've analyzed the market and recognize that there are times when the market provides the opportunity for volume growth in there of times that it provides of the opportunity for for profit growth and what we look to do is to maximize those opportunities when they come up.

And.

With the the growth the increased profitability of Eagle twenties, and pyramid, we've been in a position to to boost of that profit as we build up the Monte go underneath those brands.

Great. Thank you and then just lastly, do you have any plans to address any parts of your capital structure I see that the 10, 5% senior notes do 2026 become callable on November of this year.

Yes.

We have it under consideration.

Easily the call premium is pretty high now, but as we move forward with lower call premiums and looking at how the company.

Companies businesses are doing.

We're going to we're going to see what we can deal with the new consider if possible at the right time too.

Obviously refinance to lower the rate and.

And extend the majority.

But we can't really say for sure when that's going to happen or if it's gonna happen.

Okay. Thank you very much.

[noise]. Thank you. Our next question comes from Carafe, John of risk Barclays Capital M.

Hello, the magic fan get coding on behalf of call of K. Thank you for taking our questions of have to if I may the.

The first 1 is how should we think about the way they profit from profitability on of sustained basis.

The view 2021 is the high benchmark that creating tough called stay of after admire by second question is the.

The.

The leveraging quite fast and we will have the.

Leverage ratio of below framed by the end of the year out of 1 think about the capital is there a possibility for cost me return to shareholders, who buybacks of dividends or the M&A of more likely use of capital Frankie.

Well let.

Let me handle the first question as it relates to the real estate.

Not necessarily field.

Feel that we've increased the highest point in a way of the business is going to be.

There will be some ups and downs.

Seasonally but I think based on looking right now where it seems that mortgage rates in the interest rates.

Are going to be kept at the historically low numbers.

And money is being.

Put into the economy.

Quite heavily.

We're in for.

I'm pretty good times over the next few years, hi per se, whether it'll be 2 years 3 years 4 years, 1 year or you just don't know, but the way it looks right now it's going to continue until the overall policy changes now people worry about inflation and and that is something to worry about but if we really think about it on the real estate side.

Real real estate has always done well in inflationary environments.

And especially when interest rates of the state state law.

So.

I'm pretty bullish on where where you are today and where the near future at least for the next couple of years will be.

That looks pretty good.

On your second question.

You want it you want to handle that.

The as far as the capital structure, we've already discussed some of the issues related to the 10 and a half.

5 per cent. So our leverage ratio of you are right right now as of 3 to 5 on of growth spaces, which is the lowest it's been I think in history.

And certainly will look to deploy capital of going forward. A couple of places we would look would be as far as our prop deck of about 2 months. We believe that's really complimentary with Douglas element and we'll give Douglas element summit efficiencies that will give it a core carpet.

Guests as competitors.

And we will also continue to look at the dividend going forward.

Excellent. Thank you both.

[noise]. Thank you. Our next question comes from David 11, Breath net Ocean credit partners.

Hey, Thanks, most of my questions of and answered I.

I just had 1 question on the mix shifts and tobacco of <unk> could you just clarify how much of of the uplift and <unk> was due to the next shift I just missed that number policies.

I didn't give a specific number on the on on the mix shift in the what I was alluding to was the the fact of the the increase in inventories.

About 30% of that 20 of approximately $24 million increase was due to the the increase in wholesale of inventories.

Gotcha, Okay, alright, thanks for the clarification.

As I said my other question of answered so I appreciate it thanks.

The operator and the other question any further questions ladies and gentlemen, those are all the questions that we have for today. Thank you for joining us on factor groups second quarter.

2021 earnings Conference call, we will conclude our call on behalf of US at vector group like at Douglass element, we hope that everyone remains healthy and well. Thank you for your participation you may now disconnect.

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