Q2 2023 Vector Group Ltd Earnings Call
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Speaker 1: Welcome to Vector Group's LTD's second quarter 2023 earnings conference call. This call is being recorded and simultaneously webcast. An archived version of the webcast will be available on the investor relations section of the company's website located at www.vectorgroupltd.com
Welcome to vector group's L. T D second quarter 2023 earnings conference call. This call is being recorded 17 their sleep, but cash an archived version of the webcast will be available on the Investor Relations section of the company's web site located at does.
E W. W. Dot vector group L P dot com.
Speaker 1: During this call, the terms adjusted operating income, adjusted net income, adjusted EBITDA, and tobacco adjusted operating income will be used. These terms are non-GAAP financial measures and should be considered in addition to, but not as a substitute for, other measures for financial performance.
During this call the terms adjusted operating income adjusted net income adjusted EBITDA and tobacco adjusted operating income will be used. These terms are non-GAAP financial measures and should be considered in addition to but not as a substitute for other measures for financial performance.
Speaker 1: prepared in accordance with GAAP. Reconciliations to adjusted operating income, adjusted net income, and adjusted EBITDA and tobacco adjusted operating income are contained in the company's earnings release, which has been posted to the Investor Relations section of the company's website.
Prepared in accordance with GAAP reconciliations to adjusted operating income adjusted net income and adjusted EBITDA and tobacco adjusted operating income are contained in the company's earnings release, which has been posted to the Investor Relations section of the company's website before before the call begins I would like to read.
Speaker 1: Before the call begins, I would like to read a safe harbor statement.
Safe Harbor statement.
Speaker 1: 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 or implied by forward-looking statements. These risks are described in more detail in the company's Securities and Exchange Commission's filings. Now, I would like to turn the call over to President and Chief Executive Officer of Vector Group Howard Loehrbolt.
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 could differ materially from those set forth or implied by forward looking statements. These risks are described in more detail.
In the company's Securities and Exchange Commission filings now I would like to turn the call over to <unk>, President and Chief Executive Officer of vector group Howard verbal.
Speaker 2: Good morning and thank you for joining us for Vector Group's second quarter 2023 earnings conference call. With me today are Richard Lampen, our chief operating officer, Brian Kirkland, our chief financial officer.
Good morning, and thank you for joining us for vector group's second quarter 2023 earnings conference call.
With me today are Richard Lamping, our Chief operating Officer, Brian Kirkland, Our Chief Financial Officer, Nick Anson, President and Chief operating officer of Liggett vector brands I.
Speaker 2: I'll begin with an update on our balance sheet and then review Vectors consolidated financial results for the second quarter of 2023. Then I will ask Nick to summarize the performance of our tobacco business. I will close with final comments and open the floor.
Ill begin with an update on our balance sheet, and then review vectors consolidated financial results for the second quarter of 2023.
Then I will ask Nick to summarize the performance of our tobacco business I will close with final comments and open the call for questions.
We will begin by discussing vectors consolidated balance sheet.
Our balance sheet remains strong as of June 30 of 2023, we maintained significant liquidity with cash and cash equivalents of approximately $330 million, including cash of $103 million at ligand.
Speaker 2: June 30th, 2023, we maintain significant liquidity with cash and cash equivalence of approximately $330 million, including cash-
Speaker 2: We also held investment securities and long-term investments with a fair value of approximately $161 million. Turning to Vector Group's consolidated results for the three months ended June 30, 2020.
We also held investment securities and long term investments with a fair value of approximately $161 million.
Turning to vector group's consolidated results for the three months ended June 30 of 2023.
<unk> revenues for the second quarter, 2023, with $365 7 million compared to $387 2 million and the corresponding 2022 period.
Speaker 2: compared to $387.2 million in the corresponding...
Speaker 2: Net income was $38.1 million or $0.24 per diluted common share compared to $39.
Net income was $38 1 million or 24 cents per diluted common share compared to $39 2 million or 25 cents per diluted common share in the 'twenty to 'twenty two period.
Speaker 2: The company recorded adjusted EBITDA of $94.1 million compared to $95.1 million in the 2022 period. Adjusted net income was $50.8 million or $0.32 per diluted share compared to $40.2 million or $0.25 per diluted share in the 2022 period.
Company recorded adjusted EBITDA of $94 1 million compared to $95 1 million in the 2022 period.
Adjusted net income was $50 8 million or 32 cents per diluted share compared to $40 2 million or 25 cents per diluted share in the 2022 periods.
Turning to vector group's consolidated results from operations for the six months ended June 30 of 2020.
<unk> revenues for the six months ended June 30 of 2023, with $699 8 million compared to $699 2 million and the corresponding 2022 period.
Speaker 2: compared to $699.2 million in the corresponding...
Speaker 2: Net income was $72.8 million, or 46 cents per diluted common share, compared to $71.7 million, or 45 cents per diluted common share in the 2022 period. The company recorded a just and even.
Net income was $72 8 million or 46 cents per diluted common share compared to $71 7 million or <unk> 45 cents per diluted common share in the 2022 period.
The company recorded adjusted EBITDA of $172.2 million, which was flat from the 2022 period.
Adjusted net income was $84 8 million or <unk> 54 per diluted share compared to $66 8 million or 42 cents per diluted share in the 2022 period.
Speaker 2: compared to $66.8 million or $0.42 per deluded share in the 2022 period.
Now I'll turn it over to Nick to discuss our tobacco operations.
Yeah.
Thank you Howard and good morning.
Speaker 3: Liggett continued to deliver impressive results in the second quarter and first half of 2023. In the second quarter, Liggett's wholesale and retail shipments both outperformed the industry.
To.
To deliver impressive results in the second quarter and first half of 2023 and.
In the second quarter, Liggett's wholesale and retail shipments both outperformed the industry.
Speaker 3: This outperformance was a driver of the increase in our gross profit of $7.6 million or approximately 7%, which reflects the gradual shift in our strategy on our Montego brand from a volume-based approach to an income-based approach.
This outperformance was a driver of the increase in our gross profit of $7 6 million or approximately 7%, which reflects the gradual shift in our strategy Montejo brand from a volume based approach to an income based approach.
Speaker 3: Despite a recent cooling in headline inflation numbers, prices remain high and disposable income among lower income Americans consumers continues to be under pressure.
Despite our recent cooling and headline inflation on those prices remain high and disposable income among low income Americans consumers continues to be under pressure.
Speaker 3: Despite these dynamics, the deep discount market segment remains strong, even as the overall cigarette market declines.
These dynamics the deep discount market segment remained strong even as the overall figure out okay cigarette market declines.
Speaker 3: The deep discount segment presents an attractive price option for consumers and we are confident that our value-focused brand portfolio and broad national distribution provide Ligit with a competitive advantage as the migration to deep discount continues.
The deep discount segment presents an attractive price option for consumers and we are confident that our value focused brand portfolio and broad national distribution provides us with a competitive advantage as the migration to deep discount continues.
Speaker 3: Montego, which became our largest brand in 2022, has also grown to become the second largest brand and fifth, second largest discount brand and fifth largest cigarette brand in the United States.
<unk>, which became our largest brand in 2022.
It's also grown to become the second largest brand and fifth second largest discount brand and fifth largest cigarette brand in the United States.
Speaker 3: Our distribution of Montego expanded to approximately 89,000 stores in the second quarter of 2023 up from 67,000 stores in the prior year period.
Our distribution of Montego expanded to approximately 89000 stores.
In the second quarter of 2023 up from 67000 stores in the prior year period.
Speaker 3: The brand's national retail market share increased to 3.5% in the second quarter of 2023, up from 2.4% in the prior year period and from 3.4% in the prior quarter.
The brands National retail market share increased to three 5% in the second quarter of 2023 up from two 4% in the prior year period and from three 4% in the prior quarter.
Speaker 3: Our strategy with Montego is consistent with our long-term objective of optimizing profit by effectively managing volume, pricing, and market share in our value-based brand portfolio.
Our strategy with <unk> is consistent with our long term objective of optimizing profit by effectively managing volume pricing and market share.
<unk> based brand portfolio.
Speaker 3: That is reinforced by the fact that while our investment in Montego has expanded our foundation for long-time earnings growth, we continue to reap significant benefits from Eagle 20s and Pyramid which deliver substantial income and market presence.
That is reinforced by the fact that while our investment in months. He has expanded all foundation for longtime earnings growth. We continue to reap significant benefits from Eagle, Twenty's, and pyramid, which deliver substantial income and market presence.
Speaker 3: As I mentioned earlier, according to data from Management Science Associates, ligets, second quarter wholesale and retail shipments both outperformed the industry.
As I mentioned earlier, according to data from management Science Associates, Liggett's second quarter wholesale and retail shipments both outperformed the industry.
Speaker 3: Liggett's second quarter wholesale shipments declined by 7.9%, whereas industry wholesale shipments declined 8.9%.
Second quarter wholesale shipments declined by seven 9%, whereas industry wholesale shipments declined eight 9%.
Speaker 3: As we have regularly noted in the past, we believe retail shipments are a better indicator of industry trends due to inconsistent wholesaler purchasing patterns.
As we have regularly noted in the past we believe retail shipments are a better indicator of industry trends.
Inconsistent wholesaler purchasing patterns. In addition, all of our manufacturers wholesale promotional programs typically do not impact retail sales.
Speaker 3: In addition, other manufacturers wholesale promotional programs typically do not impact retail sales.
Speaker 3: Liggett's retail shipments for the second quarter declined by 1.8% compared to the same period in 2022, while industry retail shipments declined by 7.1%.
Liggett's retail shipments for the second quarter declined by one 8% compared to the same period in 2022, while industry retail shipments declined by seven 1%.
Speaker 3: As a result, I am pleased to report the Ligged 2nd quarter, 2023 retail market share grew on a year-over-year basis the 5.8% up from 5.5% in the prior year period.
As a result, I am pleased to report that Liggett second quarter 2023 retail market share grew on a year over year basis to five 8% up from five 5% in the prior year period.
Speaker 3: On a sequential quarter basis, Liggett's retail market share was flat at 5.8%, which was anticipated as we gradually transitioned on Montego brand focus.
On a sequential quarter basis, liggett's retail market share was flat at five 8%, which was anticipated as we gradually transition all known Chico brand focus.
According to management Science associates retail data for.
Speaker 3: For the three months ended June 30th, 2023, the discount category represented 29.2% of the total market, up from 27.5% in the same period a year ago.
For the three months ended June 32023, the discount category represented 29, 2% of the total market.
From 27, 5% in the same period a year ago.
Speaker 3: For the second quarter of 2023, we estimate that the deep discount segment comprised 13.9% of the overall market up from 11% in the same period a year ago and 13.7% in the first quarter.
For the second quarter of 2023, we estimate that the deep discount segment comprised 13, 9% of the overall market up from 11% in the same period, a year ago and 13, 7% in the first quarter.
Speaker 3: I will now turn to the consolidated tobacco financials for Likert Group and Vectra Tobacco.
I will now turn to the consolidated tobacco financials for Liggett group and back to tobacco.
Speaker 3: For the three months ended June 30th, 2023, revenues decreased 2.3% to $365.6 million from $374.3 million for the second quarter period in 2022.
For the three months ended June 30 of 2023 revenues decreased two 3% to $365 6 million from $374 3 million for the second quarter period in 2022.
Speaker 3: This decline was attributable to the approximate 8% decline in host-sales shipment volumes, partially offset by a 6.2% increase in price.
This decline was attributable to the approximate 8% decline in wholesaler shipment volumes, partially offset by a six 2% increase in pricing.
Speaker 3: For the six month-sended June 30, 2023 revenues increased 2.4%. To 699.8 million from 683.4 million for the corresponding period in 2022.
For the six months ended June 30 of 2023 revenues increased two 4% to $699 8 million from $683 4 million for the corresponding period in 2022.
Speaker 3: This increase reflects a 6.1% increase in pricing offset by a 3.4% decrease in wholesale shipment volume.
This increase reflects a six 1% increase in pricing offset by a three 4% decrease in wholesale shipment volumes.
Speaker 3: Fligus operating income for the three months ended June 30th, 2023 was 75.1 million compared to 88.3 million in the corresponding 2022 period.
Operating income for the three months ended June 30 of 2023 was $75 1 million compared to $88 $3 million in the corresponding 2022 period.
Speaker 3: This decline in operating income was the result of an $18 million accrual related to a recent agreement in principle with a state of Mississippi to settle at a long-standing dispute over our 1996 agreement partially offset by a higher gross margin from price increase.
This decline in operating income was the result of an $18 million accrual related to a recent agreement in principle with the state of Mississippi to settle a longstanding dispute overall 1996 agreement, partially offset by a higher gross margin from price increases.
Speaker 3: In connection with this settlement, the company will recover a $24 million bond it posted to pursue an appeal.
In connection with this settlement the company will recover a $24 million bond it posted to pursue an appeal.
Speaker 3: Tobacco-adjusted EBITDA in the second quarter increased 5.3% to 94.7 million compared to 89.9 million for the corresponding prior year period.
Tobacco adjusted EBITDAR in the second quarter increased five 3% to $94 7 million compared to $89 9 million for the corresponding prior year period.
Speaker 3: For the six months ended June 30th, 2023, tobacco adjusted EBITDA increased 4.6% to 174.6 million compared to 167 million for the corresponding prior year period.
For the six months ended June 30th 2023, tobacco adjusted EBITDA increased four 6% to $174 6 million compared to $167 million for the corresponding prior year period.
Speaker 3: Ligit's second quarter adjusted operating income increased 5.5% to 93.2 million compared to 88.4 million in a prior year period and our operating margins also grew.
Liggett's second quarter, adjusted operating income increased five 5% to $93 2 million compared to $88 4 million in the prior year period, and our operating margins also grew.
Speaker 3: Our second quarter adjusted operating income was 25.5% of revenues, which represents an increase of 190 basis points compared to the second quarter of last year and an increase of 200 basis points sequentially.
Our second quarter adjusted operating income was 25, 5% of revenues, which represents an increase of 190 basis points compared to the second quarter of last year, and an increase of 200 basis points sequentially.
Speaker 3: In the second quarter, we continue to see the benefits of our strategic investment in Montego. After significantly expanding the brand's distribution, we have carefully started to increase pricing on the Montego brand at a modest pace.
In the second quarter, we continued to see the benefits of our strategic investment in months. He go after significantly expanding the brand's distribution. We are carefully started to increase pricing on the months. He go brand had a modest pace.
Speaker 3: Montego remains competitive in the deep discount category. And the price gap between Montego and the industry's leading premium brand remains stable in the range of a 45 to 50% discount at retail.
Once you go remains competitive in the deep discount category and the price gap between Montego and the industry's leading premium brand remained stable in the range of 45% to 50% discount at retail on.
Speaker 3: On the regulatory front, we expect both a final standard on menthol and a preliminary standard on reducing nicotine in combustible cigarettes later this year.
On the regulatory front, we expect both the final standard on mental and the preliminary standard on reducing nicotine in combustible cigarettes later this year.
Speaker 3: As we have previously discussed, while we have always supported reasonable regulation based on sound scientific evidence, we remain firm in our position that prohibition is not the right answer, as it inevitably drives unintended consequences such as the growth of illicit unregulated markets.
As we have previously discussed while we have always supported reasonable regulation based on sound scientific evidence we remain firm in our position that prohibition is not the right answer as it inevitably drives unintended consequences, such as the growth of illicit unregulated markets.
Speaker 3: In summary, the operational and financial performance of our tobacco business remains strong, and our retail market share gains and profit growth will validate our long-term strategy and competitive advantages in the discount segment. Most importantly, our strategy builds on our foundation for long-term earnings growth.
In summary, the operational and financial performance of our tobacco business remains strong and our retail market share gains and profit growth of validate our long term strategy and.
<unk> competitive advantages in the discount segment. Most importantly, our strategy builds on our foundation for long term earnings growth.
Speaker 3: While we were subject to industry and regulatory and general market risks, we are confident that our strategy, team, and infrastructure position us well to continue this strong momentum. Thanks for your attention.
While we were subject to industry and regulatory and general market risks.
Confident that our strategy team and infrastructure position us well to continue this strong momentum.
Thanks for your attention and back to you Howard.
Speaker 2: Thank you, Nick. We are pleased with our operating results, as well as our outstanding practice of paying a quarterly cash dividend. It is our expectation that this dividend policy will continue.
Thank you Nick we are pleased with our operating results well is our longstanding practice of paying a quarterly cash dividend.
It is our expectation that this dividend policy will continue.
Now operator, please open the call for questions.
Speaker 1: At this time if you would like to ask a question please press the start end one on your touch tone phone. You may remove yourself from the cue at any time by pressing the start two. Once again that is start end one if you would like to ask a question we'll pause for just a moment to allow questions to cue.
At this time I'd like to ask a question. Please press star one on your Touchtone phone you may remove yourself from the queue at any time by the question, let's start to once again that is star. One if you would like to ask a question, we'll pause for just a moment to allow questions to queue.
Speaker 1: And once again, let us start in. One, if you would like to ask a question, a little pause for just an additional moment.
And once again that is star one if you would like to ask a question.
Just an additional moment.
Speaker 1: And we will take our first question from Pallav Mittal with Barclays. Your line is now open.
And we will take our first question from Palo Alto Mittal with Barclays. Your line is now open.
Speaker 4: Thank you. If you could, Nick, I think this is for you. So if you could explain the dynamics between the wholesale and the retail shipments. There's a significant gap in what's happening with market share and also the volume data. So is there some significant inventory movements that are happening and which could unwind over the next couple of quarters?
Thank you.
You're good.
Nick.
So if you could explain the dynamics.
The wholesale and the retail.
There's a significant gap in what's happening with market share and also the volume data.
There's some significant inventory movement, but that happening on record in mind over the next couple of quarters.
Speaker 3: So with respect to this quarter, Mattel, what we're looking at here versus the more stable retail data is last year, as you may recall, as we were growing the Montego brand, getting increased distribution, there was significant inventory build on the part of the wholesale.
So with respect to with.
With respect to this quarter.
What we're looking at here.
This is the most stable retail.
Data is <unk>.
Last year as you might recall as we were growing the non fee go brand.
Getting increased distribution there was significant inventory build on the policy at the wholesalers.
Speaker 3: This quarter and over the course of the first half of this year, we've seen some minor deloting of inventories that the cost of inventory based on interest rates have started to decrease. So that's the primary difference that what you're seeing at the moment between the more stable retail numbers and the wholesale numbers.
This quarter and over the course of the first half of this year, we've seen some minor de loading of inventories as the cost of inventory based on interest rates have has started to decrease so that's the primary difference, but what youre seeing at the moment.
Between the more stable retail.
Numbers and the.
The wholesale numbers.
Sure.
Okay.
Speaker 1: Ladies and gentlemen, there are no, those are all the questions that we have for today. Thank you for joining us on VEHRG Group's quarterly earnings conference call. On behalf of all of us at VEHRG Group and Liggett, we thank you for your participation and this concludes today's call.
Hello, Ladies and gentlemen, there are no.
These are all the questions that we have for today.
Thank you for joining us on vector group's quarterly earnings conference call.
Behalf of all of Us at Investor Group and.
We thank you for your participation and this concludes today's call.
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