Q3 2023 Vector Group Ltd Earnings Call
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Welcome to the vector group's Ltte's third quarter 2023 earnings conference call.
This call is being recorded and simultaneously webcast.
Archived version of the webcast will be available on the Investor Relations section of the company's website loading is located at Www Dot vector group L. T D dot com during.
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 of financial performance prepared in accordance with GAAP.
Reconciliation and an adjusted operating income adjusted net income adjusted EBITDA and tobacco adjusted operating income architecture in the company's earnings release, which has been posted to the Investor Relations section of the Companys website before the call begins I would like to read a safe Harbor statement.
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 in applied by our forward looking statements.
These risks are described in more detail in the company's security and Exchange Commission filings now I'd like to turn the call over to President and Chief Executive Officer of vector Group Howard Lorber. Please go ahead Sir.
Good morning, and thank you for joining us for vector group's third quarter 2023 earnings Conference call with me today are Richard lapping, our Chief operating Officer, Brian Kirkland, Our Chief Financial Officer, and Nick Anson, President and Chief operating officer of Liggett vector brands.
I'll begin with an update on our balance sheet and then we view vectors consolidated financial results for the third quarter of 2023.
And I wouldn't 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 <unk> consolidated balance sheet.
Our balance sheet remains strong as of September 30 of 2023, we maintained significant liquidity with cash and cash equivalents of approximately $437 million, including cash of $208 million.
We also held investment securities and long term investments with a fair value of approximately 174 million.
Turning to vector group's consolidated results for the three months ended September 30 of 2023.
These revenues for the third quarter of 2023, with $364 1 million compared to $78 million and a corresponding 2022 period.
Net income increased to $52 7 million or 33 cents per diluted common share up from $38 9 million or 25 cents per diluted common share in the 2022 period.
Adjusted EBITDA increased to $94 9 million up from $87 3 million and the 2022 period.
Adjusted net income increased to 52 million or 33 cents per diluted share up from $37 6 million or <unk> 24 cents per diluted share in the 2022 period.
Turning to vector group's consolidated results from operations for the nine months ended September 30 of 2023.
<unk> revenues for the nine months ended September 30 of 2023 War, one point I was 6 billion compared to 1.08 billion and a corresponding 2022 period.
Net income increased to $125 5 million or 80 cents per diluted common share up from $110 6 million or 70 cents per diluted common share in the 2022 period.
Hey, just hey, EBITDA increased to $267 1 million up from $259 5 million in the 2022 period.
Adjusted net income increased to $136 8 million or <unk> 87 cents per diluted share up from $104 4 million or 66 cents.
Sure in 2022 period.
I'll now turn it over to Nick to discuss our tobacco operations Nick.
Thank you Howard and good morning.
<unk> continued to deliver impressive results in the third quarter.
It gets retail shipments once again outperformed the industry, while operating income increased by approximately $6 7 million or seven 6% compared to the prior year period.
And what has become a challenging income environment with some other manufacturers. We are very pleased with our progress.
In addition.
I'm excited to report that based on third quarter retail shipments are Monte go brand is now the largest discount brand in the U S.
The brand continues to gain acceptance with retailers and consumers across the country and a market that has proliferated by competing products.
Importantly, beyond being the number one discount brand in the nation Montego is now the fourth largest brand in the country behind only Marlborough.
Board and camel.
Ligand has a long history of leadership in the discount segment dating back to the early 19 eighties, when we disrupted the tobacco industry by first introducing discount cigarettes to the U S market.
The success upon CGI reflects the benefit of our targeted investment in the brand and ongoing commitment to provide cigarette consumers with excellent value.
The third quarter of 2023 months'. He goes distribution expanded to approximately 94000 stores in the U S up from 71000 stores in the prior year period and 89000 in the second quarter of 2023.
Monte you guys National retail market share also increased to three 8% in the third quarter of 2023 up from two 8% in the prior year period, and three 5% in the prior quarter.
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.
<unk> base brand portfolio.
And while our investment in months. He go has expanded.
Foundation for long term earnings growth. We also continued to reap significant benefits from Eagle, Twenty's, and pyramid, which deliver substantial income our market presence.
Monte you guys growth to the top of the discount category is particularly impressive since we have prudently taken price increases and improved the brands gross profit margin.
Price gap between multi go in the industry, leading premium brands has remained stable in the range of 45% to 50% discount at retail.
From a broader industry perspective, the deep discount segment remains strong and continues to outperform the overall U S. Cigarette market. We believe the strong performance can be attributed to ongoing economic pressures on cigarette consumers and declines in disposable income.
During the third quarter of 2023 based on management Science Associates retail data the deep discount category increased 10, 5% while industry volumes declined eight 8% compared to the same period last year.
As a result for the three months ended September 30 of 2023, the deep discount segment comprised 14, 6% of the overall market up from 12, 1% in the same period, a year ago and 13, 9% in the second quarter of 2023.
This segment continues to present, an attractive price option for consumers and we are confident that our value based brand portfolio and broad national discrete distribution provides <unk> with a meaningful competitive advantage and the migration to deep discount continues.
As I mentioned earlier, according to data from management Science Associates, Liggett's third quarter retail shipments outperformed the industry declining by four 7% compared to the same period in 2022, while industry retail shipments declined by eight 8%.
As a result, liggett's third quarter 'twenty, one 2023 retail market share grew on a year over year basis to five 9% up from five 7% in the prior year period, and five 8% in the prior quarter.
While liggett's third quarter retail shipments outperformed the market our wholesale shipments declined by 10, 6% compared to the overall industry wholesale shipment declines of five 3%.
As we have noted in the past we firmly believe that retail shipments are a significantly more reliable indicator of industry volume performance.
In the third quarter, we again saw inconsistent wholesaler purchasing patents.
This was particularly evident considering the second and third largest U S. Cigarette manufacturers enacted list price increases that coincided with the end of the quarter.
List prices, often provide substantial opportunities for wholesalers to drive their own profit by increasing inventories of manufacturers key brands in advance of a list price increase.
The result, inevitably just thoughts short time wholesaler purchasing trends and associated market share calculations based off these wholesale shipment.
It is also important to note that most retailers typically do not have the physical space all licked.
Quiddity required to capitalize on the benefits of buying large amounts of inventory before our price increases enacted.
Retailers tend to order to replace the inventory purchased by consumers on an as needed basis and as such retail shipments are a better indicator of consumer purchases.
Given liggett implemented a price increase earlier in the third quarter, our third quarter wholesale numbers reflect a temporary de loading of our brand portfolio by wholesalers relative to those major manufacturers that took pricing at the end of the third quarter.
Over the longer term wholesale and retail shipment trends inevitably converge and that is reflected in the fact that both liggett's wholesale and retail shipments are outperforming the industry on a year to date and trailing 12 month basis.
With that in mind, I will now turn to the consolidated tobacco financials for Liggett group and vector tobacco.
For the three months ended September 32023 revenues declined three 7% to $364 1 million from $378 million in the third quarter of 2022.
This decline was attributable to the decline in wholesale shipment volumes, partially offset by an 8% increase in pricing.
For the nine months ended September 32022 revenues increased to 1.064 billion up 2% from the corresponding period in 2022.
This reflects a six 7% increase in pricing offset by a 6% decrease in wholesale shipment volume.
<unk> operating income for the three months ended September 32023 increased seven 6% to $94 8 million compared to $88 $1 million in the corresponding 2022 period.
For the nine months ended September 32023 legacy operating income declined by $5 5 million or two 2% to $248 5 million compared to $254 $1 million in the corresponding 2022 period.
The decline in operating income for the nine month period was the result of a one time $18 million charge in the second quarter, which related to an agreement with the state of Mississippi to settle a longstanding dispute over a $19 96 settlement agreement.
In connection with this settlement in September 2023, the company recovered at $24 million bond. It had previously posted to pursue an appeal.
Tobacco adjusted EBITDA in the third quarter increased seven 4% to $96 3 million compared to $89 6 million for the corresponding prior year period.
Nine months ended September 30th tobacco, adjusted EBITDA increased five 6% to $271 million compared to $256 $6 million for the corresponding prior year period.
Liggett's third quarter adjusted operating income increased seven 6% to $94 8 million compared to $88 1 million in the prior year period, and our operating margins also grew our third quarter. Adjusted operating income was 26% of revenues, which represents an increase of approximately.
270 basis points compared to the third quarter of 2022, and an increase of approximately 55 basis points sequentially.
On the regulatory front, we expect a final ruling on mental within the next few months.
As we have previously discussed while we have always supported reasonable regulation based on sound scientific evidence we remain firm in our position. The prohibition is not the right answer as it inevitably drives unintended consequences, such as the growth of illicit unregulated market.
We anticipate any further any final ruling that includes a ban on menthol will be vigorously challenge by the industry.
In summary, the operational and financial performance of our tobacco business remains strong and our retail market share gains and profit growth validate our long term strategy and competitive advantages in the discount segment. Most importantly, I'll strategy builds on our foundation for long term earnings growth.
While we're always subject to industry regulatory and general market risks, we are confident that our strategy management team and infrastructure positioning us well to maintain our momentum.
Thanks for your attention and back to you Howard.
Thank you Nick.
We are pleased with our results as well as our long standing 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.
Okay. Sir at this time, if you would like to ask a question. Please press the star and one on your telephone keypad.
You may rejoin yourself in the queue at any time by pressing star to once again that is star one to ask a question.
We will pause for a moment to allow questions to queue.
We do have a question from Peru Martinson Jefferies.
Good morning.
So with Montego and the cash harvest mode, I mean, how should we think about.
The door growth the ability to take additional price as we go forward kind of was surprised by the increase in the distribution this quarter.
How much more room is there to run for the brand.
Nick do you want to handle that yes, absolutely I. Appreciate the question correct now, we're obviously very pleased with <unk>.
As with all price increases Carew, where we're constantly analyzing the marketplace there.
And yes, as we prudently taken pricing and increase the.
Our margins and the profit associated with that Brian we are still.
We're still gaining distribution.
And in growing the brand, which is which is fantastic and a testament to the execution of all of our sales force.
At the at the retail level.
We are constantly analyzing the marketplace, there and looking at various opportunities.
The brand is doing very well.
It's well situated.
Price positioned well, but I would remind you that.
Even at times, when we've taken price increase and it's not necessarily the <unk>.
The cheapest in the store.
Can remain very competitive in the in the stores that we're at so we're feeling very good about the brand.
It's <unk>.
Positioned in the marketplace in the moment and for continued future growth.
Okay.
<unk> recognized that the discount.
The market continues to grow tenant and a half percent.
We always get asked on the consumer behavior.
Is that a smoker, perhaps cutting down on their consumption are they.
Doing well.
One pack instead of two or foregoing that I mean, what are you seeing out there with the consumer behavior.
Yes, I mean, there's look there's there's no doubt that the average consumer.
It remains under significant pressure.
As I mentioned in my math and enrollment in my remarks.
Obviously, they are under pressure inflation is easing easing, but overall prices.
We remain remain high look there's no doubt the disposable incomes have been impacted in smokers are reacting by down trading and reducing overall consumption.
But I would argue that based on that and with the down trading.
Anticipating those current trends to continue.
Would argue that our mission statement to provide the best value proposition in the U S. Marketplaces has never been more relevant.
Just lastly in terms of the capital structure your bonds stepped down to the par call.
Believe what was it yesterday.
Jonathan how are you looking at that.
Hey, Brian.
You are correct, we did step down too far out protocol yesterday.
We did not make any repurchases during the quarter. However in early October we bought back another $6 $5 million of that 10, 5% senior notes that leaves us with about $527 5 million of those notes out there.
And we will continue to be judicious.
The notes repurchased.
Thank you very much appreciate it.
Yeah.
Yeah.
Okay.
Ladies and gentlemen, those are all the questions that we have for today. Thank you for joining us on vector group's quarterly earnings conference call.
Half of all of Us at vector group and Liggett, we thank you for your participation and this concludes today's call. Thank you.
Thank you.
Yeah.
Okay.
Yeah.
Yeah.