Vector Group Ltd. (NYSE:VGR) Q3 2023 Earnings Call Transcript

Vector Group Ltd. (NYSE:VGR) Q3 2023 Earnings Call Transcript November 2, 2023

Operator: Welcome to Vector Group Ltd.’s Third 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 An archived version of the webcast will be available on the Investor Relations section of the company’s website located at www.vectorgroupltd.com. 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 prepared in accordance with GAAP. Reconciliations and adjusted operating income, adjusted net income, 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 the call begins, I would 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 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 Lorber. Please go ahead, sir.

Howard Lorber: Good morning, and thank you for joining us for Vector Group’s Third Quarter 2023 Earnings Conference Call. With me today are Richard Lampen, our Chief Operating Officer; Bryant 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 review Vector’s consolidated financial results for the third 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 Vector’s consolidated balance sheet. Our balance sheet remains strong. As of September 30, 2023, we maintained significant liquidity with cash and cash equivalents of approximately $437 million, including cash of $208 million at Liggett.

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, 2023. Vector’s revenues for the third quarter of 2023 were $364.1 million compared to $378 million in the corresponding 2022 period. Net income increased to $52.7 million or $0.33 per diluted common share, up from $38.9 million or $0.25 per diluted common share in the 2022 period. Adjusted EBITDA increased to $94.9 million up from $87.3 million in the 2022 period. Adjusted net income increased to $52 million or $0.33 per diluted share, up from $37.6 million or $0.24 per diluted share in the 2022 period. Turning to Vector Group’s consolidated results from operations for the nine months ended September 30, 2023.

Vector’s revenues for the nine months ended September 30, 2023 were $1.06 billion compared to $1.08 billion in the corresponding 2022 period. Net income increased to $125.5 million or $0.80 per diluted common share, up from $110.6 million or $0.70 per diluted common share in the 2022 period. Adjusted EBITDA increased to $267.1 million, up from $259.5 million in the 2022 period. Adjusted net income increased to $136.8 million or $0.87 per diluted share up from $104.4 million or $0.66 per diluted share in the 2022 period. I’ll now turn it over to Nick to discuss our tobacco operations. Nick?

See also Ken Fisher’s 12 New Stock Picks and 20 Best Fitness Apps in 2023.

Q&A Session

Nick Anson: Thank you, Howard and good morning. Liggett continued to deliver impressive results in the third quarter. Liggett’s retail shipments once again outperformed the industry while operating income increased by approximately $6.7 million or 7.6% compared to the prior year period. In what has become a challenging income environment for some other manufacturers, we are very pleased with our progress. In addition, I’m excited to report that based on the third quarter retail shipments, our Montego brand is now the largest discount brand in the US. The brand continues to gain acceptance with retailers and consumers across the country in a market that is 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 Marlboro, Newport and Camel.

Liggett has a long history of leadership in the discount segment, dating back to the early 1980s, when we disrupted the tobacco industry by first introducing discount cigarettes to the US market. The success of Montego reflects the benefit of our targeted investment in the brand and ongoing commitment to provide cigarette consumers with excellent value. In the third quarter of 2023, Montego’s distribution expanded to approximately 94,000 stores in the US, up from 71,000 stores in the prior year period and 89,000 in the second quarter of 2023. Montego’s national retail market share also increased to 3.8% in the third quarter of 2023, up from 2.8% in the prior year period and from 3.5% 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-based brand portfolio.

And while our investment in Montego has expanded our foundation for long-term earnings growth, we also continue to reap significant benefits from Eagle 20’s and Pyramid, which deliver substantial income and market presence. Montego’s growth at the top of the discount category is particularly impressive since we have prudently taken price increases and improved the brand’s gross profit margin. The price gap between Montego and the industry’s leading premium brands has remained stable in the range of 45% to 50% discount at retail. From the broader industry perspective, the deep discount segment remains strong and continues to outperform the overall US cigarette market. We believe this 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 8.8% compared to the same period last year. As a result, for the three months ended September 30, 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 distribution provide Liggett with a meaningful competitive advantage as the migration to deep discount continues. As I mentioned earlier, according to data from Management Science Associates, Liggett’s third quarter retail shipment outperformed the industry declining by 4.7% compared to the same period in 2022, while industry retail shipments declined by 8.8%.

As a result, Liggett’s third quarter 2023 retail market share grew on a year-over-year basis to 5.9%, up from 5.7% in the prior year period and 5.8% in the prior quarter. While Liggett’s third quarter retail shipments outperformed the market, our wholesale shipment has declined by 10.6% compared to the overall industry wholesale shipment declines of 5.3%. 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 pattern, this was particularly evident considering the second and third largest US cigarette manufacturers, enacted list price increases that coincided with the end of the quarter.