TPB - NYSE
Turning Point Brands, Inc.
TPB·NYSE
$86.24
+5.1%Consumer DefensiveTobacco
Turning Point Brands, Inc., together with its subsidiaries, manufactures, markets, and distributes branded consumer products. The company operates through three segments: Zig-Zag Products, Stoker's Products, and NewGen Products. The Zig-Zag Products segment markets and distributes rolling papers, tubes, finished cigars, make-your-own cigar wraps, and related products under the Zig-Zag brand. The Stoker's Products segment manufactures and markets moist snuff tobacco and loose-leaf chewing tobacco products under the Stoker's, Beech-Nut, Durango, Trophy, and Wind River brands. The NewGen Products segment markets and distributes cannabidiol isolate, liquid vapor products, and other products without tobacco and/or nicotine to individual consumers through VaporFi B2C online platform, as well as non-traditional retail through VaporBeast. It sells its products to wholesale distributors and retail merchants in the independent and chain convenience stores, tobacco outlets, food stores, mass merchandising, and drug stores. The company was formerly known as North Atlantic Holding Company, Inc. and changed its name to Turning Point Brands, Inc. in November 2015. Turning Point Brands, Inc. was founded in 1988 and is headquartered in Louisville, Kentucky.
At a Glance
Live SnapshotMarket Cap$1.67B
EPS3.1800
P/E Ratio27.12
Earnings Date08/05/2026
Earnings Call Transcript
TPB • 2023 • Q1
Operator
Good morning, and welcome to the Turning Point Brands First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode and all lines have been placed on mute to prevent any background noise. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions and please note this event is being recorded. I would now like to turn the conference over to Louie Reformina, Chief Financial Officer. Please go ahead.
Louie Reformina
Thank you. Good morning, everyone. This is Louie Reformina, Chief Financial Officer. Joining me at Turning Point Brands President and CEO, Graham Purdy; and Chief Revenue Officer, Summer Frein. This morning, we issued a news release covering our first quarter results. This release is located in the IR section of our website, www.turningpointbrands.com. During this call, we will discuss our consolidated and segment operating results and provide a perspective on the operating environment and our progress against our strategic plan. As is customary, I direct your attention to the discussion of forward-looking and cautionary statements in today's press release and the risk factors in our filings with the Securities and Exchange Commission. On the call today, we will reference certain non-GAAP financial measures. These measures and reconciliations to GAAP can be found in today's earnings release, along with the reasons why management believes that they produce useful information. I will now turn the call over to our CEO, Graham Purdy.
Graham Purdy
Thanks, Louie. Good morning, everyone, and thank you for joining our call. Our first quarter results were in line with our expectations and we are generally pleased with our start to 2023, as we are beginning to see traction from the initiatives we have put in place and consumers are responding as demonstrated by market share gains in all of our major categories. As we mentioned on our last call, we anticipated a tough comparison to Q1 of last year. Recall the macro environment, principally inflation started materially impacting our customers in the second quarter of 2022. Our results reflect an uncertain consumer environment where many of our end consumers continue to feel the impacts of prolonged inflation and higher interest rates. Moreover, as also discussed on our last call and reflected in today's numbers, our wholesale customers, particularly buyers of
Summer Frein
Thank you, Graham. As discussed in prior quarters, we continue to focus heavily on growing the
Louie Reformina
Thank you, Summer. Starting with our consolidated quarterly results. Q1 sales were up 0.1% to $101.0 million. Adjusted gross margin was down 310 basis points to 48.2% due to segment and product mix. Adjusted EBITDA was $20.8 million, down $4.5 million year-over-year due to the decline in
Graham Purdy
Before I open the call to Q&A, I wanted to give you some thoughts on why I'm excited about the long-term opportunity we have in front of us and why we have confidence in the balance of the year now that we believe the inventory reset is largely in the rearview mirror. We have a portfolio of iconic brands that consumers love.
Operator
Thank you. [Operator Instructions] We'll take our first question from Vivien Azer with TD Cowen.
Viktor Meier
Hi. This is Viktor Meier on for Vivien Azer and thank you very much for the questions. I have a few. A key competitor in the U.S. tobacco space recently revised down their expectation for price elasticities in the U.S. cigarette market. While you don't play in that segment, can you comment on how are your views of price elasticities and MST have evolved?
Graham Purdy
Yeah. I don't think there's any evolution in our thinking. We're generally a price follower in the industry. And so our plan is to continue to go and get more weighted distribution and continue to follow what the industry does. We've got a nice value proposition with our MST and I think we're well positioned in the current economic environment.
Viktor Meier
Got it. Thank you. And then so high-single digit growth in Stoker's would suggest that down-trading is continuing in the MST space. Can you comment on how that's evolved and whether you expect downtrading to persist or accelerate from here?
Graham Purdy
Yeah. I can't prognosticate whether it's going to accelerate in the future. It's been fairly consistent over the last few years. And so at this point in time, we're keeping our head down focused on our existing plan and taking what the market will give us.
Viktor Meier
Got it. Thank you. And then on free up, can you please expand on the rationale for expanding all the way down to a 3-milligram offering a bulk of the category volume sits at the 6-milligram offering and the strategic rationale for the original free positioning was to go above that. So what's the risk of that with an expanded range of nicotine offerings that the differentiation around free gets diluted.
Summer Frein
Hi. Yeah. Thanks for that question. I think for free, it's important for us as consumers are transitioning into that category to have a wide offering available for them. Does it mean that we'll keep all nicotine offerings on the market in perpetuity. But as we're learning about that consumer, we feel it's important for us to offer that variety for them up to this point.
Viktor Meier
Understood. Thank you. And then just last question. So
Graham Purdy
Yeah. We actually expect sequential increase just because the inventory trade reduction, most of those came from our higher gross margin products. So sequentially you should see an uplift. But then after that, you'll have CLIPPER continue to grow. And so that will be a headwind to gross margins going forward.
Viktor Meier
Understood. Thank you so much for the color. That’s it from me.
Operator
Thank you. We'll take our next question from Eric Des Lauriers with Craig Hallum.
Eric Des Lauriers
Great. Thank you for taking my questions. First, I was hoping you could just expand on or perhaps just reiterate some of the dynamics that you're seeing at
Graham Purdy
Yeah, Eric. Thanks for the question. We talked about this last quarter. There's really two dynamics of shipping to our wholesale customers and then what our wholesale customers shift to retail and then ultimately what moves to the consumer. We grew share in all four of our major categories in the quarter. And so we feel good about what the consumer is pulling off the shelf. It was really just what we consider a disruption in trade inventories and the balance that occurred in 2022. So in markets, we feel good about the plan that we're on to continue to execute and win those consumers. It's just, again, a blip in time here for Q1 on the trade inventories.
Eric Des Lauriers
Okay. Great. And then on the
Summer Frein
Hey. That's a great question and one that we spend a lot of time talking about. As you noted, consumers, particularly in the non-traditional space, are continuously looking for product innovation. And so it's something we're hyper focused on. As you may have heard on the call, we recently launched two products, Palm rolled as well as 70-millimeter cone, and those were driven by some consumer insights that we have because we do spend a lot of time thinking about consumers, what they're looking for in the market and talking to our sales teams about what they're seeing in the market. So we certainly have a pipeline of products that are underway, and we're excited to bring to market.
Eric Des Lauriers
All right. I appreciate that color. And then last one for me here. The question I asked on the last call as well, but just wondering if you're seeing any changes to the competitive dynamics in the alternative channel specifically following the court order against one of your main rolling paper competitors. Any sort of increased opportunity to take share pr just any additional comments you have there would be great? Thanks.
Summer Frein
Yeah. Sure. As to your point on the last call, we did talk about that initial chatter coming out of that court order that you referenced and we certainly navigated through that with our customers and our consumers. Candidly, it's been a bit quiet, and we continue to focus on maintaining our plan with
Eric Des Lauriers
All right. Thank you.
Operator
We'll take our next question from Hale Holden with Barclays.
Hale Holden
Hey. Good morning. I just have two on the [indiscernible] there on the innovation questions. But on the Palm wraps on the 70-millimeter cones, are those additional shelf space allocation in those places or are they substitutions for something else you might have on shelf?
Summer Frein
Great question. We're excited that in most cases, they allow us to expand our shelf space. It's really important to us, particularly in the alternative channel to capture our fair share in that market. And so this is an opportunity that affords us the additional shelf space.
Hale Holden
Great. The last time you guys launched new cone products, definitely, it was noticeable in results. Are these you think incremental or big drivers? Just hard for me to know.
Graham Purdy
Yeah. It's in the early days of the launch. Our plan is for the product to be incremental for the end consumer. Ultimately, what we're trying to do is provide a wide range of options, different sizes for different consumer needs. So we view it as an incremental opportunity for the company.
Hale Holden
Great. Thank you so much. I appreciate it.
Graham Purdy
Thank you.
Operator
And that does conclude the question-and-answer session. I'd like to turn the call back over to our presenters for any additional or closing remarks.
Graham Purdy
Thank you, operator. Appreciate everybody's time today, and we look forward to speaking to you next quarter. Thank you.
Transcript from May 3, 2023
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