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 • Q3
Operator
Good morning, and welcome to the Turning Point Brands' Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I will now turn the call 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 are Turning Point Brands' President and CEO, Graham Purdy and Chief Revenue Officer, Summer Frein. This morning, we issued the news release covering our third 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 discussed, may 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 SEC. 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 reasons why management believes that they provide 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 third quarter results were in line with our expectations and demonstrated continued progress against our plan. During the September quarter, we showed double-digit revenue growth at Stoker's and sequential stability in the
Summer Frein
Thank you, Graham. As discussed in prior quarters, our focus on growing the
Louie Reformina
Thank you, Summer. Starting with our consolidated quarterly results. Q3 sales were down 5.6% to $101.7 million. Gross margin was up 180 basis points to 50.7% due to segment and product mix. Adjusted EBITDA was $24.4 million, which was stable from the previous year. Going into segment performance.
Graham Purdy
To conclude, despite this year's challenges, in particular, navigating wholesale inventory reductions at
Operator
[Operator Instructions] Your first question comes from the line of Vivien Azer.
Vivien Azer
So Graham, I wanted to follow up on your commentary on FRE, certainly encouraging to hear given the robust trends that we're seeing from a segment level perspective. Just so that we don't get over our skis in terms of the modeling, how incremental do you think we should expect this to be in 2024?
Graham Purdy
Yes. Look, I think Q4 is sort of the time of the year where we're sort of expanding out the foundation. I think our expectation for the product is to look similar to Stoker's over time as we compete against the large players in the category. Our share gains are generally small and incremental over a period of time.
Vivien Azer
Certainly. And there are some kind of geographic nuances to market share across the competitive landscape in the modern oral nicotine category. Can you speak to how you guys are thinking about targeting geographically to optimize your share opportunity?
Graham Purdy
Yes. For us, it's not necessarily a geographical focus on the product. It's really a store output focus on the product, similar to some of the past practices we've had with other categories, specifically Stoker's MST. We focus on the stores that have the highest volume.
Vivien Azer
Totally reasonable. And maybe just pivoting to Stoker's. So obviously, modern oral is weighing on the moist smokeless tobacco category broadly, Stoker's is uniquely continuing to consolidate share, which is great to see. But can you comment at all on how you've seen the competitive pricing landscape evolve as competitors shift their focus towards modern oral?
Graham Purdy
Yes. Obviously, we keep a very close eye on it. Stoker's has been a really nice success story for this company. I think as of late, you've seen some of the large competitors engage more strongly in the discount category. And so, we're mindful of that, but I think we keep our head down, we keep focused on doing what we do. We certainly believe in our unique proposition, quality above all else, certainly with the value and of course, the tub is a unique offering for the consumer and provides a unique value proposition. So I think we're mindful as the competitors sort out their go-to-market strategies, and we continue to focus on the things that we do well.
Vivien Azer
Perfect. I'll just squeeze one last one in on
Louie Reformina
Yes. From a gross margin perspective, obviously, we're agnostic in terms of where we're selling into. But what we're seeing in the B2B side is comparable to the gross margins that we're seeing on the core side.
Operator
Your next question comes from the line of Michael Legg.
Michael Legg
Congrats on the quarter. Wanted to dig a little bit more into the CLIPPER penetration. How do you think [indiscernible] across distribution outlets? How -- what type of penetration do we have so far? And where do we expect to get?
Louie Reformina
Yes, we haven't disclosed the stores that we are broken into, obviously, that's comparative [indiscernible] over keeping close guarded. But I would say, as what we disclosed before was that the lighter market in the U.S. and Canada is about $500 million, with CLIPPER having about 3% share of that market. So we're around that level and building up is how we think about it.
Michael Legg
Okay. Can you give us a little more detail on the promotional activities with
Louie Reformina
I'm sorry, can you repeat that?
Michael Legg
The promotional activity that you referred to last year that you compared
Louie Reformina
Yes. So what we had said was last year in light of the inflationary environment, we tested some promotions to gauge kind of customer's activity, it ended up being stronger than we thought, which led to that $5 million impact. So that was a combination of both the impact of those promotional activities as well as some timing of deliveries with one of our Canadian distributors last year. So those are headwinds that we faced. And we also mentioned this year, we discontinued a Canadian product line that was basically a low-margin loss leader for our operations out there. That was $1.8 million of impact. We'll have another $1.4 million of that next quarter as you think about the model and then another $1 million in Q1 of next year before we anniversary that comp. This year, we didn't mention it in our earlier commentary, but we also saw some destocking in Canada, which we think impacted sales by another $1.5 million during the quarter.
Michael Legg
Okay. Great. And then just on the alternative, can you talk about how the penetration is occurring? Is it -- are they calling you? Are you calling them? Are you displacing them or is it just low growth?
Summer Frein
Yes, I'm happy to take that question. This is Summer. We continue to see exciting growth in the alt channel. And I think to your question, it certainly goes both ways, us calling them, them calling us. But I think even coming out of last night's exciting win in Ohio, if you think about that overall business opportunity, when coupled with DC, it means that nearly half of the United States has access to a legal rec market. So we continue to focus on getting more product into those customers. We saw great progress with our core paper line in the quarter. So not just growth based on innovative products, and we continue to work on being more of a solutions provider for all of those customers.
Michael Legg
Congrats on the quarter.
Operator
Your next question comes from the line of Eric Des Lauriers.
Eric Des Lauriers
First one from CLIPPER on me to understand -- you kind of want to be a bit more tight lift about exact distribution or whatnot. I was wondering if you could maybe just help us understand what you're seeing with current inventory trade dynamics, when do you expect sort of that headwind to perhaps turn into a tailwind? And when you're kind of expecting CLIPPER sales to, I guess, resume some growth here?
Louie Reformina
Yes. So we've kind of said about CLIPPER, initially or any new products, when you see got this lull period where we have strong sales and then you go through this period of, what I would call, kind of a lull and the trade absorbs that inventory, we are in that lull period today, and we expect sales kind of bounce back kind of as we enter 2024 and go through the year.
Eric Des Lauriers
Okay. And then on FRE, I'm wondering if you can just comment a bit more on the competitive positioning that you're expecting to kind of roll out with that product? You mentioned that the sort of playbook is going to kind of follow Stoker's from a distribution standpoint going after stores with higher volume. Can you kind of comment on the competitive positioning that you're planning on having with FRE as it relates to price points? Is this another kind of value product similar to Stoker's?
Summer Frein
So while the strategy is similar to Stoker's in terms of our approach and our growth expectations, we certainly are thinking about FRE as more of a premium offering. We have strong belief in our point of difference, our USP, which is higher nicotine strengths options available for our consumers, which we continue to see resonate both in-store and strong response online and plan to profitably compete in the segment against those big brands.
Eric Des Lauriers
All right. That's helpful. Next question just on loose leaf. I understood it's a smaller segment within Stoker's. I think this was the first sort of return to year-over-year growth that we saw in a while. Is this something that we should kind of expect going forward? Do you feel that you're at sort of sustainable path forward? I understand it's a declining category. Are you seeing anything to suggest that this year-over-year growth isn't just a kind of one-off this quarter or no real change to the overall kind of competitive dynamics within that?
Louie Reformina
I would say, we've seen some accelerated share gains in our loose leaf product, especially with our discount loose leaf offering out there that's seeing growth. I wouldn't underwrite growth in this market going forward. I would say, we're still expecting kind of a -- from a sales perspective, flattish to down. The good news with loose leaf over time is it has shrunk as a percentage of the overall Stoker's business. So it was 2/3 of our segment when it will be IPO, now it's less than 1/3. So it's having less an impact of sales with MST being the bigger driver going forward. So obviously, we're happy with the growth that we saw in the quarter, but that is not our expectation for loose leaf going forward.
Eric Des Lauriers
That makes sense. And then just last one from me. Could you perhaps expand a bit on the margin impact of the discontinued product line in Canada? I guess, obviously, there was some promotional activity over the past year or so. We're now back up to that sort of 57% plus gross margin for
Louie Reformina
Yes. I mean, from here, I would say that -- the $1.8 million came with single-digit gross margin. So that has a decent impact to our gross margins from a year-over-year perspective. The other thing is that, as we mentioned, CLIPPER is in a lull period now, and you mentioned those carry lower gross margin. So CLIPPER was down from year-over-year perspective as you were comping against a period where we had that load last year. So our expectation is actually, with some of the newer products that we have and if CLIPPER takes off that, that should -- that may reduce our gross margins over time. But again, our focus within the
Operator
There are no further questions at this time. Graham Purdy, I will turn the call back over to you.
Graham Purdy
Thanks, operator. I appreciate everybody joining us for the call today, and we look forward to talking to you about another quarter from now. Thank you so much.
Transcript from November 8, 2023
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