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VG

VECTOR GROUP LTD (VGR)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 was resilient operationally despite top-line pressure: revenue was $324.6M (-2.9% y/y), GAAP EPS $0.22, adjusted EPS $0.24, and adjusted EBITDA $82.8M, reflecting disciplined pricing and cost control .
  • Wall Street consensus from S&P Global was unavailable for VGR in our system; third-party snapshots indicated a modest miss on EPS and revenue versus consensus, but we cannot validate this against S&P Global at this time .
  • Montego’s retail market share grew to 4.0% with distribution expanding to ~97,500 stores, underpinning mix/pricing strength in discount cigarettes and supporting margin/EBITDA stability .
  • Management emphasized strong liquidity ($333M cash and equivalents) and reiterated confidence in dividend continuity, framing stable cash generation and optionality around upcoming debt maturities as key supports for the equity story .

What Went Well and What Went Wrong

What Went Well

  • Discount strategy execution: tobacco adjusted EBITDA rose to $84.4M (+5.5% y/y) and tobacco operating income to $83.0M (+5.6% y/y), showing pricing/mix benefits despite volume headwinds .
  • Montego momentum: national retail share reached 4.0% and distribution expanded to ~97,500 stores, reinforcing brand reach and value proposition in deep discount .
  • Liquidity and balance sheet: cash and cash equivalents of ~$333M (including $84M at Liggett) plus ~$179M of investment securities support flexibility; management reaffirmed dividend confidence (“we expect that this dividend policy will continue”) .

What Went Wrong

  • Top-line decline: consolidated revenue fell 2.9% y/y to $324.6M; industry volume pressure and competitive dynamics weighed on shipments .
  • Shipment contraction: wholesale shipments down 10.8% and retail shipments down 8.7% y/y in tobacco, exceeding industry declines in some measures; management cited competitive discounting and macro factors .
  • Consensus miss indications (non-SPGI): external snapshot showed EPS of $0.24 missing by ~$0.01 and revenue missing by ~$8.7M versus consensus, though S&P Global data was unavailable in our system for confirmation .

Financial Results

MetricQ3 2023Q4 2023Q1 2024
Revenue ($USD Millions)$364.1 $360.4 $324.6
GAAP Diluted EPS ($)$0.33 $0.37 $0.22
Adjusted EPS ($)N/A$0.36 $0.24
Adjusted EBITDA ($USD Millions)$94.9 (approx per release tables) $96.0 $82.8
Gross Margin (%)N/AN/A32.9%
Versus EstimatesN/AN/AEPS $0.24 miss ~$0.01; revenue miss ~$$8.73M (non-SPGI)

Segment breakdown (operating metrics):

Segment KPIQ3 2023Q4 2023Q1 2024
Tobacco Operating Income ($USD Millions)N/A$98.1 $83.0
Tobacco Adjusted EBITDA ($USD Millions)N/A$99.6 $84.4
Liggett Retail Market Share (%)5.9 5.8 5.8
Montego Retail Market Share (%)3.8 3.8 4.0
Montego Distribution (Stores)N/A~95,000 ~97,500

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue/EPS GuidanceFY 2024None providedNone providedMaintained (no formal guidance)
Dividend (Common)Q2 declaration (post-Q1)$0.20/share$0.20/share, payable Jun 14, 2024; record Jun 5, 2024Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2023)Previous Mentions (Q4 2023)Current Period (Q1 2024)Trend
Discount strategy and Montego growthMontego became largest U.S. discount brand; retail share 3.8% Retail share 3.8%; distribution ~95k stores Retail share 4.0%; distribution ~97.5k; mission to deliver best value reiterated Improving share and footprint
Regulatory: menthol banDiscussed potential regulatory actions; industry challenge Continued vigilance; expectation of legal challenges if a federal ban is finalized Pleased by federal delay; expect increased state-level activity; will manage state-by-state Ongoing uncertainty; near-term relief
Competitive pricingCompetitive discounting by premium brands noted; limited impact on deep discount Industry decline persisted; Vector outperforming peers Premium brands discounting 10–15% not materially affecting deep discount; Vector maintaining 45–50% discount to premium Competitive but manageable
Liquidity and capital allocationStrong cash; continued dividend Cash $269M; investment securities $158M; dividend continuity Cash $333M; $428M at holdco + $90M revolver capacity discussed; dividend policy expected to continue Strengthened liquidity position

Management Commentary

  • “As of March 31, 2024, we maintained significant liquidity with cash and cash equivalents of approximately $333 million… We also held investment securities in long-term investments with a fair value of approximately $179 million.” — Howard Lorber
  • “Our mission statement to provide the best value propositions in the U.S. market has never been more relevant.” — Nicholas Anson
  • “We expect that this dividend policy will continue.” — Howard Lorber
  • “We really are in a position… We have $428 million of cash at the holding company… and there’s $90 million of capacity under Liggett’s revolver.” — J. Bryant Kirkland III on 10.5% notes due 2026 and capital options

Q&A Highlights

  • Regulatory outlook: Management welcomed the federal menthol rule delay and anticipates increased state-level actions; will respond state-by-state, implying reduced near-term regulatory pressure but sustained monitoring .
  • Montego pricing and competitive dynamics: Premium brand discounting (10–15%) noted but not materially impacting deep discount; Vector continues to target a 45–50% relative discount, preserving segment leadership .
  • Balance sheet and maturities: CFO highlighted holdco cash of $428M and $90M revolver capacity, evaluating options for 2026 10.5% notes with investment bankers, indicating multiple levers for refinancing or repayment .
  • Volume trends: Elevated industry decline rates and competitive discounting acknowledged; Vector leverages distribution expansion and brand value to offset shipment pressure and sustain profitability .

Estimates Context

  • S&P Global Wall Street consensus was unavailable in our system for VGR; as a result, direct SPGI estimates comparison cannot be provided.
  • External snapshot indicated EPS of ~$0.24 missed by ~$0.01 and revenue of ~$$324.57M missed by ~$8.73M versus consensus, suggesting modest downside vs Street in Q1; note this is based on third-party reporting, not S&P Global .

Key Takeaways for Investors

  • Pricing/mix resilience in discount cigarettes continues to drive profitability even as volumes decline; Montego’s expanding footprint (now ~97.5k stores, 4.0% retail share) remains the core growth lever .
  • Strong liquidity ($333M cash; substantial holdco cash and revolver capacity) creates flexibility for dividend continuity and addressing 2026 maturities without dilutive measures, supporting equity defensiveness .
  • Near-term stock drivers: narrative around menthol regulation (federal delay vs potential state actions) and discount segment competitive dynamics; watch for continued share gains and pricing discipline to offset shipment declines .
  • Tactical setup: any consensus miss overhang appears modest; focus should be on margin durability and Montego execution while monitoring industry declines and competitor discounting .
  • Medium-term thesis: leadership in deep discount with national brand scale, stable dividend, and balance sheet optionality provide a defensive yield-plus-return profile despite secular cigarette volume headwinds .
  • Watchlist metrics: retail/wholesale share progression, store count expansion, adjusted EBITDA trajectory, and any updates on debt strategy ahead of 2026 maturities .
  • Dividend continuity reaffirmed post-Q1; income investors should track payout sustainability relative to earnings and cash generation .