Executive Summary

Q2 2024 was cleanly ahead of expectations: EPS $0.34 and revenue $371.9M, with operating income up 36.5% YoY on net pricing, lower litigation expense and resilient deep-discount demand; EPS and revenue beat third‑party published consensus by ~$0.04 and ~$9M, respectively (S&P Global consensus unavailable) .
Mix and pricing drove margin expansion despite a 5.1% decline in wholesaler shipments; tobacco gross profit rose to $127.3M and gross margin (as reported) to ~34.2% (50.6% ex-FET), while tobacco operating income rose 37% YoY .
Montego remained the key growth engine: ~72% of unit mix in Q2; retail share reached ~4.1% with distribution >103k stores per call commentary, underpinning Vector’s share gains in deep discount .
Potential stock catalysts: continued pricing-led earnings resilience and, subsequently (post-quarter), announced agreement to be acquired by Japan Tobacco at $15.00/share in cash (pending customary approvals) .

What Went Well and What Went Wrong

What Went Well

Pricing/mix drove margin expansion despite volume declines: tobacco gross profit +9.1% YoY; ex-FET tobacco gross margin expanded to 50.6% from 48.8% .
Litigation expense normalization: absence of the prior-year Mississippi settlement ($18M) aided YoY operating income, with total operating expenses down 34% YoY in Q2 .
Montego momentum and deep discount leadership: Montego ~72% of units; management highlighted a compelling 45–50% price discount vs Marlboro supporting trade-down and retention in value segments (“the price gap remains stable… between a 45% to 50% discount to Marlborough”) .

What Went Wrong

Volumes declined: wholesaler shipments down 5.1% in Q2, reflecting industry declines and mix shifts, partially offset by pricing (+7.1% per call) .
MSA cost inflation: per-pack MSA increased to ~$0.59 (Q2) on higher CPI adjustment and lower U.S. industry volumes; management estimates ~$1.7M P&L sensitivity per 1% change in U.S. shipments .
Real estate equity losses persisted: equity losses from real estate ventures of $1.2M in Q2 and $11.9M YTD, reflecting softness and impairments in certain ventures .

Financial Results

Headline P&L vs prior periods and estimates

Metric	Q4 2023 (oldest)	Q1 2024	Q2 2024 (newest)
Revenue ($M)	$360.4	$324.6	$371.9
Operating Income ($M)	$91.6	$77.8	$97.8
Net Income ($M)	$58.0	$34.8	$54.2
Diluted EPS ($)	$0.37	$0.24	$0.34
EBITDA/Adj. EBITDA ($M)	Adj. EBITDA $96.0	Adj. EBITDA $82.8	Adj. EBITDA $103.3

Notes: Operating margin and EBITDA margin are computed from the cited numerator/denominator.

Margins	Q4 2023	Q1 2024	Q2 2024
Gross Profit ($M)	n/a	n/a	Tobacco gross profit $127.3
Gross Margin (% of revenue)	n/a	n/a	~34.2% (127.3/371.9)
Tobacco Gross Margin ex-FET	n/a	n/a	50.6% vs 48.8% LY
Operating Margin (%)	25.4% (91.6/360.4)	24.0% (77.8/324.6)	26.3% (97.8/371.9)

Actual vs Estimates (Q2 2024)	Consensus	Actual	Surprise
EPS ($)	$0.30 (Zacks)	$0.34	+$0.04
Revenue ($M)	$362.9 (MarketBeat/Zacks)	$371.9	+$9.0

S&P Global consensus was unavailable via our data connector for this ticker at the time of analysis; third‑party published estimates are provided for context .

Segment breakdown (Q2 2024 and YoY)

Segment	Q2 2023 Revenue ($M)	Q2 2024 Revenue ($M)	Q2 2023 Op Inc ($M)	Q2 2024 Op Inc ($M)
Tobacco	$365.7	$371.9	$75.1	$102.9
Real Estate	$0.0	$0.0	$0.1	$(0.1)
Corporate & Other	n/a	n/a	$(3.6)	$(5.1)
Total	$365.7	$371.9	$71.6	$97.8

KPIs

KPI	Q2 2023	Q1 2024	Q2 2024
Wholesale market share	5.4%	5.5% (6M basis)	5.7%
Montego share of unit mix	~64% of units	~71% (6M)	~72% of units
Montego retail share	3.5%	4.0%	4.1%
Wholesale shipments YoY	n/a	(7.8%) (6M)	(5.1%)
MSA cost per pack	~$0.55	~$0.60 (6M)	~$0.59
Cash & Equivalents ($M)	n/a	$333 (as of 3/31)	$390.8
Total Debt ($M)	n/a	n/a	$1,374.3

Guidance Changes

Vector did not provide formal quantitative revenue/EPS guidance. The company maintained its dividend policy and declared a $0.20/share quarterly cash dividend on July 31, 2024 . Management reiterated confidence in liquidity and continued positive cash flow; no changes to tax rate/OpEx guidance were issued in Q2 materials .

Metric	Period	Previous Guidance	Current Guidance	Change
Dividend per share	Quarterly	$0.20/share	$0.20/share declared 7/31/24	Maintained
Financial outlook (revenue/EPS/margins)	FY	None given	None given	n/a

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4’23, Q1’24)	Current Period (Q2’24)	Trend
Pricing & mix	Maintained discipline; Montego largest discount brand; margin execution in Q4’23	7.1% pricing increase; operating margin expansion; ex-FET gross margin +180 bps YoY	Positive
Deep discount trade‑down	Q1’24: margin up ~240 bps; Montego retail share ~4.0%	Montego retail share ~4.1%; category volumes +5.4% vs industry ~‑10% (call)	Positive
Raw‑material cost inflation	Q4’23: manageable; cost controls	Leaf/raw materials +4–5% YoY per unit; cost pressures stabilizing vs 2023	Stabilizing
Regulatory (menthol/labels)	Monitoring menthol; cautious outlook	Menthol rule publication delayed; ~22% of unit sales menthol; graphic labels litigation ongoing	Neutral
Reduced-risk products (pouches)	Limited exposure	Pouch growth not materially impacting combustibles discount segment per Q&A	Neutral
Real estate ventures	Modest contribution historically	Equity losses in Q2 and 1H; impairments earlier in year	Negative

Management Commentary

“From a pricing perspective, the price gap remains stable. With respect to Montego, you’re looking at between a 45% to 50% discount to Marlborough…compelling value proposition for those smokers looking for value” – Nick Anson, COO, Liggett Vector Brands .
“Liggett delivered strong results in the second quarter… benefits of our strategic investment in Montego, while also delivering substantial income from our other core brands” – management remarks (call summary) .
“We’ll see if we can do something with the cash that makes sense” – CEO closing comment on capital deployment optionality .

Q&A Highlights

Pricing durability/trade‑down: Management emphasized stable price gaps and a durable value proposition for Montego supporting continued trade‑down capture in a weaker macro backdrop .
Category dynamics: Deep discount volumes outperform industry declines; management sees execution and positioning as key drivers of share stability .
Pouch/RRP encroachment: Growth in nicotine pouches (e.g., ZYN) not yet materially impacting combustibles/discount segment performance, per management .
Regulation: Menthol rule timing slipped; management prepared for multiple outcomes and highlighted relatively lower menthol exposure (~22% of unit sales) .
Capital allocation: With ~$391M cash and liquidity, management remains open to uses of cash while maintaining dividend policy .

Estimates Context

S&P Global consensus estimates were unavailable via our connector for VGR at the time of analysis. For context, third‑party published consensus showed Q2 EPS $0.30 and revenue $362.9M; VGR delivered $0.34 and $371.9M, i.e., a beat on both lines. We expect upward revisions to full‑year profitability given pricing/mix resilience (anchor for trading) .

Key Takeaways for Investors

Price-led earnings resilience: Q2 demonstrated pricing/mix can more than offset industry volume declines; watch for continued ex‑FET margin expansion as cost pressures stabilize .
Montego is the driver: With ~72% of units and expanding retail share/distribution, Montego underpins stable wholesale share at 5.7% and supports EPS sustainability in a down category .
Cost sensitivities matter: MSA per-pack inflation and industry volume declines drive expense; management’s ~$1.7M per 1% U.S. volume sensitivity is a key model input .
Litigation normalized: Lapping prior Mississippi accrual aided YoY comps; base legal spend remains but no unusual items in Q2—reduces earnings volatility risk .
Liquidity and dividend underpin return profile: ~$391M cash and continued $0.20/share dividend provide downside support; capital allocation optionality remains .
Trading setup: Near‑term, estimate momentum should skew positive given the beat and pricing commentary; subsequent announced JT $15.00/share cash deal (post‑quarter) frames upside/downside for arbitrage and regulatory timing risk .

Additional source documents read

Q2 2024 Form 10‑Q (filed Aug 2, 2024): comprehensive financials, segment details, MD&A, litigation and MSA disclosures .
Q2 2024 earnings press release (Business Wire, Jul 31, 2024) .
Q2 2024 earnings call transcript (Seeking Alpha/MarketScreener/MarketBeat) .
Prior quarters for trend: Q1 2024 press release (Business Wire, May 1, 2024) ; Q4/FY 2023 press release (Business Wire, Feb 13, 2024) .

Bolded surprises/beats have been highlighted in the tables above; all figures and statements are cited to company filings, press releases, or transcript sources.

VECTOR GROUP LTD (VGR)·Q2 2024 Earnings Summary