Category: Financial

  • Smoker Friendly Recapitalizes

    Smoker Friendly Recapitalizes

    Photo: Myriams-Fotos from Pixabay

    Smoker Friendly (SF) has completed a minority recapitalization and debt restructure with Main Street Capital Corp. Based in the United States, Smoker Friendly continues to be owned and operated by the Gallagher Family and led by the current management team.

    Smoker Friendly acquired 33 Smokers’ Outlet (SO) stores in Missouri, 22 Tobacco Road Outlet locations in North Carolina and three Smoker Friendly dealer stores in North Carolina in the last 14 months.

    “Having experienced previous acquisitions, the process Smoker Friendly utilized when purchasing SO was by far the best,” said Perry Cheatham, former president, Smokers’ Outlet. “My team was welcomed into the SF family and from day one felt like valued members of the team.”

    Smoker Friendly was founded in 1989 by the Gallagher family, who owned Gasamat, and a group of family owned candy and tobacco wholesale distributors in the Rocky Mountain region and Midwest. The Gallagher Family has wholly owned it since 2005.

    “This new partnership will allow us to bolt on more businesses to our platform and continue to execute our acquisition strategy,” said Dan Gallagher, COO, Smoker Friendly. “The acquisitions this past year have been seamlessly integrated into the operation and we’ve added many terrific people to our team.”

    “Smoker Friendly ensured a smooth transition with their team of specialists during the acquisition,” said Rex Whitaker, former pPresident, Tobacco Road Outlets. “One of my primary concerns was our employees and they offered positions to all who chose to remain, and it was a very smooth transition.”

    Smoker Friendly has more than 160 retail stores across seven states that operate as tobacco stores, cigar lounges, liquor stores and fuel outlets. The company also owns a full line private-label tobacco brand that has an additional 700 stores that sell its branded product.

    “I look forward to our partnership with Main Street Capital and believe it will be very beneficial to our company and strengthen Smoker Friendly, allowing the company to accelerate and execute acquisitions across the country,” said Smoker Friendly CEO, Terry Gallagher. “The strategic investment by Main Street will continue to fuel our growth and allow us to expand into new markets and grow in existing [ones].”

  • Olczak: Investors Underestimating PMI

    Olczak: Investors Underestimating PMI

    Jacek Olczak
    (Photo: PMI)

    Investors are underestimating Philip Morris International’s (PMI) smoke-free future, according to Jacek Olczak, the company’s chief operating officer and CEO in waiting.

    Philip Morris stock has risen just under 1 percent year to date, lagging far behind the S&P 500, a measure of the broader market.

    In an interview with Barron’s, Olczak said that IQOS is the most advanced reduced-risk product on the market, with the most rigorous science behind it. He highlighted the company’s valuable first-mover advantage in many markets, which should also help it rebuff competition from smaller rivals.

    PMI hopes to sell between 90 billion and 100 billion heated-tobacco units in 2021, a 20 percent to 30 percent increase from this year and a target that the company is closing in on.

    Olczak also has high hopes for Veev, a vaping product that has already rolled out in New Zealand. To prevent underage use, the Veev device can be activated only by users who can verify their age. According to Olczak, this extra, built-in layer of protection should give “a level of confidence to regulators in various geographies, that they can offer a solution to adults while [excluding] audiences that shouldn’t have access.”

    Olczak said PMI has successfully overcome many of the challenges presented by Covid-19, including supply chain shutdowns. Increased focus on digital sales of IQOS has helped the company build valuable relationships directly with consumers. The resulting shift from a business-to-business to a business-to-consumer model is differentiating PMI from the competition.

    As part of a long-planned leadership transition, Olczak will take over for Andre Calantzopoulos in May 2021.

  • Scandinavian Tobacco Raises 2020 Guidance

    Scandinavian Tobacco Raises 2020 Guidance

    Photo: STG

    Scandinavian Tobacco Group has raised its full-year guidance for 2020.

    According to the company, Covid-19-induced changes in consumer behavior led to higher-than-anticipated consumption of handmade cigars in the U.S. throughout 2020. U.S. demand increased further in the latter part of the year, both online and in stores.

    Between January and November 2020, STG’s net sales were 7 percent higher than previously expected.

    The higher U.S. volumes have positively impacted operational leverage and resulted in stronger profit margins and an increased organic growth in EBITDA.

    STG’s other business categories perform as expected.

    Overall, the fourth quarter results continue to be negatively impacted by the loading in previous quarters and very strong comparison numbers partly driven by a change in sales taxes in France in the fourth quarter of 2019.

    Meanwhile, an anticipated negative timing impact of payables in the fourth quarter did not materialize.

    For the full year 2020, STG anticipates a positive impact on the free cash flow before acquisitions of more than DKK200 million ($32.87 million). The company expects the increased demand for handmade cigars to continue into next year.

  • BAT Performing Despite Uncertain Environment

    BAT Performing Despite Uncertain Environment

    Photo: Gabriel Stabinger | BAT

    Maintaining its 2020 guidance, British American Tobacco said it expects constant currency adjusted revenue growth to be at the high end of the 1-3 percent range this year.

    Jack Bowles

    “We are growing our ‘new category’ business as fast as possible and we are proud to now have around 13 million non-combustible product consumers,” said BAT CEO Jack Bowles in a trading update. “We are continuing to increase investment in our three new categories of potentially reduced risk cigarette alternatives, capitalizing on our momentum, while continuing to deliver on our financial commitments.”

    Bowles said BAT remains committed to it 2025 new category revenue ambition of £5 billion ($6.73 billion). “While the environment remains uncertain, due to the continuing challenges of Covid-19, the business is performing strongly,” he said.

    According to BAT, Vuse is now the fastest growing international vapor brand, growing at 7 percentage points versus fiscal year 2019 to a 26 percent value share in the year to September in the world’s top-5 vapor markets.

    BAT’s Glo tobacco heating device has reached a 5.9 percent volume share of total nicotine in Japan.

    Meanwhile, the Velo and Lyft modern oral brands have consolidated their leadership in many international markets. In the U.S., BAT boosted its modern oral portfolio with the acquisition of Dryft, expanding the product range from four stock-keeping units to 28, with representation in the above 6mg segment and additional flavors.

    “Reducing the health impact of our business through providing a range of enjoyable and less risky products is the greatest contribution we can make to society,” said Bowles. “We continue to be clear that combustible cigarettes pose serious health risks, and the only way to avoid these risks is not to start or to quit. BAT encourages those who would otherwise continue to smoke to switch completely to scientifically substantiated reduced risk alternatives.”

  • Resilience in Adversity

    Resilience in Adversity

    Photo: PMI

    The Altria Group continues to deliver a strong 2020 performance despite a challenging economy.

    By Timothy S. Donahue

    Despite a challenging economic environment, Altria Group’s net revenues rose by 3.9 percent to $7.12 billion in the third quarter of 2020. Through the first nine months of the year, the tobacco giant’s net revenues grew by 3.9 percent to $19.85 billion. During its third-quarter conference call with investors, Altria CEO Billy Gifford said that the company demonstrated its resilience during the third quarter while continuing to navigate the adversity produced by the Covid-19 pandemic.

    Altria’s third-quarter adjusted diluted earnings per share (EPS) was unchanged at $1.19. Gifford explained that for the first nine months of the year, adjusted EPS grew 5.6 percent to $3.37, driven by the strong financial performance of Altria’s tobacco businesses. The smokable products segment delivered third-quarter adjusted other comprehensive income (OCI) of $2.8 billion, up nearly 10 percent from the same period last year. And for the first nine months, the smokable segment adjusted OCI increased 10.5 percent to $7.7 billion, according to Altria’s third-quarter report.

    “In the third quarter, our tobacco businesses delivered strong financial performance once again, and we made steady progress against our 10-year vision,” said Gifford. “At the same time, we’re pursuing our vision to responsibly lead the transition of smokers to a noncombustible future.”

    Smokeless and next-generation tobacco products continue grow in Altria’s portfolio. The company has made steady progress with expansion plans for its On! and IQOS brands. These products, alongside Altria’s moist smokeless business and its investment in Juul Labs, present significant opportunities for smoker conversion to noncombustible alternatives, according to Gifford. Altria subsidiary Helix Innovations is responsible for marketing, manufacturing and distribution of On! nicotine pouches globally.

    “We believe On! is a strong proposition and has been successful with both smokers and dippers. On! was sold in 56,000 stores at the end of the third quarter, up 40 percent from the second quarter and more than tripled the store count from the end of last year,” said Gifford. “In stores with distribution, On! achieved a retail share of 2.1 percentage points of the oral tobacco category in the first nine months of 2020. Helix continues to test different trial-generating promotions and has benefited from strong trade partnerships.”

    In the vapor category, Altria submitted its premarket tobacco product application (PMTA) to the U.S. Food and Drug Administration (FDA) for its Juul product and four flavors of pods. That application is currently under scientific review. Gifford believes that a sustainable vapor category is one that exists with solely FDA-authorized products.

    “We encouraged FDA enforcement against noncompliant manufacturers, including those who continue to sell e-vapor products without a PMTA submission,” he said. “We estimate the total e-vapor volumes decreased by 13 percent for both the third quarter and the first nine months of 2020. We believe the e-vapor category will continue to undergo a transition period over the next few years as [the] FDA makes market determinations on the thousands of PMTAs before the September [2021] deadline.”

    Altria’s valuation of Juul Labs dropped to less than $5 billion, down from $38 billion two years ago. In September, Juul Labs announced a strategic update, which included its plans for a significant global workforce reduction, evaluation of resource allocation and the possibility of exiting various international markets.

    “I think while we’re disappointed in the investment, we do believe that e-vapor will play an important role as we progress harm reduction, especially in the U.S. but even worldwide,” Gifford told investors. “In preparing our third-quarter financial statements, we performed a valuation analysis of our investment in Juul, which considered both its international prospects and current U.S. e-vapor category dynamics. As a result of this analysis, we’ve recorded a $2.6 billion impairment to our Juul investment, bringing its carrying value to $1.6 billion as of Sept. 30.”

    Pamela Kaufman, an analyst with Morgan Stanley, asked Gifford to explain the rationale behind the magnitude of the Juul Labs write-down, which implies a total value for the company of about $4.5 billion—well below Juul’s reported internal valuation of about $10 billion.

    “When we put together a valuation for the company, we do our best to make the best assumptions we can based on the future cash flows, how large we would expect [the industry] to become both on the domestic side and the international side,” said Gifford. “We highlighted for you that we believe the category is going to go through a two-[year] to three-year transition as all manufacturers in the e-vapor category navigate this FDA regulatory process. Certainly, we’ve seen a number of manufacturers get fairly competitive and step up their competitive activities in the marketplace. And we believe as the FDA makes decisions and products can remain and some products leave the category that there will be consumers at play. And so, all of those factors went into the valuation that we have, and we came forward with our best estimate.”

    Meanwhile, Altria subsidiary Philip Morris USA (PM USA) continues to expand the footprint of the IQOS heated-tobacco brand in the United States under an agreement with Philip Morris International. Gifford said that the FDA’s recent authorization of a reduced exposure claim for IQOS has allowed the tobacco company to use its “robust digital assets and tobacco consumer database” to communicate with smokers, including through websites, email and direct mail.

    “We believe that the combination of these modified-risk communications and PM USA’s more disruptive retail fixture will significantly enhance the quality of IQOS awareness among smokers. As smokers move along the journey to engagement and trial, PM USA is providing flexible options to learn about IQOS and purchase devices,” explained Gifford. “PM USA now offers a video chat option for age-verified smokers to use their mobile phones and connect directly with IQOS experts for product education and support.”

    PM USA is also expanding the availability of IQOS devices into the convenience store channel. Beginning next month, PM USA expects IQOS devices to be available in select convenience stores in Charlotte, North Carolina. Gifford said the company estimates the number of tobacco consumer trips to the store rebounded in the third quarter and that tobacco expenditures per trip remained elevated versus a year ago.

    “The IQOS team is looking at how we meet the consumer where they’re at and putting it in select convenience stores; it really is meeting the consumer where they make their point of purchase,” said Gifford. “It’s really an education process. But our IQOS team has done some excellent work. We’re also testing at-home delivery; once the consumer has gone through the tutorial and has been age verified, we could actually have at-home delivery of devices.”

    Altria’s fourth quarter is expected to follow the third-quarter’s and first nine month’s trends. Gifford says that Altria’s tobacco businesses have a track record of delivering strong and consistent financial performance in challenging environments. He said the company will continue to reward its shareholders by returning a significant amount of cash in the form of dividends. “We believe our tobacco business platform has the winning brands and is unmatched,” he said. “We’re excited to make further progress in achieving our vision of responsibly transitioning smokers to a noncombustible future.”

    Timothy Donahue is the assistant editor of Tobacco Reporter. Since joining our team in January 2013, he has become not only an expert on the traditional tobacco business but also a well-respected voice in the rapidly developing vapor industry. Tim spends much of his time on the road, attending conferences and interviewing industry representatives. His networking skills, work ethic and quick mind are valuable assets to our diverse audience.
  • Charlie’s Holdings Reports Results

    Charlie’s Holdings Reports Results

    Photo: Timothy Donahue

    Charlie’s Holdings, a supplier of nicotine vapor and CBD products, reported revenues of $3.89 million for the three months ended Sept. 30, 2020, down 30 percent from those in the comparable 2019 quarter. The decline was due to a $1.18 million decrease in its nicotine-based product sales and a $515,000 decrease in sales of its CBD wellness products.

    Gross profit for the three months was $2.23 million compared to $3.07 million for last year’s quarter. The resulting gross margin was 57 percent for the 2020 quarter compared to 55 percent for the 2019 quarter.

    Cost of goods sold, as a percent of revenue, decreased 200 basis points due to a favorable mix of higher margin sales but was slightly offset by the effects of distributors and retailers participating in volume incentive rebate programs as well as lower fixed cost absorption.

    “While we have experienced adversity, with the vapor industry having its share of ups and downs during the past few years, from unfavorable news in late 2019 and the ensuing regulatory uncertainty, to the advent of a global pandemic during 2020, we as an industry have collectively overcome many challenges,” said Brandon Stump, CEO of Charlie’s in a statement.

    Stump noted that the U.S. Food and Drug Administration had recently accepted Charlie’s Holdings’ premarket tobacco product application, which would now enter the substantive review phase of the process. “This news is worthy of celebration as it highlights our progress towards achieving full regulatory compliance and providing our customers with a trusted product portfolio,” he said.

  • Imperial Reflects on ‘Difficult’ Year

    Imperial Reflects on ‘Difficult’ Year

    Photo: William Iven from Pixabay

    Imperial Brands reported revenue of £35.56 billion ($47.16 billion) in its fiscal year 2020, up from £31.59 billion in 2019. Its operating profit was £2.73 billion, compared with £2.2 billion the previous year. On an adjusted basis, the company’s revenue was £7.99 billion in 2020, down 0.1 percent from 2019. Adjusted operating profit was £3.53 billion, against £3.74 billion the previous year.

    While benefiting from strong tobacco volumes, Imperial Brands said it suffered from a sub-optimal product and market mix in 2020. However, a more disciplined approach in next-generation products reduced second-half losses after a disappointing first six months, the company added.

    “Although this has been a difficult year, the resilience of our tobacco business and the measures we have taken to improve our NGP [next-generation product] operations reinforce my confidence in the future potential of the business,” said Imperial Brands CEO Stefan Bomhard in a statement. “With a more disciplined focus and better execution we can realize significant value for our stakeholders over time.

    “My first months have been focused on engaging with employees, consumers and customers and leading the strategic review of the business,” added Bomhard, who joined the company earlier this year. What I have seen to date confirms my view of the group’s solid foundations. I believe there is scope to enhance returns from our tobacco business and opportunities to strengthen our NGP delivery over time. I firmly believe we can make a meaningful contribution to harm reduction within a more disciplined, returns focused framework and we have already taken steps to stem the NGP losses.”

    Imperial Brands completed the sale of its premium cigars business on Oct. 29. It will use the proceeds to reduce debt. In recent months, the company has strengthened its executive team with external leadership appointments providing fresh skills and perspectives. A comprehensive strategic review is underway with a capital markets update scheduled for Jan. 27, 2021.

  • Strong Quarter Paves Way for KT&G Ambitions

    Strong Quarter Paves Way for KT&G Ambitions

    Photo: KT&G

    KT&G posted KRW1.46 trillion ($1.31 billion) in consolidated sales for the third quarter of this year, up 10.7 percent from last year, reports The Korea Times. During the same period, operating profit grew 13.6 percent to KRW434.6 billion.

    The South Korean cigarette manufacturer’s performance was boosted by overseas sales, which grew 28.2 percent year-on-year to KRW262.9 billion. KT&G said it sold 12.7 billion cigarettes abroad from July to September, up 30.9 percent from a year earlier. The increase was largely due to growth in the Middle East and the expansion of the sales networks of its U.S. and Russian subsidiaries.

    Baek Bok-in

    Following the latest results, KT&G appears to be well on its way of realizing CEO Baek Bok-in’s goal of becoming the No. 4 player in the global cigarette market by 2025. In 2018, KT&G was No. 5 in terms of sales volume, according Euromonitor International.

    The company exported products to approximately 50 countries in the third quarter of 2017, but this grew to 90 in the third quarter of this year. Revenue from exports grew by KRW28.2 billion, outpacing the KRW22.2 billion growth in domestic sales during the same period.

    The company said it will increase the number of export markets to 100 by the end of this year and double the number by 2025.

    KT&G attributes its success to increased investments for product improvements.

    Tobacco heating products, too, have contributed to the company’s performance. Earlier this year, KT&G signed an agreement with Philip Morris International so that the latter would distribute KT&G’s tobacco heating products in overseas markets. Following the agreement, KT&G’s Lil tobacco heating devices and their exclusive cigarette products began exports to Russia in August, Ukraine in September and Japan in October.

    In October, Morgan Stanley Capital International assigned KT&G a top grade in an environment, social and governance evaluation. KT&G ranked first among 11 tobacco companies for product safety and quality due to its responsible marketing and outstanding quality management. It also earned a high score for supply chain labor standards.

    Tobacco Reporter featured KT&G’s global ambitions in its July 2020 print edition.

  • Turning Point Declares Stock Dividend

    Turning Point Declares Stock Dividend

    Photo: Alexsander-777 from Pixabay

    Turning Point Brands (TPB) has declared a regular quarterly dividend of $0.05 per common share. The dividend is payable on Jan. 8, 2021, to shareholders of record on the close of business on Dec. 18, 2020, the company announced in a statement.

    TPB manufactures, markets and distributes branded consumer products with active ingredients through its Zig-Zag and Stoker’s core brands and its emerging brands within the NewGen segment.

    The company’s products are available in more than 210,000 retail outlets in North America and on various websites.

  • Altria Converts its Non-Voting Juul Shares

    Altria Converts its Non-Voting Juul Shares

    Photo: Juul Labs

    Altria Group will convert its non-voting shares in Juul Labs to voting shares, pursuant to its December 2018 investment in the e-cigarette manufacturer.

    “Altria does not currently intend to exercise its additional governance rights obtained upon conversion, including the right to elect directors to Juul’s board, or to vote its Juul shares other than as a passive investor, pending the outcome of the U.S. Federal Trade Commission (FTC) litigation,” Altria stated in a press release.

    In April 2020, the FTC filed an administrative complaint challenging Altria’s minority investment in Juul. Altria believes it has a strong defense and intends to vigorously defend its investment.

    “As previously disclosed, Altria expects to account for its investment in Juul under the fair value option. Under this option, Altria’s consolidated statement of earnings will include any cash dividends received from its investment in Juul as well as any changes in the fair value of the investment, which will be calculated quarterly,” the company wrote. “Altria intends to treat quarterly changes in the fair value of the investment as a special item and exclude those changes from its adjusted diluted earnings per share.”

    In December 2018, Altria made a minority investment in Juul Labs. In exchange for the investment, Altria received a 35 percent economic interest in Juul Labs through non-voting shares, with their conversion to voting shares contingent on antitrust clearance. Under revised agreement terms announced in January 2020, Altria can designate two representatives to Juul’s board of directors.