Turning Point Brands Reports Downturn Amid Restructuring Efforts

The firm revised its full-year 2023 adjusted EBITDA expectation slightly upwards.

Smoking accessories maker Turning Point Brands Inc. (NYSE: TPB) reported a 5.6% drop in sales for the third quarter ended Sept. 30, as it faces stiff challenges in a tight market.

The Louisville, Kentucky-based company, which produces the popular Zig-Zag and Stoker’s brands, saw its consolidated net sales retreat to $101.7 million, a symptom of the broader economic headwinds that continue to batter the consumer goods sector.

Zig-Zag, a stalwart in TPB’s portfolio, was hit with a 10.2% sales decrease compared to the same quarter last year, due in part to a tough year-over-year comparison with one-time sales boosts that did not repeat. The company’s moves to reduce unprofitable lines also had an affect.

In contrast, sales in the Stoker’s segment, TPB’s smokeless tobacco division, rose by 10.1%, signaling that the brand continues to find favor with consumers looking for alternatives within the tobacco space.

Despite the overall sales downturn, the company managed to contain the fall in gross profit to 2.1%, amounting to $51.6 million. Net income, however, slid 6.1% to $10.8 million. In terms of adjusted net income, the company saw a 1.6% increase to $14.5 million, pointing to some positive impacts of its recent restructuring measures.

The company’s adjusted EBITDA saw a marginal decrease of 0.4% to $24.4 million.

In a statement, President and CEO Graham Purdy emphasized that the quarter’s results were within company forecasts and highlighted the Zig-Zag segment’s stable performance when viewed sequentially from the second quarter.

“We further de-levered the balance sheet with an opportunistic purchase of $15 million in aggregate principal amount of our convertible notes during the third quarter,” Purdy said. “With a new $75 million ABL revolving credit facility, our strong cash balance, and our free cash flow generation, we now have more than ample liquidity to address the remaining balance of convertible notes maturing next year.”

TPB also restructured its Creative Distribution Solutions segment, looking to sharpen its focus on more profitable, core product lines. This restructuring led to an 18.7% decrease in the segment’s net sales.

TPB’s administrative expenses for the quarter registered at $31.4 million, showing some evidence of the company’s cost management efforts. The company ended the quarter with a strong liquidity position, reporting a total liquidity of $119.7 million, supported by cash on hand and available credit facilities.

Looking forward, TPB has revised its full-year 2023 adjusted EBITDA expectation slightly upwards to between $92 million and $95 million, from its earlier forecast of $90 million to $95 million.

Adam Jackson

Adam Jackson writes about the cannabis industry for the Green Market Report. He previously covered the Missouri Statehouse for the Columbia Missourian and has written for the Missouri Independent. He most recently covered retail, restaurants and other consumer companies for Bloomberg Business News. You can find him on Twitter at @adam_sjackson and email him at adam.jackson@crain.com.

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