Turning Point’s Revenue Falls, Outlook Lowered

Zig Zag sales remain strong.

Turning Point Brands, Inc.  (NYSE: TPB) reported that net sales fell 1.8% to $103.4 million in the fourth quarter ending December 31, 2022. Net income decreased $27.8 million to $($16.3) million which the company attributed to $34.8 million non-cash asset impairments.

The company also reported a diluted EPS of $(0.93) and Adjusted Diluted EPS of $0.69 compared to $0.57 and $0.66 in the same period one year ago, respectively

For the fiscal year 2022, total consolidated net sales decreased 6.8% to $415.0 million. For the full year Turning Point reported net income decreased $40.4 million to $11.6 million due in part to $41.1 million non-cash asset impairments. The diluted EPS of $0.64 and Adjusted Diluted EPS of $2.83 as compared to $2.52 and $3.03 in the same period one year ago, respectively

Outlook Lowered

Turning point said it now expects full-year 2023 adjusted EBITDA to be $88 to $94 million. This is a drop from 2022’s adjusted EBITDA which decreased 9.7% to $97.6 million

“The fourth quarter operating results finished in-line with our expectations with solid execution across our segments,” said Graham Purdy, President and CEO. “The Zig-Zag segment grew during the quarter despite the impact of a previously disclosed pull-forward in the prior quarter, benefiting from continued market share gains and the contribution from a full quarter of CLIPPER lighters. We are pleased with the ongoing roll-out and strong channel receptivity to the world’s #1 reusable lighter.”

He continued saying, “Stoker’s MST experienced strong share gains as consumer trade-downs to value accelerated, consistent with the current inflationary and economic backdrop. The challenging regulatory environment continues to negatively affect the NewGen segment which was down materially vs. 2021, but with declines moderating in the back half of the year. In addition to returning capital to our shareholders through share repurchases, we opportunistically purchased $10 million notional of our convertible notes during the fourth quarter while maintaining a strong cash balance.”

New Gen

NewGen Products net sales decreased 11.1% to $24.9 million. The regulatory environment continues to negatively impact sales. Purdy said, “”The regulatory environment for NewGen remains dynamic given the uncertainty over the outcome of the PMTA process and the potential for additional state and federal regulations.”

Zig-Zag Wins

For the fourth quarter, Zig-Zag Products net sales increased 0.9% to $46.4 million. Both of TPB’s Canadian and other smoking accessories businesses saw strong growth during the quarter. The company said in a statement that this was partially offset by anticipated declines in the U.S. rolling papers and wraps businesses which were impacted by the previously disclosed pull-forward of sales into the prior quarter due to the timing of promotional programs. Zig Zag accounts for 46% of the company’s sales.
Turning Point said that for the full year, net sales of Zig-Zag Products increased 7.9% to $190.4 million with double-digit advances in the U.S. rolling papers and e-commerce, other smoking accessories, and Canadian businesses partially offset by a double-digit decline in the wraps business.

Balance Sheet

Expenses remained relatively flat. Total gross debt as of December 31, 2022 was $412.5 million. The company’s net debt (total gross debt less cash) at December 31, 2022 was $306.1 million. Turning Point said it ended the quarter with total liquidity of $127.8 million, comprised of $106.4 million in cash and $21.4 million of revolving credit facility capacity.Also during the quarter, the company said it spent $2.2 million to repurchase 101,959 shares at an average price of $21.50 per share. During the quarter, the company also spent $9.0 million to purchase $10.0 million in aggregate principal amount of its 2.50% Convertible Senior Notes due July 2024.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.


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