Debra BorchardtTurning Point Brands, Inc. (NYSE: TPB) announced financial results for the second quarter ending June 30, 2024. Turning Point, best known as the company that makes ZigZag rolling papers told investors that total net sales increased 2.8% to $108.5 million.
The company also reported that net income increased 31% to $13 million. The diluted earnings per share were $0.68 versus $0.53 a year ago. Turning Point is increasing its previous full-year 2024 adjusted EBITDA guidance from $95 to $100 million to $98 to $102 million, which excludes CDS (Creative Distribution Systems).
CEO and President Graham Purdy said, “We were pleased by our second quarter results. We achieved our highest quarterly EBITDA since the second quarter of 2021. We believe Zig-Zag is on a sustainable growth trajectory, and Stoker’s MST continues to grow its market share. In addition, sales of FRE, our modern oral nicotine pouch, grew 76% sequentially as we continue to expand our national footprint.”
Revenue breakdown
Turning Point told investors that Zig-Zag Products net sales increased 8% to $50.5 million and was driven by solid performance in the North American Papers & Wraps businesses as well as solid growth in cigars. ZigZag has a 34% market share in rolling papers in the U.S. and a majority of the cigar wraps market according to the company’s investor presentation.
“We are encouraged by our Zig-Zag results for the quarter,” said Purdy. “Our ongoing initiatives continue to demonstrate progress toward sustainably growing the Zig-Zag brand.”
Nicotine pouches
Stoker’s chewing tobacco products net sales increased 18.5% to $42.7 million. Turning Point said the segment was driven by high teen growth from MST and triple-digit growth off of a low base for FRE, partially offset by a low single-digit decline in loose-leaf tobacco. Nicotine pouches are having a moment in the market as competing products like Zyn, On! and Velo have caught on in the marketplace. Packaged like mints, these products have seen sales increase from 126 million units between August and December 2019 to more than 808 million between January and March 2022.
Turning Point said that the modern oral market is trending towards a $3 billion market in 2024 with a strong growth trajectory. The investor presentation noted that FRĒ has a differentiated offering through its product quality (POWER. FEEL. FLAVOR), nicotine strengths, and packaging sizes. The company said it is expanding FRĒ distribution in 2024 with both brick & mortar and digital marketing strategies. It also launched a new ‘6mg’ online in July. The 6mg volume overall made up more than half of the modern oral category.
The only downside in revenue was CDS, which saw net sales decrease by 33% which were $15.3 million
Balance sheet stays solid
The company noted that its total gross debt at the end of the quarter was $368.5 million, while net debt was $226.4 million. Turning Point ended the quarter with total liquidity of $201.0 million, comprised of $142.2 million in cash and $58.8 million of asset-backed revolving credit facility capacity. On July 15, 2024, it retired the remaining $118.5 million of its convertible notes outstanding with cash on hand.
Looking ahead, the company said it plans to introduce FRE including differentiated higher nicotine content offerings into a rapidly growing market. It plans to re-enter a large market that is complementary to the Zig-Zag cigar wrap product offering. Finally, Turning Point looks to Increase share for Zig-Zag papers (currently single digit/log double-digit %) and other ancillary Zig-Zag products (rolling trays and other smoking accessories, apparel/merchandise.)
