Turning Point Brands Inc. (NYSE: TPB) touted higher first-quarter profits despite a decline in total sales for the first quarter ending March 31, buoyed by growth from its core divisions.
However, Turning Point ended the quarter with $237.6 million in net debt. Total gross debt was $368.5 million minus cash on hand. It repurchased 72,545 shares for $2.1 million as part of an ongoing buyback program.
The Louisville-based smoking and tobacco maker’s net income rose 58.1% from a year earlier to $12 million. Total net sales fell 3.9% to $97.1 million from $101.1 million in last year’s first quarter. However, the company saw double-digit sales growth in its Zig-Zag Products and Stoker’s Products segments.
The Zig-Zag division posted an 11.5% sales increase to $46.7 million. The segment’s gross profit soared 23% to $27.5 million, aided by a favorable product mix.
Sales for Stoker’s snuff tobacco and nicotine pouches rose 8% to $36.4 million. Growth was fueled by triple-digit percentage gains for its new FRE modern oral nicotine product.
“Our ongoing efforts continue to demonstrate progress toward sustainably growing the Zig-Zag brand,” CEO Graham Purdy said in a statement. “And the national launch of our FRE Modern Oral product is off to a good start.”
The company’s struggle area was its Creative Distribution Solutions unit, which distributes consumables to retailers. That segment’s sales plunged 44.9% to $14 million.
Turning Point’s gross profit for the quarter increased 6.8% to $51.9 million, despite the lower sales. Cost controls helped boost operating income by 34.8% to $19.3 million.
The company also recorded $1.3 million in legal and severance costs during the quarter. Its selling, general and administrative expenses rose 5.5% to $32.6 million.
The company maintained its full-year 2024 outlook for adjusted EBITDA between $95 million and $100 million.
Debt consideration
To put that net debt number in context, the company’s net debt level of $237.6 million is over 2.3x its projected 2024 adjusted EBITDA at the midpoint of guidance. While debt levels can vary across industries, a leverage ratio above 2x EBITDA is generally considered a higher debt load, especially for a non-capital intensive business like consumer products.
The bright side is that the company ended the first quarter with $189.9 million in total liquidity between $130.9 million in cash and $59 million available on its revolving credit facility, according to filings. So, it has flexibility to service the debt load in the near-term.
But the high gross debt of $368.5 million does indicate Turning Point is carrying a meaningful debt burden relative to its size and cash flow generation.
