Turning Point Brands, Inc. (NYSE: TPB) reported Q1 EPS of $0.43, $0.08 better than the analyst estimate of $0.35. Revenue for the quarter came in at $91.6 million versus the consensus estimate of $89 million.

First Quarter 2019
(Comparisons vs. same period year-ago)

• Net sales increased 23.9% to $91.6 million;
• Gross profit increased 27.2% to a record $40.5 million;
• Net income increased $3.5 million to $6.6 million;
• Adjusted EBITDA increased 17.3% to $16.1 million (see Schedule A for a reconciliation to net income);
• Diluted EPS of $0.33 and Adjusted Diluted EPS of $0.43 as compared to $0.15 and $0.35 in the year-ago period, respectively (see Schedule C for a reconciliation to Diluted EPS); and
• Other highlights from the first quarter:
  • Stoker’s MST double-digit volume gains continue with sustained store gains and elevated brand adoption;
  • Zig-Zag’s leadership position strengthens with novel new product launches including paper cones and unbleached rolling papers; and
  • NewGen net sales growth of 66.3% including Nu-X initial sales of both RipTide vaping and CBD products.

“The first quarter was a strong free cash flow quarter, driven by drawing down tariff inventory offset by working capital investments in CBD, Riptide and Nu-X assets. 2019 will be a transformative year, driven by store gains on MST, Zig-Zag new product launches and significant growth in NewGen from Nu-X gains,” said Larry Wexler, President and Chief Executive Officer.

“Stoker’s MST double-digit advances continue to be fueled by consumer adoption in existing stores and the addition of large, higher velocity chains,” said Wexler.

“Our enhancements to the Zig-Zag portfolio are positioning the brand to benefit from the tailwinds of legal recreational cannabis,” said Wexler.

“Having initiated Nu-X sales of both RipTide and CBD products, TPB has greatly expanded its revenue potential with promising new products,” said Wexler. “As we move into the second quarter and beyond, we intend to leverage our B2B and B2C assets as well as our traditional salesforce to sharply broaden retail penetration and deliver high-performance products to penetrate these large and growing segments.”

GUIDANCE:

Turning Point Brands, Inc. sees FY 2019 revenue of $380-405 million, versus the consensus of $392.85 million.

We reaffirm our guidance provided March 5, 2019.

Absent any acquisitions, the company projects 2019 base business net sales to be $370 to $385 million. Additionally, the company anticipates that the Nu-X division will deliver an additional $10 to $20 million in net sales, bringing total TPB 2019 net sales to $380 to $405 million. The company intends to fully reinvest Nu-X gross profit to maximize sales and market achievement. We expect to update our Nu-X guidance on a quarterly basis.

The company anticipates continued volatility in Canadian paper sales until such time as the Canadian packaging guidelines are finalized, including certain transition timelines. Once finalized, we expect inventories to replenish to standard operating norms. As a result of the temporary disruption, second quarter 2019 Canadian paper sales are expected to be off $2.4 million as compared to year-ago.

V2 e-cigarettes will be discontinued in mid second quarter. V2 e-cigarette sales for the four quarters of 2018 were $1.9 million, $2.0 million, $1.8 million and $2.2 million. The RipTide vaping products launch is expected to more than offset these sales.

The company anticipates certain SG&A expenses in 2019, including:

• $1.6 million to support the Nu-X infrastructure, which will be heavily weighted towards the first half of 2019;
• $1.5 million in preparation for the FDA’s PMTA pathway; $1.2 million in transaction expenses resulting from the September 2018 acquisition of IVG, primarily due to accounting requirements of earnout payments; and
• Stock compensation and non-cash incentive expense in 2019 is projected to be $4.0 million versus $1.4 million in 2018. The increase is attributable to the higher stock price and realigning incentives for both executive management and deep in the organization to the stock price.

Excluding the SG&A expenses described above and Nu-X operating performance, we project 2019 Adjusted EBITDA of $70 to $75 million. This excludes the aforementioned $5.5 million gain related to a vendor payment.

The company expects the 2019 effective income tax rate to be 21-23%.

Capital expenditures for 2018 are expected to be approximately $3.0-$4.0 million, including certain investments in our MST operations with an anticipated one-year payback.

Net Sales for the second quarter 2019, including the estimated impact associated with the Canadian packaging regulations, is expected to be $90 million to $94 million.

For earnings history and earnings-related data on Turning Point Brands, Inc. (TPB) click here.