Shares of tobacco company Turning Point Brands (TPB -19.59%) fell as much as 26.2% in trading on Wednesday after the company reported second-quarter 2022 financial results. Shares closed the day down 19.6%.
Net sales fell a whopping 16.1% to $102.9 million as NewGen segment sales dropped 45.1% to $23.1 million. Net income was down 64.7% to $5.4 million, or $0.70 per share. Management said it was happy with the Zig-Zag and Stoker segments during the quarter as sales were down 2.1% and up 0.7%, respectively. The Zig-Zag, Stoker, and NewGen segments represented 45%, 33%, and 22% of total net quarterly sales, respectively.
Analysts were expecting earnings of $0.66 per share, so the company beat expectations on the bottom line, but the top line was a slight miss against expectations.
Investors are concerned that smoking products will be an easy expense to cut in an inflationary environment, and right now that seems correct.
Management expects adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $97 million to $103 million for the year, which seems like a big number, but the company also has $422.5 million in gross debt. Investors are worried that Turning Point’s $435 million market cap still overvalues the company based on current results.
I think the cigarette business is going to continue facing pressure on both the top and bottom lines in the current economic environment. Consumers are cutting back on spending, and smoking may be a place to cut, while costs are rising for the company. Until that picture changes, this is a stock I’ll stay out of.