Cigar Aficionado reports discouraging news from a tobacco conglomerate that makes pipe mixtures we probably all enjoy.
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Jay
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Jay
STG: Sales Flat, Profits Down
- Thread starter briarfriar
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Doesn’t look all that bad. They purchased another company, the cost of which weighed against their profits.
I’ve tried a few of their pipe tobaccos and am not a fan.
I’ve tried a few of their pipe tobaccos and am not a fan.
I wish I could buy a company and just be flat rather than at a net profit loss.
Hell, I wish I could just buy a company.
But it doesn't read so dire to me. Profits are minimally down and easily explained, as in the article, by a weakened USD. As to flat net profits, I'm not sure other companies in this size bracket and purchasing another in the same quarter, if they generally see gain, flat or loss net profit for the year, so I can't comment to whether that's good or bad, but to my "not a corporate business brain", flat net sounds OK considering buying another company and you still make the same net as the year prior when you didn't purchase another company (assuming they didn't last year).
Hell, I wish I could just buy a company.
But it doesn't read so dire to me. Profits are minimally down and easily explained, as in the article, by a weakened USD. As to flat net profits, I'm not sure other companies in this size bracket and purchasing another in the same quarter, if they generally see gain, flat or loss net profit for the year, so I can't comment to whether that's good or bad, but to my "not a corporate business brain", flat net sounds OK considering buying another company and you still make the same net as the year prior when you didn't purchase another company (assuming they didn't last year).
You can by AroEnglish Inc. They’ve been flat since early 2020 and don’t expect any net profit or loss. The company is valued at $3.7m but I’ve got an in at the company and I could probably convince they owners to sell for less.
I don’t follow the company and so have no specific insight into the context surrounding this release. Anyone who really cares can scrounge up the analysts’ reports which will range from thoughtful to what are in effect company shills. Absent that kind of digging I can only speak to what it suggests to me in isolation.
There’s no positive spin on this. Flat yoy revenue in a global inflationary environment means a decrease in unit volume (ie the company is shrinking in real terms). A material reduction in net profit margins typically means a failure to either control costs; or cover growth in expenditures (eg higher cogs and/or overhead) through increased pricing; or both in tandem.
The acquisition they mention, unless it was hemorrhaging obscene amounts of cash from the day they bought it, is too small to account for the overall crappy performance of the parent. As for the precise effect of currency fluctuations that would be called out in the financials.
But the punchline here is clear. The management of the business is mediocre and in the US they would be ripe for a change of control and turnaround. This is what a certain type of equity fund is designed to do. What protections STG enjoys being registered in Denmark are unknown to me.
I will say that as a tobacco company they’re probably viewed as a kind of high(ish) yield bond, spitting out relatively large amounts of cash that will gradually decline over time; and this perspective may well cause investors to cut them slack that businesses in other industries wouldn’t get. Personally I think that’s irrelevant. You play the hand you’re dealt, and STG is not playing theirs particularly well.
There’s no positive spin on this. Flat yoy revenue in a global inflationary environment means a decrease in unit volume (ie the company is shrinking in real terms). A material reduction in net profit margins typically means a failure to either control costs; or cover growth in expenditures (eg higher cogs and/or overhead) through increased pricing; or both in tandem.
The acquisition they mention, unless it was hemorrhaging obscene amounts of cash from the day they bought it, is too small to account for the overall crappy performance of the parent. As for the precise effect of currency fluctuations that would be called out in the financials.
But the punchline here is clear. The management of the business is mediocre and in the US they would be ripe for a change of control and turnaround. This is what a certain type of equity fund is designed to do. What protections STG enjoys being registered in Denmark are unknown to me.
I will say that as a tobacco company they’re probably viewed as a kind of high(ish) yield bond, spitting out relatively large amounts of cash that will gradually decline over time; and this perspective may well cause investors to cut them slack that businesses in other industries wouldn’t get. Personally I think that’s irrelevant. You play the hand you’re dealt, and STG is not playing theirs particularly well.
Well, whoever is at the wheel thought it worthwhile to buy another company. Also keep in mind that flat sale are not to be unexpected. Frankly in the tobacco word Id consider flat sales to be a positive. If you invest in a tobacco company and expect an increase in sale you are pretty nuts. Keep in mind that flat sales do not equal flat profits. Profits drive business and the economy, not increased sale. In the end they know we will all pay a premium for tobacco products.
Forgetting pipe tobacco, there is a reson people invest in Philip Morris. High dividends, decent a good profit margin ...basically good returns.
Good or bad news from Wall Street doesnt signal any good or bad news for smokers....defintely dont expect good news. Thats just reality.
Forgetting pipe tobacco, there is a reson people invest in Philip Morris. High dividends, decent a good profit margin ...basically good returns.
Good or bad news from Wall Street doesnt signal any good or bad news for smokers....defintely dont expect good news. Thats just reality.
In economics this is called the agency problem. This occurs when the people who run a company are different from the people who own it. They have divergent interests. Shareholders want to maximize return on their investment. Management wants to maximize their personal income (people who run larger companies typically get paid more) and ego satisfaction (CEOs generally get a kick out of being responsible for a larger sandbox). Business history is replete with endless examples of acquisitions that were pushed by senior management but wound up being decretive to shareholder value. In fact studies have consistently shown that most acquisitions (estimates range from 60-90%) destroy shareholder value.
In practice flat sales do generally mean flat or declining profits since overhead costs usually increase every year. This can be offset by improved operating efficiencies and/or increased prices. In this case as the FY announcement makes abundantly clear net profits were significantly down.
That being the case you can count on their prices going up since we will pay it. Those 5 and 10 cents add up when it comes to international sales and volume. Such is life. They should make better blends. Perhaps they could ask a premium. Here in the EU we pay a premium. No because of desired profits but because of tax. I dont begrudge it too much seeing as health care is state sponsored. Nothing but air is free.
They bought a company and they very much experienced a giant loss of profit. Re-read and you’ll see that the sales were flat, not the profit. This is very bad for STG. If your sales stay the same but your profits drop nearly 20%, that’s real bad news.
All the “it’s not so bad” bullshit from the CEO was thinly veiled damage control.
In my opinion, STG is in serious trouble and investors agree as can be seen in the below screen shot.
Well hopefully they can get things back on track after the purchase. Can’t lose this one
I think the Air Police might have something to say about that...don't give them any ideas!
The gnomes that run the US arm of STG leave a great deal to be desired. My ongoing dispute with their accounting department tells me that it is strictly amateur hour in their administration. That leads me to believe that the same is true for the rest of the company. There is little risk of them going belly up tomorrow, but a shake out of SKU's and trimming staff may well be in the cards, as a panicked move to right the ship. A decline of STG will be good news for their competitors, which, in my mind, would benefit the pipe consumer.
I wonder if they might have some of the same accountants that work in Hollywood?
Tobacco and oil may, most probably, not be among the most 'easy profitable' businesses these days and especially in the future..
But some of the original and present STG owners, such as the Augustinus family (and foundation), who, with present name STG, have been in the tobacco business since 1750, have also cleverly chosen to spread investments to more futureproof areas, such as eg entertainment and medicine and so the 'tobacco'foundation is among the wealthiest here, like Maersk, Novo and Carlsberg.
But some of the original and present STG owners, such as the Augustinus family (and foundation), who, with present name STG, have been in the tobacco business since 1750, have also cleverly chosen to spread investments to more futureproof areas, such as eg entertainment and medicine and so the 'tobacco'foundation is among the wealthiest here, like Maersk, Novo and Carlsberg.
They just made an acquisition of Alec Bradley and are still well in the black on the year. They’re only down 43.1 mil in profit year over year after a 72.5 mil acquisition.
It’s difficult to assess what’s happening. Inflation is bad, which certainly plays a part. Another point is that you’d think for 73.1 mil you’d be purchasing a turn-key business. Either they weren’t as scrupulous as they should’ve been when assessing Alec Bradley’s books before they made the purchase, or, they’re making changes to their newly acquired company that are costing them money now, but will pay off in the long run.
There’s really no way to know what’s going on until they have a couple years to see how that acquisition pans out.
At any rate the market share of pipe tobacco is incredibly small! This is the largest pipe tobacco company in the world and they only do 1.3 billion in revenue a year. For perspective, Phillip Morris did over 35 billion in revenue in 2023.
It’s difficult to assess what’s happening. Inflation is bad, which certainly plays a part. Another point is that you’d think for 73.1 mil you’d be purchasing a turn-key business. Either they weren’t as scrupulous as they should’ve been when assessing Alec Bradley’s books before they made the purchase, or, they’re making changes to their newly acquired company that are costing them money now, but will pay off in the long run.
There’s really no way to know what’s going on until they have a couple years to see how that acquisition pans out.
At any rate the market share of pipe tobacco is incredibly small! This is the largest pipe tobacco company in the world and they only do 1.3 billion in revenue a year. For perspective, Phillip Morris did over 35 billion in revenue in 2023.
You mean like "no net profits" accounting? "Creative Accounting", even more than blowjobs, rules Hollywood. Creative Accounting is not unique to Hollywood, any more than blowjobs. Sadly in this day and age, Creative Accounting provides much more pleasure and joy than er...umm...well, you know...
Excellence, to the extent there is any, appears to reside in the various ways found to use existing legislation to provide a wildly unearned advantage.
In any event, I bow to Jon's business expertise and analysis, as well as his characterization of many business leaders, based on my own experiences working with Sapiens.
