Great progress in transitioning Montego brand strategy from volume-based to income-based, resulting in profitability turnaround (recall: Montego is Vector’s largest brand since Q2 2022 and is the second largest discount brand in the USA)
In Q3 2022, Vector sold 2.75Bn sticks and generated $378Mn revenue ($137.5/’000) and $88Mn operating income ($32/’000). In Q4 ‘2022, Vector sold 2.56Bn sticks (6.9% less than the previous quarter) and generated $364Mn revenue ($142.1/’000) and $93Mn operating income ($36.3/’000). The 4.6/’000 (+3.4%) increase in per unit revenue, achieved through consecutive price hikes, resulted in $4.3/’000 (+13.4%) increase in per unit profit.
Accordingly, the operating profit variance (vs. the previous year) turned from -4% in Q3 2022 (-8% in YTD9 2022) to +11% in Q4 2022. This is a noteworthy turnaround in the progression of operating profits.
Montego average RSP increased from $4.11 in Q3 to $4.37 in Q4 (up +6.3%). For reference: Marlboro average RSP increased from $8.32 in Q3 to $8.46 in Q4 (up +1.7%).
There seems to be more room for price hikes in the lower end of the market (“deep discount” segment). Montego’s wholesale list price is already upped by another $0.10 ($5/’000) in Jan 2023. As long as Vector can continue hiking its list prices while largely holding on to the volume it gained in 2022 (1.72Bn, +20%), tobacco segment operating income could reach $400Mn in 2024.
