Altria's (MO) Smoke-Free Products Aid Amid Low Cigarette Volume

·4-min read

Altria Group, Inc. MO has been gaining from its Oral Tobacco Products, especially on!. Strong pricing power has also been working well for the company. However, soft volumes in the Smokeable Products segment have been a concern. Let’s delve deeper.

Smoke-Free Category Aids

There has been a general shift among consumers toward smoke-free products. Altria has been responding to the changing market scenario by offering several oral tobacco, e-vapor and heated tobacco products. Altria (through its subsidiary Helix Innovations) has full global ownership of on! — a popular tobacco-derived nicotine (TDN) pouch product.

on! is a worthwhile addition to Altria’s smokeless portfolio as oral TDN products are gaining popularity in the United States due to their low-risk claims. Management continues to expand the manufacturing capacity and the commercial availability of the product. As of the fourth-quarter 2022 earnings call, on! witnessed volume and share growth amid a competitive space in 2022.

Additionally, Altria remains encouraged about its strategic deal with JT Group, which includes a joint venture for the U.S. commercialization of heated tobacco stick products. The deal was announced in October 2022.

Apart from this, Altria is undertaking efforts to expand in the cannabis industry. This is evident from the acquisition of the stakes of the Canadian cannabis company, Cronos Group. The company remains committed to the heated tobacco category and believes that it can play an important role in transitioning smokers to a smoke-free future.

Within the smoke-free category, management is also exploring ways to best compete in the significant e-vapor category. Per the fourth-quarter earnings call, e-vapor remains the biggest smoke-free category in the United States and the most successful in shifting smokers away from cigarettes.

Altria Group, Inc. Price, Consensus and EPS Surprise
Altria Group, Inc. Price, Consensus and EPS Surprise

Altria Group, Inc. price-consensus-eps-surprise-chart | Altria Group, Inc. Quote

Smokeable Product Volumes Soft

In the fourth quarter of 2022, Altria’s net revenues fell 2.3% year over year to $6,111 million, mainly due to reduced net revenues in the smokeable product unit. After deducting excise taxes, revenues were down 0.1% to $5,083 million.

In the Smokeable Products segment, net revenues dipped 2.4% year over year to $5,456 million due to the reduced shipment volume, partly compensated by increased pricing and reduced promotional investments. The domestic cigarette shipment volume decreased 12.1%, mainly due to the industry’s decline rate, retail share losses and calendar differences.

On adjusting for trade inventory movements, calendar differences and other factors, the total estimated domestic cigarette industry volume fell an estimated 9%. Altria’s reported cigar shipment volumes fell 3.8%.

Wrapping Up

Altria expects the external landscape to remain dynamic in 2023. The company continues assessing external environmental factors like increased inflation, higher interest rates, global supply-chain hurdles and ATC dynamics, such as purchasing patterns, the adoption of smoke-free products and disposable income.

Moreover, cigarette shipment volumes, in general, have been affected by anti-tobacco campaigns and increased consumer awareness regarding the harmful impacts of tobacco consumption. Regulatory hurdles are also a vital factor limiting the marketing of cigarettes, thereby adversely impacting its sales volume.

That said, Altria has been benefiting from its strong pricing power. Though higher pricing might lead to a possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases due to the addictive quality of cigarettes.

In the fourth quarter of 2022, higher pricing offered respite to revenues across the Smokeable Products and Oral Tobacco categories and also aided the adjusted operating companies income in both segments. For 2023, the company envisions the adjusted EPS in the range of $4.98-$5.13, suggesting growth of 3-6% from the $4.84 recorded in 2022.

Shares of this Zacks Rank #3 (Hold) company have risen 6.1% in the past six months compared with the industry’s rise of 1.1%.

Solid Staple Stocks

Some better-ranked consumer staple stocks are Post Holdings POST, General Mills GIS and Vital Farms VITL.

Post Holdings, which operates as a consumer-packaged goods company, currently sports a Zacks Rank #1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 34.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Post Holdings’ current fiscal-year EPS suggests an increase of 111.3% from the year-ago reported number.

General Mills, a branded consumer foods company, currently carries a Zacks Rank #2 (Buy). GIS has a trailing four-quarter earnings surprise of 8.1%, on average.

The Zacks Consensus Estimate for General Mills’ current fiscal-year sales and earnings suggests growth of 5.7% and 6.9%, respectively, from the corresponding year-ago reported figures.

Vital Farms, which provides pasture-raised products, currently carries a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 53.3%, on average.

The Zacks Consensus Estimate for Vital Farms’ current fiscal-year sales suggests an increase of 25.4% from the year-ago reported number.

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