Altria’s Results Backed By Strong Copenhagen Sales And Cheaper Smokes

by Trefis Team
Altria Group, Inc.
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Altria (NYSE:MO) announced its third quarter earnings on October 25. The U.S. tobacco products company reported revenue growth across its divisions with net sales for the quarter growing 2.2% on a y-o-y basis. Altria has 50% share of the U.S. cigarette market, far ahead of competitors Reynold’s American (NYSE:RAI) and Lorillard (NYSE:LO). It has also emerged as the leader in the smokeless products space with market share and volume growth driven by the popularity of its premium brand Copenhagen.

See our full analysis for Altria

Smokeable products division sees higher volumes through market share growth

The smokeable products division, which includes cigarettes and cigars, drove sales growth through higher volumes and pricing, partially offset by activities to promote Marlboro’s new brand architecture and an unfavorable mix due to disproportionate volume growth of discount brand L&M.

Cigarette share growth of 1.2% was driven by discount brands, which reported volume growth of 14% and retail share growth of 0.6%. This was partially offset by a 0.4% share decline in premium brands other than Marlboro. Marlboro’s share grew by a solid 1%, benefiting from activities to promote its new brand architecture and recently introduced products such as Marlboro NXT. This share growth may only be temporary, and the long-term success in the premium segment is dependent on the popularity of Marlboro’s revamped product line.

Copenhagen drives smokeless products growth

Quarterly sales for smokeless products grew 2.6% y-o-y marked by strong performance of the Copenhagen brand, which saw volumes grow 12%, aided by the recent introduction of new products and expansion of the Copenhagen Southern blend. Altria’s other flagship smokeless tobacco brand Skoal saw a slight decline in volumes due to increased competition and cannibalization from Copenhagen. Overall volumes for the division grew 5.9%.

Altria’s smokeless products division has gained a substantial portion of the market in recent years, reaching a new year-to-date high of 55.4%. The company’s smokeless products arm, USSTC, is looking to increase volumes and income for the division through expansion into more states and introduction of new products under Copenhagen and Skoal.

We estimate 45% market share for the division based on pounds of smokeless products sold. We expect a modest increase in the division’s market share going forward. However, there could be a significant upside to this forecast taking into consideration the company’s expansion plans.

We will soon update our $34 price estimate for Altria based on the earnings release.

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