Smokeless Segment Drives Growth For Altria In The First Quarter

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MO: Altria Group logo
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Altria Group

Altria (NYSE:MO) posted its first quarter earnings on April 26, wherein a 2% growth in revenues and a 30% growth in earnings per share was reported. The company managed to beat consensus estimates on both metrics, but despite this, the stock was down in the aftermath. This was probably due to a big decline in the cigarette volume, which came in at 7%, after adjusting for trade inventory movements (partly due to the tax hike in California). It is not an unknown fact that the smoking rate has been falling, with the U.S. witnessing one of the steepest declines in the world. In the face of this, a majority of the company’s revenue growth in the past has been a result of increasing the prices of tobacco products, as well as the growth of its smokeless and innovative products segments. The growth of the smokeless segment continued in the first quarter, helping in improving the margins as well. Altria’s earnings were also boosted as a result of the reduced tax rate, higher equity earnings from AB InBev, and a reduced share count. For the full year, the company reiterated its earnings guidance of $3.90 to $4.03, representing a growth rate of 15% to 19%. According to our estimates, the EPS is expected to be $3.98 for the year.

We have a $79 price estimate for Altria, which is higher than the current market price. The charts have been made using our new, interactive platform. You can click here for our interactive dashboard to modify the assumptions and gauge the impact on the company’s valuation and price per share metrics.

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Factors That May Influence Performance Going Forward

1. iQOS Launch: Philip Morris, together with Altria, is in the process of gaining FDA approval to start selling its heat-not-burn tobacco device called iQOS with a reduced risk claim in the US. With a product like iQOS in its portfolio, it would be a game-changer for the company, given the continued cigarette volume decline, and would ensure continued growth in the future for Altria.

2. Marlboro Ice Expansion: In the first quarter, the company expanded Marlboro Ice nationally, a product that would appeal to adult menthol smokers. After only eight weeks, Marlboro Ice is being sold in about 130,000 retail stores and is noted to have very high re-order rates. Given the substantial promotion Altria has been undertaking for this product, it may help to stabilize the Marlboro market share going forward.

3. Potential of Nat Sherman: This product is part of the super-premium tobacco segment, and has a “competitive share” of the market. Altria has plans to expand the brand into 13 additional states across the western U.S., and this should lead to higher volumes.

4. Smokeless Segment Growth: Copenhagen maintained its growth and market share improvement in the first quarter. However, Altria’s other big smokeless brand – Skoal – witnessed a market share decline, as the company continued its focus on growing Copenhagen while honing its investments into Skoal to enhance profitability. Keeping this focus in mind, the company expanded Copenhagen Southern Blend into 13 states across the western U.S. in the first quarter. In March, Altria also submitted a modified risk tobacco product application for Copenhagen Snuff.

5. Innovative Products: In e-vapor, Nu Mark grew volume by approximately 30% in the quarter, driven by expanded distribution, while also benefiting from category growth. Nu Mark also expanded MarkTen Elite, a pod-based closed system product, to over 6,000 stores in the first quarter. We expected Nu Mark to sustain its strong growth this year.

6. Share Repurchases: Altria repurchased $513 million in shares in the first quarter, reducing its share count by eight million. This was one of the factors that helped in the solid growth of the EPS in the quarter. The company has approximately $500 million remaining in the current $1 billion repurchase program, which is expected to be completed by the end of the year.

See Our Complete Analysis For Altria

 

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