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Altria (MO) Benefits From Solid Pricing, High Costs a Worry
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Altria Group, Inc. (MO - Free Report) has been benefiting from its solid pricing power for quite some time now. Also, a focus on oral tobacco products has been working well, given consumers’ increased inclination to this category. That said, Altria is battling cost inflation and supply-chain hurdles.
Let’s delve deeper.
Factors Acting Well for Altria
Robust pricing has been aiding MO for a while. 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 first quarter of 2022, higher pricing supported revenues across the Smokeable Products and Oral Tobacco categories. Moreover, higher pricing aided the adjusted operating companies income in both segments. The continuation of such trends is likely to remain an upside for Altria.
There has been a general shift among consumers to several reduced risk tobacco products (RRPs) due to the serious health hazards of smoking cigarettes. Altria has been responding to the changing market scenario by offering several oral tobacco and heated tobacco products. Altria (through its subsidiary, Helix Innovations) has full global ownership of on! – a popular tobacco-derived nicotine (“TDN”) pouch product. Management believes that 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.
In the first quarter of 2022, the reported shipment volumes of on! roughly doubled to 18 million cans. Management stated that the brand remains a highly competitive product in the space, performing well across all regions in the United States. Apart from this, MO 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.
For 2022, the company envisions an adjusted earnings view in the range of $4.79-$4.93 per share. The bottom line indicates growth of 4% to 7% from the $4.61 recorded in 2021. The company expects the bottom line to be weighted toward the second half of the year.
Image Source: Zacks Investment Research
Key Headwinds
Management’s bottom-line view for 2022 takes into account planned investments associated with costs to improve the digital consumer engagement system, enhanced smoke-free product research, development and regulatory preparation expenses and marketplace activities to support the company’s smoke-free products. The view also includes anticipation of the inflation of Master Settlement Agreement expenses and direct material costs.
Russia’s invasion of Ukraine worsened the rising global energy price scenario, which, along with other macroeconomic factors like demand-supply imbalances and the shortage of labor, led to a historic spike in the inflation rate. Apart from this, the pandemic-led volatility continues to impact the global economy in terms of supply-chain bottlenecks and changing consumer behavior. On its first-quarter earnings call, management stated that it expects inflation to linger in the balance of the year as it continues to assess its impact on tobacco consumers.
The company continues to assess external environmental factors like global supply-chain hurdles, elevated inflation, adult tobacco consumers or ATC dynamics, purchasing patterns, the adoption of smoke-free products, the impacts of Russia’s invasion of Ukraine, disposable income and tobacco usage occasions, among others. Apart from this, 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. In the first quarter of 2022, the company’s domestic cigarette shipment volumes were down 6.3% year over year, mainly driven by the industry’s rate of decline and retail share losses, somewhat compensated by trade inventory movements.
However, Altria’s strong pricing efforts and expansion in the oral tobacco products space are likely to help it continue with its growth story. Shares of this Zacks Rank #3 (Hold) company have risen 26.4% in the past six months compared with the industry’s rise of 22.8%.
The Zacks Consensus Estimate for Sysco’s current financial-year sales and earnings per share (EPS) suggests growth of 32.6% and 124.2%, respectively, from the year-ago reported number. SYY has a trailing four-quarter earnings surprise of 9.1%, on average.
Medifast, which manufactures and distributes weight loss, weight management, healthy living products and other consumable health and nutritional products, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Medifast’s current financial-year sales and EPS suggests growth of nearly 19% and 11.5%, respectively, from the year-ago reported figure. MED has a trailing four-quarter earnings surprise of 12.9%, on average.
The Chef’s Warehouse, which engages in the distribution of specialty food products, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for The Chef’s Warehouse’s current financial-year sales suggests growth of 29.4% from the year-ago reported figure. CHEF has a trailing four-quarter earnings surprise of 372.3%, on average.
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Altria (MO) Benefits From Solid Pricing, High Costs a Worry
Altria Group, Inc. (MO - Free Report) has been benefiting from its solid pricing power for quite some time now. Also, a focus on oral tobacco products has been working well, given consumers’ increased inclination to this category. That said, Altria is battling cost inflation and supply-chain hurdles.
Let’s delve deeper.
Factors Acting Well for Altria
Robust pricing has been aiding MO for a while. 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 first quarter of 2022, higher pricing supported revenues across the Smokeable Products and Oral Tobacco categories. Moreover, higher pricing aided the adjusted operating companies income in both segments. The continuation of such trends is likely to remain an upside for Altria.
There has been a general shift among consumers to several reduced risk tobacco products (RRPs) due to the serious health hazards of smoking cigarettes. Altria has been responding to the changing market scenario by offering several oral tobacco and heated tobacco products. Altria (through its subsidiary, Helix Innovations) has full global ownership of on! – a popular tobacco-derived nicotine (“TDN”) pouch product. Management believes that 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.
In the first quarter of 2022, the reported shipment volumes of on! roughly doubled to 18 million cans. Management stated that the brand remains a highly competitive product in the space, performing well across all regions in the United States. Apart from this, MO 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.
For 2022, the company envisions an adjusted earnings view in the range of $4.79-$4.93 per share. The bottom line indicates growth of 4% to 7% from the $4.61 recorded in 2021. The company expects the bottom line to be weighted toward the second half of the year.
Image Source: Zacks Investment Research
Key Headwinds
Management’s bottom-line view for 2022 takes into account planned investments associated with costs to improve the digital consumer engagement system, enhanced smoke-free product research, development and regulatory preparation expenses and marketplace activities to support the company’s smoke-free products. The view also includes anticipation of the inflation of Master Settlement Agreement expenses and direct material costs.
Russia’s invasion of Ukraine worsened the rising global energy price scenario, which, along with other macroeconomic factors like demand-supply imbalances and the shortage of labor, led to a historic spike in the inflation rate. Apart from this, the pandemic-led volatility continues to impact the global economy in terms of supply-chain bottlenecks and changing consumer behavior. On its first-quarter earnings call, management stated that it expects inflation to linger in the balance of the year as it continues to assess its impact on tobacco consumers.
The company continues to assess external environmental factors like global supply-chain hurdles, elevated inflation, adult tobacco consumers or ATC dynamics, purchasing patterns, the adoption of smoke-free products, the impacts of Russia’s invasion of Ukraine, disposable income and tobacco usage occasions, among others. Apart from this, 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. In the first quarter of 2022, the company’s domestic cigarette shipment volumes were down 6.3% year over year, mainly driven by the industry’s rate of decline and retail share losses, somewhat compensated by trade inventory movements.
However, Altria’s strong pricing efforts and expansion in the oral tobacco products space are likely to help it continue with its growth story. Shares of this Zacks Rank #3 (Hold) company have risen 26.4% in the past six months compared with the industry’s rise of 22.8%.
Looking for Consumer Staple Stocks? Check These
Some better-ranked stocks are Sysco Corporation (SYY - Free Report) , Medifast (MED - Free Report) and The Chef’s Warehouse (CHEF - Free Report) .
Sysco, which engages in the marketing and distribution of various food and related products, carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Sysco’s current financial-year sales and earnings per share (EPS) suggests growth of 32.6% and 124.2%, respectively, from the year-ago reported number. SYY has a trailing four-quarter earnings surprise of 9.1%, on average.
Medifast, which manufactures and distributes weight loss, weight management, healthy living products and other consumable health and nutritional products, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Medifast’s current financial-year sales and EPS suggests growth of nearly 19% and 11.5%, respectively, from the year-ago reported figure. MED has a trailing four-quarter earnings surprise of 12.9%, on average.
The Chef’s Warehouse, which engages in the distribution of specialty food products, currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for The Chef’s Warehouse’s current financial-year sales suggests growth of 29.4% from the year-ago reported figure. CHEF has a trailing four-quarter earnings surprise of 372.3%, on average.