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Altria (MO) Is Marching Ahead of the Industry: Will This Stay?
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Altria Group, Inc. (MO - Free Report) stands in a favorable position to benefit from its range of smoke-free products and competitive pricing strategy. Management’s Enterprise Goals for 2028 reflect its confidence in ongoing prospects. These upsides have been working well for this Zacks Rank #3 (Hold) company amid cost inflation and soft cigarette volumes.
Shares of this tobacco giant have rallied 14.5% in the past year compared with the industry’s growth of 5.5%. The company also outpaced the broader Zacks Consumer Staples sector’s growth of 1.6% in the same period.
Factors Working Well
Consumers have been increasingly moving toward reduced-risk products (RRPs) or smoke-free alternatives, driven by the growing awareness of the health risks associated with traditional cigarette smoking. MO has been proactive in adapting to this evolving market landscape by offering a range of oral tobacco, e-vapor and heated tobacco products. In the second quarter of 2023, the company's net revenues in the Oral Tobacco Products segment witnessed a 2.3% year-over-year increase, reaching $680 million.
Altria, through its subsidiary Helix Innovations, holds full global ownership of on!, a popular tobacco-derived nicotine (TDN) pouch product. This product has been gaining traction in the United States, primarily due to its low-risk claims. Altria is actively expanding both its manufacturing capacity and the availability of on! in the market, resulting in notable 50% growth in shipment volumes in the second quarter.
Within smoke-free alternatives, management is exploring strategies to effectively compete in the significant e-vapor category. E-vapor products continue to dominate the smoke-free category in the United States as they have proven to be the most successful in encouraging smokers to transition away from traditional cigarettes. Altria's acquisition of NJOY Holdings (concluded in June 2023) is particularly noteworthy in this context.
Image Source: Zacks Investment Research
Altria's pricing power has been instrumental in maintaining its stability, even in the face of declining cigarette shipments. While raising prices could potentially result in reduced cigarette consumption, smokers often tolerate these price hikes due to the addictive nature of cigarettes.
In the second quarter of 2023, increased pricing provided relief to revenue streams in the Smokeable Products and Oral Tobacco categories, mitigating the impact of lower sales volumes. The higher pricing strategy also positively influenced the adjusted operating company income (OCI) in both of these segments.
Volume Concerns
The overall cigarette industry has been bearing the brunt of the inflationary environment, which has affected Adult Tobacco Consumers’ (“ATC”) spending patterns. As the external landscape remains dynamic, Altria continues assessing economic factors like elevated inflation, higher interest rates, global supply-chain hurdles and ATC dynamics, such as purchasing patterns, the adoption of smoke-free products and disposable income.
Cigarette volumes, in general, have also been affected by consumers’ rising health consciousness and a shift to low-risk tobacco alternatives. In the second quarter of 2023, net revenues in the Smokeable Products segment declined 30.9% year over year to $5,820 million due to the reduced shipment volume and increased promotional investments, partly compensated by greater pricing. Domestic cigarette shipment volumes tumbled 8.7%, mainly due to the industry’s decline rate and retail share losses, partly countered by trade inventory movements.
Final Thoughts & 2028 Goals
Altria remains well-positioned to thrive due to its smoke-free product portfolio and effective pricing strategies. For the full-year 2023, the company envisions the adjusted EPS in the range of $4.89-$5.03, suggesting growth of 1-4% from the $4.84 recorded in 2022.
Altria also highlighted its 2028 Enterprise Goals at its 2023 Investor Day. Altria targets generating mid-single-digit adjusted EPS growth through 2028 (on a compounded annual basis). Further, Altria plans to maintain a total adjusted OCI margin of at least 60% in the next five years. MO intends to maintain its leadership position in the U.S. tobacco space. Moreover, management targets nearly doubling its smoke-free net revenues to $5 billion from the 2022 level.
Solid Consumer Staple Bets
Inter Parfums (IPAR - Free Report) , which manufactures, markets and distributes a range of fragrances and fragrance-related products, currently sports a Zacks Rank #1 (Strong Buy). IPAR has an expected EPS growth rate of 15% for three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales indicates 19.7% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.9%, on average.
McCormick & Company, Incorporated (MKC - Free Report) , a spices, seasoning, condiments and other flavorful product company, currently carries a Zacks Rank #2 (Buy). MKC has a trailing four-quarter earnings surprise of 4.2%, on average.
The Zacks Consensus Estimate for McCormick’s current fiscal-year sales suggests growth of 6.4% from the corresponding year-ago reported figure.
Helen of Troy (HELE - Free Report) , a provider of several consumer products, currently has a Zacks Rank #2. HELE’s expected EPS growth rate for three to five years is 8%.
The Zacks Consensus Estimate for Helen of Troy’s current fiscal-year sales suggests a decline of 2.9% from the year-ago reported numbers. HELE has a trailing four-quarter earnings surprise of 8.1%, on average.
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Altria (MO) Is Marching Ahead of the Industry: Will This Stay?
Altria Group, Inc. (MO - Free Report) stands in a favorable position to benefit from its range of smoke-free products and competitive pricing strategy. Management’s Enterprise Goals for 2028 reflect its confidence in ongoing prospects. These upsides have been working well for this Zacks Rank #3 (Hold) company amid cost inflation and soft cigarette volumes.
Shares of this tobacco giant have rallied 14.5% in the past year compared with the industry’s growth of 5.5%. The company also outpaced the broader Zacks Consumer Staples sector’s growth of 1.6% in the same period.
Factors Working Well
Consumers have been increasingly moving toward reduced-risk products (RRPs) or smoke-free alternatives, driven by the growing awareness of the health risks associated with traditional cigarette smoking. MO has been proactive in adapting to this evolving market landscape by offering a range of oral tobacco, e-vapor and heated tobacco products. In the second quarter of 2023, the company's net revenues in the Oral Tobacco Products segment witnessed a 2.3% year-over-year increase, reaching $680 million.
Altria, through its subsidiary Helix Innovations, holds full global ownership of on!, a popular tobacco-derived nicotine (TDN) pouch product. This product has been gaining traction in the United States, primarily due to its low-risk claims. Altria is actively expanding both its manufacturing capacity and the availability of on! in the market, resulting in notable 50% growth in shipment volumes in the second quarter.
Within smoke-free alternatives, management is exploring strategies to effectively compete in the significant e-vapor category. E-vapor products continue to dominate the smoke-free category in the United States as they have proven to be the most successful in encouraging smokers to transition away from traditional cigarettes. Altria's acquisition of NJOY Holdings (concluded in June 2023) is particularly noteworthy in this context.
Image Source: Zacks Investment Research
Altria's pricing power has been instrumental in maintaining its stability, even in the face of declining cigarette shipments. While raising prices could potentially result in reduced cigarette consumption, smokers often tolerate these price hikes due to the addictive nature of cigarettes.
In the second quarter of 2023, increased pricing provided relief to revenue streams in the Smokeable Products and Oral Tobacco categories, mitigating the impact of lower sales volumes. The higher pricing strategy also positively influenced the adjusted operating company income (OCI) in both of these segments.
Volume Concerns
The overall cigarette industry has been bearing the brunt of the inflationary environment, which has affected Adult Tobacco Consumers’ (“ATC”) spending patterns. As the external landscape remains dynamic, Altria continues assessing economic factors like elevated inflation, higher interest rates, global supply-chain hurdles and ATC dynamics, such as purchasing patterns, the adoption of smoke-free products and disposable income.
Cigarette volumes, in general, have also been affected by consumers’ rising health consciousness and a shift to low-risk tobacco alternatives. In the second quarter of 2023, net revenues in the Smokeable Products segment declined 30.9% year over year to $5,820 million due to the reduced shipment volume and increased promotional investments, partly compensated by greater pricing. Domestic cigarette shipment volumes tumbled 8.7%, mainly due to the industry’s decline rate and retail share losses, partly countered by trade inventory movements.
Final Thoughts & 2028 Goals
Altria remains well-positioned to thrive due to its smoke-free product portfolio and effective pricing strategies. For the full-year 2023, the company envisions the adjusted EPS in the range of $4.89-$5.03, suggesting growth of 1-4% from the $4.84 recorded in 2022.
Altria also highlighted its 2028 Enterprise Goals at its 2023 Investor Day. Altria targets generating mid-single-digit adjusted EPS growth through 2028 (on a compounded annual basis). Further, Altria plans to maintain a total adjusted OCI margin of at least 60% in the next five years. MO intends to maintain its leadership position in the U.S. tobacco space. Moreover, management targets nearly doubling its smoke-free net revenues to $5 billion from the 2022 level.
Solid Consumer Staple Bets
Inter Parfums (IPAR - Free Report) , which manufactures, markets and distributes a range of fragrances and fragrance-related products, currently sports a Zacks Rank #1 (Strong Buy). IPAR has an expected EPS growth rate of 15% for three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales indicates 19.7% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.9%, on average.
McCormick & Company, Incorporated (MKC - Free Report) , a spices, seasoning, condiments and other flavorful product company, currently carries a Zacks Rank #2 (Buy). MKC has a trailing four-quarter earnings surprise of 4.2%, on average.
The Zacks Consensus Estimate for McCormick’s current fiscal-year sales suggests growth of 6.4% from the corresponding year-ago reported figure.
Helen of Troy (HELE - Free Report) , a provider of several consumer products, currently has a Zacks Rank #2. HELE’s expected EPS growth rate for three to five years is 8%.
The Zacks Consensus Estimate for Helen of Troy’s current fiscal-year sales suggests a decline of 2.9% from the year-ago reported numbers. HELE has a trailing four-quarter earnings surprise of 8.1%, on average.