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Altria (MO) Smoke-Free Strength Aids Amid Low Cigarette Volumes
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Altria Group, Inc. (MO - Free Report) remains on a promising growth trajectory due to strategic pricing and a robust focus on smoke-free alternatives. These upsides bode well in the face of an intricate landscape shaped by evolving consumer preferences and macroeconomic uncertainties.
Challenges Aboard
Altria has been witnessing a decline in its Smokeable Product segment revenues for the past few quarters now, which has been hurting the company’s overall top line. In the third quarter of 2023, Altria’s net revenues decreased 4.1% year over year to $6,281 million, mainly due to reduced net revenues in the Smokeable Products unit.
Further, within the Smokeable Products segment, domestic cigarette shipment volumes tumbled 11.6%, mainly due to the industry’s decline rate and retail share losses, trade inventory movements and calendar differences. The industry’s decline was a result of macroeconomic pressure on Adult Tobacco Consumers’ (“ATC”) disposable income and increases in illegitimate e-vapor products.
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. Shares of the company have decreased 8.9% in the past six months compared with the industry’s decline of 6.2%.
Image Source: Zacks Investment Research
Strength in Smoke-Free Products
Altria's response to shifting consumer preferences is evident in its diversified portfolio, encompassing oral tobacco, e-vapor and heated tobacco offerings. The company, through its subsidiary Helix Innovations, owns on!, a widely embraced tobacco-derived nicotine (TDN) pouch product. Management sees on! as a valuable addition to MO’s smoke-free product portfolio, particularly given the growing popularity of oral TDN products in the United States, where they are marketed as low-risk options.
With the FDA-approved NJOY ACE product, Altria anticipates significant expansion, aiming to reach 70,000 stores by the end of 2023. This strategic move aligns with the broader industry trend of shifting smokers away from traditional cigarettes. Apart from this, the significant strategic agreement between Altria and JT Group (announced in October 2022) for the commercialization of heated tobacco stick products in the United States also deserves attention.
Pricing Aids
Altria's resilience is evident in its ability to leverage strong pricing power, which has been providing some cushion against soft cigarette shipment volumes. The addictive nature of cigarettes allows the company to pass on higher prices to consumers, supporting revenues and adjusted operating income.
Strategic moves and market resilience position this Zacks Rank #3 (Hold) company favorably for future success. Management highlighted its 2028 Enterprise Goals on its 2023 Investor Day. MO targets generating mid-single-digit adjusted EPS growth through 2028 (on a compounded annual basis). Moreover, U.S. smoke-free volumes are expected to grow by at least 35% from the 2022 level of 800 million units.
The Zacks Consensus Estimate for Sysco’s current fiscal-year sales and earnings suggests growth of 4.1% and nearly 8%, respectively, from the year-ago reported numbers.
Ingredion Incorporated (INGR - Free Report) , which produces and sells sweeteners, starches, nutrition ingredients and biomaterial solutions, holds a Zacks Rank #2. INGR delivered a positive earnings surprise of 23.9% in the last reported quarter.
The Zacks Consensus Estimate for Ingredion Incorporated’s current financial-year sales and earnings suggests growth of around 5% and 24.7%, respectively, from the year-ago reported numbers.
Nomad Foods (NOMD - Free Report) manufactures, markets and distributes a range of frozen food products. It currently has a Zacks Rank #2. NOMD has a trailing four-quarter earnings surprise of 7.7%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial-year sales suggests growth of 6.6% from the year-ago reported figure.
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Altria (MO) Smoke-Free Strength Aids Amid Low Cigarette Volumes
Altria Group, Inc. (MO - Free Report) remains on a promising growth trajectory due to strategic pricing and a robust focus on smoke-free alternatives. These upsides bode well in the face of an intricate landscape shaped by evolving consumer preferences and macroeconomic uncertainties.
Challenges Aboard
Altria has been witnessing a decline in its Smokeable Product segment revenues for the past few quarters now, which has been hurting the company’s overall top line. In the third quarter of 2023, Altria’s net revenues decreased 4.1% year over year to $6,281 million, mainly due to reduced net revenues in the Smokeable Products unit.
Further, within the Smokeable Products segment, domestic cigarette shipment volumes tumbled 11.6%, mainly due to the industry’s decline rate and retail share losses, trade inventory movements and calendar differences. The industry’s decline was a result of macroeconomic pressure on Adult Tobacco Consumers’ (“ATC”) disposable income and increases in illegitimate e-vapor products.
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. Shares of the company have decreased 8.9% in the past six months compared with the industry’s decline of 6.2%.
Image Source: Zacks Investment Research
Strength in Smoke-Free Products
Altria's response to shifting consumer preferences is evident in its diversified portfolio, encompassing oral tobacco, e-vapor and heated tobacco offerings. The company, through its subsidiary Helix Innovations, owns on!, a widely embraced tobacco-derived nicotine (TDN) pouch product. Management sees on! as a valuable addition to MO’s smoke-free product portfolio, particularly given the growing popularity of oral TDN products in the United States, where they are marketed as low-risk options.
With the FDA-approved NJOY ACE product, Altria anticipates significant expansion, aiming to reach 70,000 stores by the end of 2023. This strategic move aligns with the broader industry trend of shifting smokers away from traditional cigarettes. Apart from this, the significant strategic agreement between Altria and JT Group (announced in October 2022) for the commercialization of heated tobacco stick products in the United States also deserves attention.
Pricing Aids
Altria's resilience is evident in its ability to leverage strong pricing power, which has been providing some cushion against soft cigarette shipment volumes. The addictive nature of cigarettes allows the company to pass on higher prices to consumers, supporting revenues and adjusted operating income.
Strategic moves and market resilience position this Zacks Rank #3 (Hold) company favorably for future success. Management highlighted its 2028 Enterprise Goals on its 2023 Investor Day. MO targets generating mid-single-digit adjusted EPS growth through 2028 (on a compounded annual basis). Moreover, U.S. smoke-free volumes are expected to grow by at least 35% from the 2022 level of 800 million units.
3 Promising Staple Bets
Sysco Corporation (SYY - Free Report) , a food and related product company, currently carries a Zacks Rank #2 (Buy). SYY delivered a back-to-back positive earnings surprise in the past two quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Sysco’s current fiscal-year sales and earnings suggests growth of 4.1% and nearly 8%, respectively, from the year-ago reported numbers.
Ingredion Incorporated (INGR - Free Report) , which produces and sells sweeteners, starches, nutrition ingredients and biomaterial solutions, holds a Zacks Rank #2. INGR delivered a positive earnings surprise of 23.9% in the last reported quarter.
The Zacks Consensus Estimate for Ingredion Incorporated’s current financial-year sales and earnings suggests growth of around 5% and 24.7%, respectively, from the year-ago reported numbers.
Nomad Foods (NOMD - Free Report) manufactures, markets and distributes a range of frozen food products. It currently has a Zacks Rank #2. NOMD has a trailing four-quarter earnings surprise of 7.7%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial-year sales suggests growth of 6.6% from the year-ago reported figure.