Amid declining tobacco sales volumes and rising government restrictions, Altria Group, Inc.’s (MO - Free Report) shift to low risk smokeless tobacco products has been aiding the company to maintain market share and generate profit.
Let’s now delve deeper into the aspects which have been helping Altria to remain in investor’s good books.
Low Risk Tobacco Products Aid Maintaining Market Share
Consumers have been shifting to low risk, smokeless tobacco products, considering the health hazards of smoking. Altria has been quite proactive to respond to this change and has been offering several reduced risk tobacco products to maintain market share. MarkTen e-cigarette and Green Smoke e-vapor are few examples of products belonging to this category. In fact, MarkTen is now the number two e-vapor brand nationally and had a national retail market share of approximately 13% during the second quarter of 2017.
In respect to developing its low risk cigarette category, Altria’s agreement with Philip Morris International Inc. (PM - Free Report) is quite noteworthy. The company has a marketing and technology agreement with Philip Morris under which the latter markets Altria’s MarkTen e-cigarettes internationally and Altria distributes two of Philip Morris’ heated tobacco products in the United States. Moreover, Altria is expected to sell Philip Morris’s iQOS heated tobacco product in the domestic market, once the product gains approval from the Food and Drug Administration (FDA).
Altria started a productivity initiative in January 2016 which is expected to deliver approximately $300 million in annual productivity savings by the end of 2017. The company plans to save through reduced spending on certain selling, general and administrative infrastructure and thereby develop a leaner organization. Further, in October 2016, Altria announced plans to consolidate certain sections of its manufacturing facilities to streamline operations and achieve greater efficiency. The consolidation, scheduled to be completed by first-quarter 2018 is expected to deliver approximately $50 million in cost savings by the end of 2018. Such initiatives are anticipated to aid the company gain higher profits over the long term.
Industry Headwinds Weighs on Stock Prices
Altria has been witnessing volume declines for cigarettes due to the ongoing anti-tobacco campaigns and price hikes. Price hikes for cigarettes were observed in New York during August and in California during April this year. In July 2017, the FDA had proposed to lower nicotine in cigarettes to non-addictive or minimally addictive levels. This has further raised concerns of accelerated sales decline for Altria and other tobacco companies including Philip Morris, British American Tobacco plc (BTI - Free Report) and Vector Group Ltd. (VGR - Free Report) , which are already plagued by ongoing government restrictions related to selling and packaging. Owing to such headwinds, shares of Altria have declined 17.7% wider than the industry’s fall of 4.4%.
Altria has been striving hard to adapt with the changing industry conditions to better suit consumer needs, as evidenced by its progress in the smokeless cigarette category. Backed by such efforts, the company recently reaffirmed its earnings guidance for full-year 2017 and expects adjusted earnings in the range of $3.26-$3.32, up 7.5% to 9.5% compared with adjusted earnings of $3.03 in 2016. Moreover, the company expects higher adjusted earnings growth in the second half of the year in contrast with the first half. Such moves are expected to improve the company’s share price performance in the forthcoming periods. Altria currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
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