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Will Altria (MO) Stock Recover on RRPs and Shareholder Moves?

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As consumers look beyond traditional cigarettes, thanks to rising health concerns, Altria Group, Inc. (MO - Free Report) witnesses declining cigarette volumes amid a changing industry landscape. Moreover, FDA has been brandishing a whip on tobacco players through strict marketing and manufacturing regulations. Well, authorities can’t be blamed for undertaking rigorous measures, as smoking has become one of the primary causes of heart diseases and cancer.

Such deterrents have caused shares of this Zacks Rank #4 (Sell) company to fall 22% in the past year compared with the industry’s decline of 26.8%.

Nevertheless, reduced-risk tobacco products (RRPs) are a ray of hope, as consumers are gradually switching to less-fatal alternatives. In fact, this has been a fundamental factor helping Altria to combat industry hurdles. We hope that these factors combined with the company’s frequent shareholder friendly moves will raise investors’ optimism in the stock.  

On that note, let’s delve into few of the aspects that Altria has kept its eyes on.

Cigarette Volumes Continue to Plunge

Apart from consumers’ avoidance of harmful tobacco products, strict FDA regulations have been a major deterrent in marring cigarette sales. Per such regulations, it is mandatory for tobacco companies to use precautionary labels on packets. Also, companies are being directed to put self-critical advertisements to dissuade customers from smoking and acknowledge that cigarettes are addictive in nature. To make matters worse, FDA is bent on drastically reducing nicotine in cigarettes to minimally addictive levels.

Needless to say, such factors have dampened Altria’s cigarette business for a while. Evidently, in first-quarter 2018, domestic cigarette shipment volumes fell 4.2% year over year, stemming from lower cigarette industry volumes and decline in retail share. As a result, net shipment volumes in the smokeable category fell 4.1%. Also, total cigarette retail share declined to 50.3%, representing a 0.7 percentage point slip from the year-ago quarter’s figures.

Apart from Altria, the impacts of tobacco industry headwinds have also been denting the performance of companies like Philip Morris (PM - Free Report) , British American Tobacco (BTI - Free Report) and Vector Group (VGR - Free Report) .

 



 

Going Smokeless is the Latest Mantra

In an attempt to navigate through troubled waters, Altria has been expanding its presence in the RRPs category. Notably, Altria’s flagship MarkTen and Green Smoke e-vapor products are performing strongly in the smokeless category. In fact, MarkTen is now a leading e-vapor brand in the United States. Backed by its efforts to strengthen RRPs portfolio, revenues from the Smokeless product category advanced 12.7% year over year to $525 million in the first quarter of 2018. This was further buoyed by better pricing and voluntary recalls made in 2017.

Additionally, the marketing and technology sharing agreement between Altria and Philip Morris, which is currently under FDA review, is also expected to boost the business of the companies. Further, Altria has been working on receiving FDA approval for the marketing of smokeless products with lower risk claims. In this respect, the company recently submitted a modified risk tobacco product application to FDA for Copenhagen Snuff.

Shareholders Value

Despite the hurdles, Altria has not turned away from raising shareholders’ value. To this end, management recently announced an expansion to the existing $1-billion share repurchase program by an additional sum of $1 billion. The company expects the revised $2- billion share repurchase program to be concluded by the end of the second quarter of 2019. Apart from this, during March 2018, Altria’s board hiked quarterly dividend rate by 6.1% to 70 cents per share. As a result, the company’s annualized dividend rate is currently at $2.80. Also, management is on track to maintain a payout ratio of 80% of its bottom line.

That said, let’s wait and watch what is ahead for the company and if such efforts can help it stay afloat in the industry.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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