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It has been a tough year for the multi-billion Tobacco industry, thanks to stern government regulations as well as consumers’ rising health consciousness. Altria Group Inc. (MO - Free Report) , a renowned player in this space, is no exception. Year to date, the stock has lost almost 24%, compared with the industry’s plunge of 29.5%. Let’s take a look at the factors that eclipsed the company’s performance and see if there are any chances of revival ahead.
What has Impaired Altria’s Performance?
Fading cigarette consumption rates are primarily responsible for Altria’s debacle. Notably, the company’s shipment volumes in the smokeable category declined 3.5%, 10.6% and 4.2% in the third, the second and the first quarters of 2018, respectively. Notably, Marlboro — one of the most prominent cigarette brands of the company — is witnessing consistent decline in market share.
Such decline in cigarette sales volumes is can be attributed to the imposition of strict regulations by the Food and Drug Administration. The agency has been brandishing the whip on tobacco players due to health hazards. Some of the regulatory actions imposed by the FDA include the mandatory use of precautionary labels on cigarette packets and broadcasting of self-critical advertisements. Also, the FDA is now focusing on lowering the use of nicotine in cigarettes to minimally addictive levels, which might reduce sales of industry participants. Apart from Altria, declining cigarette sales have also impaired the performance of tobacco companies like Phillip Morris (PM - Free Report) and British American Tobacco (BTI - Free Report) .
Will Strategic Ventures Aid Revival in 2019?
With sustained regulatory assaults on tobacco consumption along with mass awareness of the negative impacts of nicotine, Altria is compelled to explore other opportunities to stay afloat. Noteworthy among them is the strides made in the smokeless arena, which are low risk and scientific alternatives for cigarettes. In this respect, e-cigarettes are becoming increasingly popular and aiding revenue growth for Altria. Altria has introduced several reduced risk tobacco products (RRPs). In fact, its flagship MarkTen and Green Smoke e-vapor products are performing well in the category.
Further, Altria’s marketing and technology sharing agreement with Philip Morris, which is currently under FDA’s review, is likely to enable the companies to tap greater opportunities in the e-cigarette realm. We note that e-cigarettes and similar RRPs are viewed as the future products for tobacco companies. However, the FDA is keeping close tab on the manufacturing and marketing policies of RRPs to regulate its usage among youths.
Apart from venturing into the RRPs arena, Altria is also depicting interests in the marijuana industry. In December, the company unveiled plans to acquire stakes of the Canadian cannabis company, Cronos Group (CRON - Free Report) . Prior to this, in October, there were rounds that the tobacco giant is considering to buy a stake in Aphria Inc. With the legalization of recreational use of marijuana in Canada, many companies are foraying into the cannabis space. That said, it is yet to be seen how Altria’s interests in this space yields in the forthcoming periods.
Although it is hard for Altria to escape from the impacts of deteriorating cigarette sales, the company’s gradual expansion in other lucrative business areas is expected to offer respite in the forthcoming periods. Apart from RRPs and other business areas emerging as a game changer, higher cigarette pricing are also boosting revenues. However, it remains to be seen if the such strategies can help this Zacks Rank #3 (Hold) company to make a comeback in 2019.
Image: Bigstock
Can Altria (MO) Rebound From a Terrible 2018?
It has been a tough year for the multi-billion Tobacco industry, thanks to stern government regulations as well as consumers’ rising health consciousness. Altria Group Inc. (MO - Free Report) , a renowned player in this space, is no exception. Year to date, the stock has lost almost 24%, compared with the industry’s plunge of 29.5%. Let’s take a look at the factors that eclipsed the company’s performance and see if there are any chances of revival ahead.
What has Impaired Altria’s Performance?
Fading cigarette consumption rates are primarily responsible for Altria’s debacle. Notably, the company’s shipment volumes in the smokeable category declined 3.5%, 10.6% and 4.2% in the third, the second and the first quarters of 2018, respectively. Notably, Marlboro — one of the most prominent cigarette brands of the company — is witnessing consistent decline in market share.
Such decline in cigarette sales volumes is can be attributed to the imposition of strict regulations by the Food and Drug Administration. The agency has been brandishing the whip on tobacco players due to health hazards. Some of the regulatory actions imposed by the FDA include the mandatory use of precautionary labels on cigarette packets and broadcasting of self-critical advertisements. Also, the FDA is now focusing on lowering the use of nicotine in cigarettes to minimally addictive levels, which might reduce sales of industry participants. Apart from Altria, declining cigarette sales have also impaired the performance of tobacco companies like Phillip Morris (PM - Free Report) and British American Tobacco (BTI - Free Report) .
Will Strategic Ventures Aid Revival in 2019?
With sustained regulatory assaults on tobacco consumption along with mass awareness of the negative impacts of nicotine, Altria is compelled to explore other opportunities to stay afloat. Noteworthy among them is the strides made in the smokeless arena, which are low risk and scientific alternatives for cigarettes. In this respect, e-cigarettes are becoming increasingly popular and aiding revenue growth for Altria. Altria has introduced several reduced risk tobacco products (RRPs). In fact, its flagship MarkTen and Green Smoke e-vapor products are performing well in the category.
Further, Altria’s marketing and technology sharing agreement with Philip Morris, which is currently under FDA’s review, is likely to enable the companies to tap greater opportunities in the e-cigarette realm. We note that e-cigarettes and similar RRPs are viewed as the future products for tobacco companies. However, the FDA is keeping close tab on the manufacturing and marketing policies of RRPs to regulate its usage among youths.
Apart from venturing into the RRPs arena, Altria is also depicting interests in the marijuana industry. In December, the company unveiled plans to acquire stakes of the Canadian cannabis company, Cronos Group (CRON - Free Report) . Prior to this, in October, there were rounds that the tobacco giant is considering to buy a stake in Aphria Inc. With the legalization of recreational use of marijuana in Canada, many companies are foraying into the cannabis space. That said, it is yet to be seen how Altria’s interests in this space yields in the forthcoming periods.
Although it is hard for Altria to escape from the impacts of deteriorating cigarette sales, the company’s gradual expansion in other lucrative business areas is expected to offer respite in the forthcoming periods. Apart from RRPs and other business areas emerging as a game changer, higher cigarette pricing are also boosting revenues. However, it remains to be seen if the such strategies can help this Zacks Rank #3 (Hold) company to make a comeback in 2019.
You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
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