Altria Group, the tobacco behemoth and parent company of Philip Morris USA, announced on Thursday a cut in its annual profit forecast. The corporation’s revised expected adjusted profit now stands between $4.91 to $4.98 per share, as opposed to the previously estimated range of $4.89 to $5.03. This revision came in light of increasing numbers of smokers turning away from its higher-priced cigarettes in favor of more affordable brands or alternative smoking products. This shift has impacted the shares of the company, driving them down by 3.5% by 1408 GMT.
Impact of Pricing Strategy
To counteract volume declines, Altria has been raising the prices of its traditional products. This strategy, however, seems to be a double-edged sword. As many consumers become increasingly health-conscious, they have been seeking newer options such as vapes or oral nicotine products. Consequently, Marlboro, one of Altria’s flagship brands, has suffered a hit in its market share. Consumers, wary of the rising inflation, have opted for less expensive alternatives like USA Gold. In the third quarter alone, the company’s net revenue from smokeable items fell by 5.3%. The hike in pricing was only able to partially counterbalance the dip in shipment volumes and the rise in promotional investments.
Insight from the Top
Billy Gifford, the Chief Executive of Altria, underlined that despite these challenges, the company’s cigarette business remains “highly profitable”. This profitability is pivotal for Altria’s strategic transition towards alternative smoking products.
Adventures in the E-Cigarette Market
The recent years have seen Altria’s ventures into the e-cigarette market. Notably, their 2018 investment in Juul Labs turned out to be calamitous, leading to significant financial losses. However, undeterred, Altria made another significant move in June, acquiring the pod-based vape, NJOY ACE. Despite this acquisition, NJOY still trails behind Juul concerning market share. The third quarter saw NJOY ACE’s shipment volume standing at about 7.5 million pods.
Yet, the lack of considerable progress with NJOY, coupled with the deceleration in the popularity of its nicotine pouch product, on!, has led some market analysts to view this quarter skeptically for Altria.
Competition from Illicit E-Vapor Products
One significant challenge highlighted by Altria is the inundation of the market by illicit e-vapor products. These unauthorized products, bypassing many tobacco-related regulations, have been affecting legal operators adversely. Altria’s CEO, Billy Gifford, criticized the FDA’s enforcement measures against these illicit products as being “inadequate and ineffective”, emphasizing that they are encroaching on the market share of approved, legal entities.
Financial Overview
- Earnings per Share: The reported $1.28 adjusted earnings per share fell slightly short of the anticipated $1.29.
- Revenue: The third quarter saw a 4.1% YoY drop in Altria’s overall revenue, settling at $6.28 billion. Accounting for the excise tax, this figure stands at $5.28 billion—a decline of 2.5%.
- Net Earnings: For the same period, net earnings were reported at $2.17 billion or $1.22 per share. This marks a significant rise from the previous year’s figures of $224 million or 12 cents per share.
Embracing Smoke-Free Alternatives
The global landscape of tobacco consumption is changing rapidly. As health concerns continue to amplify, companies like Altria find themselves at a crossroads, aiming to strike a balance between traditional products and emerging alternatives. Altria’s endeavors in the e-cigarette and vaping arena are clear indications of this evolving strategy.
Investments in Innovation
One of the company’s more significant endeavors in recent times has been its push into the realm of alternative nicotine products. While cigarettes remain a staple, Altria has acknowledged the importance of diversifying its product portfolio. This diversification ranges from e-cigarettes to oral nicotine pouches like on! a product that showed a 36.7% increase in shipment volumes in the recent quarter.
However, not all these ventures have been smooth. The challenges faced with Juul Labs, and the subsequent loss of billions, have been a learning curve for Altria. Yet, in the face of setbacks, the company continues to explore opportunities, evident from its acquisition of NJOY ACE.
Moving Forward
Despite challenges in the market and the shadow of past ventures such as the Juul Labs investment, Altria remains optimistic about its growth trajectory. As voiced by CEO Billy Gifford, the company believes it has the right strategies and personnel in place to realize its vision and furnish long-term value for its shareholders.
Furthermore, following the footsteps of many of its peers, Altria is also gradually transitioning away from traditional, combustible cigarettes, steering towards smoke-free products.
For more detailed insights into Altria’s financial position and market strategy, readers can visit the official LSEG website here.
