Altria Group stock gets smoked, but there’s a silver lining

Key Points

• Altria Group is a leading tobacco company that has been migrating to smokeless tobacco products.
• The company collects nearly 44% of its revenue from smokeless products including e-vapor products and oral nicotine pouches like on!, NJOY, bloom, and SWIC.
• Altria is a dividend aristocrat that raised its dividend for the 58^th time in 54 years, currently paying a 9.76% annual dividend yield.

The Altria Group Inc. NYSE: MO has been reinventing itself, transitioning more towards smokeless tobacco products. Tobacco smoking has been trending lower for years. The percentage of adult smokers in the United States has declined from 42.6% in 1965 to 13.7% in 2018 and is expected to fall towards 11% in 2023. From 2001 to 2003, 35% of young adults said they smoked cigarettes. From 2019 to 2023, that figure has fallen to 10%. This is good news for healthcare but detrimental for the tobacco companies.

To adapt to the trend, Altria Group has coined their campaign Moving Beyond Smoking to “potentially less harmful choices” with smoke-free products. Competing tobacco companies like British American Tobacco p.l.c. NYSE: BTI , Imperial Brands PLC OTCMKTS: IMBBY and its international counterpart Phillip Morris International Inc. NYSE: PM has also pivoted towards smokeless products. This has led to a growth in smokeless tobacco revenues, which have climbed to 44%.

Completed NJOY acquisition 

Altria completed its acquisition of electronic cigarette company NJOY Holdings on June 1, 2023. NJOY products include disposable e-cigarettes, vape pens and pod systems. Altria strengthened NJOY's global supply chain for the anticipated volume increase associated with its NJOY ACE vaping device expansion plans to avoid capacity constraints. Altria plans to expand distribution to 70,000 retail stores in the U.S., representing nearly 70% of e-vapor volume and 55% of cigarette volume sold in the U.S. multi-outlet convenience channel. The company shipped 7.5 million ACE pods in Q3 2023.

Revenues get smoked

On Oct. 26, 2023, Altria released its third-quarter 2023 results for September 2023. The Company reported an earnings-per-share (EPS) profit of $1.28 versus consensus analyst estimates for $1.29, a 2-cent miss. Revenues net of excise tax fell 2.5% year-over-year (YOY) to $5.28 billion, falling short of $5.43 billion analyst estimates.

Full nicotine pouches grew 10 share points YoY, representing over 32% of the U.S. oral tobacco industry. on! has 37% volume growth, and prices per can rose 52% YoY. Repeat purchases are also up 35% YoY. Its retail share of the oral tobacco category grew 1.7% YoY to 6.9%.

Stock buyback program expected to be completed by Dec. 31, 2023

The company repurchased 5.9 million shares at an average price of $44.26 for $260 million in the quarter. There was still $268 million remaining under the current stock buyback program, which is expected to be completed by Dec. 31, 2023. This equates to another six million shares to be repurchased by the end of the year, which can help keep a floor in the price.

In-line guidance

Altria expected full-year 2023 EPS of $4.91 to $4.98, narrowed from $4.89 to $5.03 vs. $4.98 consensus analyst estimates. The company will maintain a progressive dividend goal targeting mid-single-digit annual dividend growth.

 

CEO Insights

Altria CEO Billy Gifford commented on its efforts for the NJOY ACE expansion. They prioritized closing inventory gaps among its retailers and expanding distribution. Expansion distribution grew to 42,000 stores in the quarter. ACE is distributed in the top 25 convenience store chains by e-vapor volume. They amplified new fixtures and visibility space at retailers. The goal is to expand awareness of the brand and will test a variety of promotions, including various merchandising options, through its NJOY retail trade program. They will implement a new brand equity campaign to spread awareness and drive consumer engagement. 

Illegal e-vapor products

The e-vapor market is inundated by illegal disposable e-vapor products. Regulations aren't being enforced by the U.S. Food and Drug Administration (FDA). On Oct. 19, 2023, Altria filed litigation against 34 foreign and domestic manufacturers, distributors and online retailers of e-vapor products illegally marketed and sold in California and elsewhere. They seek a nationwide injunction against the marketing, import and sale of illicit products and "significant" compensatory and punitive damages.

FDA authorization is required for e-vapor products in the U.S.

The FDA must authorize all e-vapor products before being marketed or sold in the U.S. The FDA has only authorized the marketing of 45 products, including 23 tobacco-flavored e-cigarette products and devices in the U.S. as of Oct. 30, 2023.    

Altria Group's financials can be found on MarketBeat. Altria Group peers and competitor stocks can be found with the MarketBeat stock screener.

 

Daily symmetrical triangle

The daily candlestick chart on MO has formed a symmetrical triangle pattern. MO shares tanked 9% on its earnings report to a low of $39.07. Before the release, MO was making lower highs to commence the descending trendline. The ascending trendline formed on the recovery bounce, making higher lows.

The daily relative strength index (RSI) has rebounded from the 30-band as it stalls just above the 40-band. The daily market structure low triggered above $40.36. Pullback support levels are $40.36, $39.07, $38.06 and $37.50.