Earnings Call: Altria Group Reports Growth Amid Market Challenges

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Earnings Call: Altria Group Reports Growth Amid Market Challenges

In a recent earnings call, Altria Group, Inc. (NYSE: MO) announced strong financial results for the third quarter of 2024, as explained by CEO Billy Gifford and CFO Sal Mancuso. The company reported a 7.8% increase in adjusted diluted earnings per share (EPS) for Q3, alongside a year-to-date increase of 1.6%. The company reaffirmed its full-year adjusted EPS guidance, indicating projected growth rates between 2.5% and 4% compared to the previous year.

Altria's smokeable products segment experienced a 7.1% rise in adjusted operating income, aided by significant net pricing realization, despite a decline in domestic cigarette volumes. The oral tobacco category, including NJOY and on!, showed strong growth, with NJOY’s consumables shipment volume increasing by over 15%. Altria is also initiating a modernization initiative expected to yield $600 million in savings over five years, with initial costs estimated between $100 million and $125 million.

Key Highlights:

  • Adjusted diluted EPS increased by 7.8% for Q3, with a year-to-date increase of 1.6%.
  • The full-year adjusted EPS guidance for 2024 is set between $5.07 and $5.15, indicating a growth rate of 2.5% to 4% compared to 2023.
  • The smokeable products segment's adjusted operating income grew by 7.1% in Q3 despite an 8.6% decline in domestic cigarette volumes.
  • Particularly, oral tobacco products like NJOY and on! recorded significant growth.
  • Altria is planning a modernization initiative aimed at achieving $600 million in savings over five years, with initial costs projected between $100 million and $125 million.
  • Challenges stemming from the illegal market and regulatory environment were acknowledged.

Company Outlook: The company maintains strong guidance for 2024 and anticipates a growth rate of 2.5% to 4% in adjusted EPS. Altria's modernization initiative aims to enhance operational efficiency and process improvements, expected to yield significant cost savings over the next five years.

Declining Aspects: The company faces challenges from the illegal tobacco market, particularly in e-vapor products. A sequential slowdown in EPS growth is anticipated due to the balancing of excess shipments in Q3 during Q4. The price gap between Marlboro and the lowest competitive brand has widened, which could affect market dynamics.

Promising Aspects: Marlboro continues to hold a strong premium market share of 59.3%. Altria's investment in the EU has generated $144 million in profits. The company reached an agreement with the IRS related to JUUL losses, claiming an ordinary loss of $4 billion.

Shortcomings: Despite overall positive financial results, the company reported an 8.6% decline in domestic cigarette volumes.

Q&A Highlights: Management is actively working to address remaining patent issues related to the ongoing patent infringement lawsuit against JUUL. Altria applied for PMTA waivers for minor modifications of its products and is prepared to restart the SE process for significant changes. The joint venture with Japan Tobacco for the Ploom device is not affected by JT's recent U.S. acquisition. The company is skeptical about the necessity of newly proposed rules requiring PMTA tracking numbers for vapor imports and seeks clarification from the FDA.

Altria Group, Inc. continues to navigate through a complex regulatory environment and market dynamics while focusing on transitioning adult smokers to smoke-free products and maintaining its commitment to reducing underage tobacco usage. The company's strategic initiatives and financial discipline aim to sustain growth and shareholder value despite industry challenges.

InvestingPro Predictions: Altria Group’s recent financial performance and strategic initiatives are further illuminated by key metrics and forecasts from InvestingPro. The company's strong financial position is underscored by an impressive gross profit margin of 69.56% for the last twelve months as of Q2 2024, consistent with InvestingPro’s insight highlighting Altria’s “impressive gross profit margins.” This robust profitability supports the company's capacity to invest in growth initiatives, such as the aforementioned modernization plan, amid market challenges.

The company's commitment to shareholder returns is clearly visible with an 8.08% dividend yield, particularly noteworthy when considering InvestingPro’s insight into Altria’s “continuous dividend payments for 54 years.” This long-term dividend history, coupled with a recent 8.51% dividend increase, reinforces Altria’s position as a reliable income stock for investors despite industry challenges.

Altria's valuation metrics also present an intriguing picture. The stock is trading at a relatively low price-to-earnings (P/E) ratio of 10.68 for the last twelve months as of Q2 2024. This is consistent with InvestingPro’s insight suggesting that Altria trades at a low P/E ratio relative to its short-term earnings growth. This valuation, alongside the company’s strong market position and strategic initiatives, may signal potential upside for investors.

For those seeking a more comprehensive analysis, InvestingPro offers 14 additional insights that provide deeper predictions regarding Altria Group's financial health and market position.