MO | Q3 2024

The content provided on this website, including any communications, posts, videos, social media interactions, and other materials, is for informational and educational purposes only. It should not be considered as financial or investment advice. Read our full disclaimer here.

Links

• Link to Transcript

• Link to Presentation

• Link to 10-Q

Overview

• Non-GAAP EPS of $1.38 beats by $0.03.

• Revenue of $5.34B (+1.1% Y/Y) beats by $10M.

Takeaways

Altria Group (MO) delivered a solid Q3 2024, growing its adjusted diluted earnings per share (EPS) by 7.8%, consistent with the company’s second-half earnings expectations.

For the first nine months of the year, EPS rose by 1.6%. Altria’s 2024 full-year guidance remains the same, with projected EPS between $5.07 and $5.15, resulting in growth of 2.5% to 4% versus the prior year.

In its smokable products segment, Altria saw strong profitability, with a 7.1% rise in adjusted operating income (OCI) for the quarter.

The segment’s adjusted OCI margins expanded to 63.1%, driven by a 10.6% net price increase. However, the company did report an 8.6% decline in cigarette volume as it deals with challenges from illicit e-cigarette products and ongoing economic pressure on consumers.

The oral tobacco segment also showed positive results, with a 2% increase in OCI and a strong margin of 66.8% for the third quarter. Altria's oral nicotine pouch brand, on!, saw increased consumer loyalty, driving an impressive 46% rise in shipment volume.

To return value to shareholders, Altria paid out $1.7 billion in dividends during Q3 and raised its dividend by 4.1% in August, marking the 59th raise in 55 years.

During the call, Altria’s CEO, Billy Gifford, shared positive news on tobacco use among youth.

According to recent data from the National Youth Tobacco Survey, adolescent use of legal tobacco products is declining, and the U.S. has met or exceeded all Healthy People 2030 goals for reducing youth tobacco use.

Despite this progress, illicit e-cigarettes remain an issue, with over 55% of underage e-cigarette users reporting the use of illegal disposable products.

Gifford highlighted the growth of NJOY, Altria’s e-vapor brand, which is gaining consumer loyalty and seeing strong repeat purchase rates. While NJOY initially offered retail promotions to boost trial, it has now shifted to better understand consumer demand without heavy discounts.

NJOY’s Net Promoter Score (NPS), a measure of brand loyalty, has also improved by over 20 points from last year, thanks to stronger retail presence and marketing efforts.

In Q3, NJOY’s shipment volume of e-cigarette consumables grew by 15% to 10.4 million units, while device shipments nearly tripled to 1.1 million units. NJOY’s retail share of consumables reached 6.2%, up 2.8 share points from a year ago.

Gifford noted that the growth of NJOY—and the broader e-vapor category—shows the potential for tobacco harm reduction. However, he cautioned that the category’s growth is being driven by illicit disposable products, which the FDA has yet to adequately address.

To combat the influx of illegal products, Altria is actively engaging with regulators, lawmakers, and trade partners. Recently, the FDA, working with U.S. Customs, seized more than 50,000 unauthorized vapor products.

Altria continues to support new regulations to tighten controls on illicit vapor products, including a proposed rule that would require all imported vapor products to have a valid tracking number.

Altria’s NJOY division is currently involved in ongoing litigation with Juul, as both companies have accused each other of patent infringement and are seeking import bans on each other’s products. While an initial ruling favored Juul, the International Trade Commission (ITC) has agreed to review certain parts of the ruling.

The final decision is expected by late December, and Altria is confident in NJOY’s ability to defend against these claims and has strategies in place to minimize disruptions if needed.

In the oral tobacco segment, Altria’s oral nicotine products continue to gain traction, with the category growing by 11.4 share points to almost 44% of the category.

The company’s brand on! has shown significant momentum, with a 46% increase in shipments to 42 million cans. Most of on!’s growth is coming from repeat buyers, a sign of strong consumer loyalty.

on!’s market share of the oral tobacco product category rose to 8.9% during the third quarter. However, like e-vapor, this segment also faces challenges from illicit products, with Altria identifying over 1,000 illegal nicotine pouch products available at retail and online.

Altria is launching a new initiative to streamline and modernize its operations, aiming to make the company faster and more efficient. By centralizing work, improving processes, and leveraging AI and automation, Altria expects to save $600 million over the next five years, which will be reinvested to support Altria’s long-term vision and growth goals.

Altria’s CFO, Sal Mancuso, reported that Altria recently reached an agreement with the IRS on the tax treatment of its losses related to Juul. As part of the agreement, Altria claimed $4 billion in ordinary losses and $4.1 billion in capital losses. These losses will help offset gains from other transactions, with $5.6 billion remaining for future use.

---